| The most pertinent thing Warren Buffett said at the weekend beyond announcing his retirement at age 94 wasn’t his thoughts on the tariffs roiling the global economy (he’s not a fan) but his defense of Berkshire Hathaway’s $350 billion cash pile. It was, he said, a consequence of abiding by his principle to invest only in deals that offered meaningful returns and his view there had not been many lately. “If you told me we had to invest $50 billion every year until we got down to $50 billion — that would be the dumbest thing in the world,” Buffett said. That wisdom is worth considering in the context of the current trade wars and the rebound in financial markets in recent weeks. Because it sure looks like investors are being seduced by the promise of a flurry of trade deals likely to have questionable value if they ever materialize. The disconnect between markets and economic expectations has reached a remarkable level. Markets have regained all their April losses even as the reasons to be gloomy about the economy have grown. At the Port of Los Angeles, the nation’s busiest, this week’s arrivals are expected to be down more than a third from the same week last year. But that disconnect for the moment has less to do with what investors actually expect the economy to do. It’s about how they are pricing anticipated returns on deals President Donald Trump and his aides keep promising as they do their best to both calm markets and pursue a protectionist agenda. Real modern trade deals are the product of laborious negotiations over the finicky details governing the rules for where car parts can come from or the protection and flows of intellectual property and investment. They take years to hash out and involve careful consultations with industry and political stakeholders. Being a trade negotiator entails the sort of relentless grind that makes a 162-game baseball season look easy. What Trump and his aides envision is a one-night home run derby and a collection of rushed commercial deals that will have other countries pledging to buy more US goods and selling less of their own to American consumers. The economic value of those deals is uncertain even if the dislocation Trump’s tariffs are causing is increasingly clear. Importantly, the key element of those pacts for Trump seems to be solidifying the place of new US tariffs rather than eliminating any, which is unlikely to be a positive thing for either the US or the world if the lessons of economics and history hold true. Trump signaled as much in an interview with NBC’s Meet the Press broadcast on Sunday in which he was asked to rule out making his duties permanent. “I wouldn’t do that because if somebody thought they were going to come off the table, why would they build in the United States?” he said. The president and his team are counting on durable tariffs for two reasons. The first, as Trump said Sunday, is a belief the import taxes will force a mass reindustrialization. The second is simply as revenues to offset other tax cuts he is keen for Congress to pass on the coming months. What is curious then about the disconnect between markets and the emerging economic reality is that investors are betting on tariffs going away when they seem to be here to stay. The most likely scenario today still is that the world’s largest economy will for years to come have a 10% tariff wall around it that didn’t exist a month ago. The current 145% tariffs on imports from China may not last. But alongside the 10% wall it’s fair to expect higher duties on Chinese goods as well as key sectors of the economy from autos to pharmaceuticals and steel and, most recently, movies. Altogether that will probably amount to a US tariff regime akin to the sort last put in place the month before Buffett was born in August 1930. That investors are ignoring that speaks to both their short-term focus and, more importantly perhaps, Trump’s greatest skill. Whether it is in economics or politics Trump has a remarkable ability to alter what is tolerated. The Overton window shifts daily and that seems to be in effect with tariffs. Though every so often someone like Buffett speaks out to remind investors that it’s the value of deals they should pay attention to, not just whether someone has something they want to sell. Related Reading: —Shawn Donnan in Washington Bloomberg’s tariff tracker follows all the twists and turns of global trade wars. Click here for more of Bloomberg.com’s most-read stories about trade, supply chains and shipping. | 
