WASHINGTON: Greenlight Capital’s David Einhorn has called tariffs “a regressive tax” that will force the US Federal Reserve (Fed) to act, as President Donald Trump’s higher-than-expected global tariffs shocked investors and sent markets tumbling.
“Look, I think that tariffs are a tax,” Einhorn said in an interview for Bloomberg Wealth with David Rubenstein last Thursday.
He made the comments as markets slumped once again after rising sharply last Wednesday, when Trump surprised investors by announcing a 90-day pause on “reciprocal tariffs”, with one exception: He raised tariffs on Chinese goods to 145%.
Einhorn, a veteran long/short equity manager who famously bet against Lehman Brothers before the 2008 financial crisis, said the tariffs will affect lower-income people “disproportionately” and will have an inflationary impact that slows down the economy.
He’s expecting the Fed to cut rates more than the market is pricing in.
“They raise prices,” he said of tariffs. “If you bring in a tariff, maybe the supplier has to pay part of it, maybe the retailer has to pay part of it, but the consumer also has to pay part of it.”
Einhorn is the latest Wall Street luminary to publicly warn of the impact of Trump’s tariff plans.
Jamie Dimon, Ken Griffin, Stan Druckenmiller and Bill Ackman all warned that the tariffs could tip the economy into recession, with Ackman suggesting they could cause a “self-induced, economic nuclear winter”.
Markets have gyrated over the past week, owing to uncertainty surrounding global trade policy.
The S&P 500 had its biggest gain last Wednesday since 2008 but fell again the next day, leaving it down more than 10% for the year.
Einhorn said the economy had already been slowing before the tariff chaos.
“Whether that slowdown amounts to what turns out to be a recession or not is something that we’ll have to look back on,” Einhorn said. “But the trajectory of the economy is clearly slower.”
Einhorn has taken positions in inflation swaps – derivatives tied to realised inflation – betting that markets are underestimating the inflationary impact of tariffs.
He expects the US dollar will decline further against the price of gold as the US economy slows and the Fed moves to cut interest rates.
The turmoil has weighed on the US dollar, with a Bloomberg index tracking the currency hitting a six-month low last Friday.
The US dollar “will continue to depreciate versus gold”, Einhorn said, noting that predicting its performance against other currencies is more difficult due to varying monetary and fiscal conditions abroad.
Einhorn also pointed to the budget deficit and the country’s high level of debt as major concerns. “US monetary and fiscal policies haven’t made sense for a very, very long time,” he said. — Bloomberg
