Ray Dalio Is Freaked Out by Trade War with China

Ray Dalio, founder, co-CIO of Bridgewater Associates.

Hedge fund titan Ray Dalio has cautioned against a US trade war with China, which he believes would be “a tragedy.” His warning comes as the Trump administration has slapped tariffs on foreign-made goods, particularly Chinese ones.

Dalio, the co-chairman and founder of Bridgewater Associates, the world’s largest hedge fund, posted his admonition this week in an article he wrote on LinkedIn. A frequent visitor to China who is launching an investment fund there, Dalio called on both Washington and Beijing to find common ground through negotiations.

To Dalio, the risk of a Sino-American trade war “could have very harmful trade and capital flow implications for both countries and for the world.”

Within the last month, President Donald Trump has imposed tariffs on solar panels, washing machines, steel, and aluminum. In Trump’s eyes, the restrictions were needed to redress the harm the US has suffered from underpriced foreign goods.

Trump has singled out China as the nation’s chief trade nemesis, charging that its large and growing trade deficit has trashed the US manufacturing base and evaporated millions of American factory jobs. And this has led to growing fears of a ruinous worldwide trade war, with the US and China the major combatants.

Dalio, who has an estimated $160 billion under management, is setting up the investment fund in China for wealthy individuals and institutional investors, according to media reports. His spokesman did not answer questions about this financial vehicle. Bridgewater is one of the rare Western financial firms with access to the Chinese market. He first visited China in 1984 and since has spent considerable time there, seeking to understand the world’s most populous nation and its fast-growing economy.

Starting his fund in 1975 in a small apartment and shepherding it to its current stature, Dalio is regarded as something of a sage. He foresaw the 2008 financial crisis, for instance, and conducts his life and business under a set of principles that he partly credits for his success.

So Dalio’s worries about a possible US-China trade war are worth listening to.  In his LinkedIn post, he contrasted the negotiating styles of each nation—with America as confrontational and China seeking harmony, “until they are pushed to have a confrontation, at which time they become fierce enemies.”

When Trump announced the sanctions on steel and aluminum, the market briefly dipped. As Dalio described it, “the seemingly aggressive posture of Donald Trump conjures up pictures of war that are very scary, so the markets react, but that doesn’t mean that such a war is likely (at least in the near term).”

In Dalio’s view, there are areas for compromise, where both sides can exchange concessions, such as opening China’s walled-off financial sector to Americans and letting China invest in more US companies. He wrote that “there is plenty of opportunity for win-wins.”

The products singled out by Trump for tariffs, Dalio noted, make up relatively small portions of the Chinese economy—and he hoped that any retaliatory levies from Beijing also are “small and symbolic.” Chinese President Xi Jinping has said he would react to any trade punishments.

Dalio pointed out that trade actions to date may be merely political posturing for home consumption. Nevertheless, he added, if “we see an escalating series of tit for tats, then we should worry.”