While Ray Dalio initially praised Trump after his election, the founder of the world's biggest hedge fund subsequently grew increasingly concerned and sour on the president, warning that populism is "more likely than not to become extremism", and that "Donald Trump is moving toward conflict rather than cooperation." It got so bad that two weeks ago, Bloomberg reported that Bridgewater had derisked massively, and had gone net short equities, perhaps a testament to Dalio's growing pessimism.
Or maybe not, because while the billionaire investor may have lost faith in the US, he appears to have rediscovered it... in China, and as he writes in a brief LinkedIn post this morning, Dalio predicts that "There won't be a trade war anytime soon because of the wisdom of Chinese leaders" and makes the following bold assumption:
... to the extent you trust my honesty and my judgement, please believe that these policy makers are highly principled, wise, and have great historical perspectives and competence — and, for these reasons, they are committed to having no war of any sort because they understand that one bit of war can easily lead to another and these bits of conflict can easily grow beyond anyone’s control and lead to a horrendous war that is beyond one’s imagination
If Dalio is correct it has huge implications because it means that Trump has all the leverage in any negotiations with Beijing in which he threatens to fall back on "trade war" as his final position, and which contrary to populist propaganda, China will do everything in its power to avoid and in appeasing the US president will eventually concede to Trump's demands.
Unless, of course, Dalio is wrong, and China is quite willing to escalate any trade confrontation with the US, even to the point of a "horrendous war."
Conveniently, in light of Trump's surprising cancellation of the North Korean summit, we may very soon find out just how hard China is willing to push Trump and if indeed it has everything to lose and nothing to gain from trade war.
Dalio's full post below:
Yesterday I was in Beijing and once again I was inspired. I have been a part of the evolution there for over 30 years and have continuously been inspired by the system that has evolved so well to produce remarkable people who produce remarkable results.
People who have repeatedly and wrongly expected the collapse of the Chinese economy while it has progressively become more revitalized have accused me of not being objective in assessing China’s prospects and leaders. They don’t understand.
I wish you could know the policy makers and issues the way I know them to form your own views because there are so many misunderstandings due to lack of contact.
Of course these leaders have challenges and have to make difficult choices.
However, to the extent you trust my honesty and my judgement, please believe that these policy makers are highly principled, wise, and have great historical perspectives and competence — and, for these reasons, they are committed to having no war of any sort because they understand that one bit of war can easily lead to another and these bits of conflict can easily grow beyond anyone’s control and lead to a horrendous war that is beyond one’s imagination.
Of course there is competition and there are differences in values and approaches, and of course there will be tensions and the Chinese cannot be pushed past a breaking point.
But, most fundamentally, there is broad awareness of the perils of Thucydides’s Trap (described here) and a commitment to evolving well without war.
And now we sit back and watch as Trump gleefully takes advantage of China's "pacifism."