BusinessBridgewater's Ray Dalio talks US-China war and whether we...

Bridgewater’s Ray Dalio talks US-China war and whether we should worry

Geopolitical tensions between America and China are moving humans “quite close to a red line” that may herald the start of a new world order, billionaire Ray Dalio warned last month at the Fast Company Innovation Festival.

The Bridgewater Associates founder’s most recent book, The Changing World Order, identifies four types of wars that aren’t military combat, and Dalio argued that the United States and China are presently engaged in all four: “We’re in a trade war. We’re in a technology war. We’re in a capital war. And we are in a war for geopolitical influence around the world.”

Dalio’s comments, which addressed how to plan in an era when global politics and economies are in turmoil, were to help explain how even though Beijing often appears in retreat—the yuan is depreciating, foreign investment is down, the private industry is pushing back at home—the U.S. and China will continue “having rivalry, having competition, and conceivably having war” in the long term. Among the growing tensions, Dalio mentioned trade and capital flow issues; the U.S.’s blockade over semiconductor chips, which has already been likened to “an act of war“; the fragile situation with Taiwan; and the ongoing Russia conflict.

“In the classic cycle,” Dalio went on to say, “the economic war becomes very severe before you have the military war.” He noted how in the leadup to World War II, the U.S. first cut off Japan’s access to oil, then froze its financial assets, before finally declaring war.

“This is analogous to cutting off chips, and then sanctioning [China],” said Dalio. And he considers these moves “very close to the red lines,” particularly with an election looming: “Some of the presidential candidates will be more aggressive in pushing those limits.” If one party came out publicly in favor of Taiwanese independence, Dalio fears that would be “the equivalent of a declaration of war to the Chinese.”

For The Changing World Order—the latest in Dalio’s series, Principles—he closely studied the 10 most powerful empires over the last 500 years, from the Dutch and British to the Japanese, Russian, and Ottoman empires, along with the last three reserve currencies. Each empire existed for about 250 years, he says, with a one- to two-decade transition period between it and the next. (Bad news, America.) When assessing how governments work and markets behave, Dalio also likes to cite an archetype he calls the Big Cycle—which is comprised of half a dozen stages marking an empire’s arc, from productive debt growth and peace and prosperity; to economic downturn, printing money, revolutions and wars; then debt restructuring; and eventually, a new world order.

According to Dalio’s own calculations, the latest indicators rank the United States as the world’s top nation—but one that is in decline, to the point where its cycle looks “mostly unfavorable.” China, meanwhile, is ascendant.

As larger context, Dalio added during that right now, he sees “three big things” coming at America that “have never happened before in our lifetimes, but have happened many times in history.” The first two are domestic: America’s mounting national debt, and a fractured republic where a chasmic wealth gap and serious values differences are cleaving the nation apart. Dalio believes Washington can fix these two problems. (One idea he offered: “A bipartisan cabinet. I think the president should have a project, like Manhattan Project, to deal with mutually agreed reforms.”)

The third issue, however, is related to the global power struggle, which locks the U.S. back in conflict with China.

Dalio contends that these things will be upon us before we know it. “These changes are going to happen in the next five years,” he predicted. “And when I say five years, I don’t mean five years from now. I mean next year, you’re going to see big changes,” perhaps some set off by the November elections.

All in all, the picture he paints is fairly bleak. But if anything is true about Ray Dalio, it’s that he loves principles, and he recited another one at the festival that goes like this: “If you worry, you don’t have to worry. And if you don’t worry, you need to worry.”

“If you worry,” he said, helping to decrypt this principle, “then you will do the things that protect you against the things you’re worrying about.”

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