Ray Dalio has spent the better part of two years warning about a variety of disconcerting societal shifts and sounding the alarm on broken capitalism.
Among the themes that pervade his critiques are i) unnerving parallels between the current political landscape and the 1930s, ii) inequality and the attendant friction between capitalists and socialists, iii) the limits of monetary policy, and iv) the spiraling clash of civilizations manifested in the Trump administration’s economic cold war with China.
During a speech at the annual gala of the National Committee on US-China Relations in New York on Thursday, Dalio revisited the latter point, warning that the trade war has morphed into a tech war and may be on the brink of spilling over into a “capital war”.
“There is a trade war, there is a technology war, there is a geopolitical war, and there could be a capital war. How that is approached is going to determine our futures”, Dalio cautioned, after detailing “the history of the rise and decline of empires”. (See clip above)
“I don’t like the word ‘war’ – rather than ‘negotiations'”, Dalio emphasized, adding that he hopes conflicts can be approached “with mutual understanding instead of wars – a win-win relationship rather than a lose-lose relationship”.
Unfortunately, Donald Trump views everything in terms of zero-sum competition. The idea of a “win-win” situation is anathema to the US president’s conception of global trade and commerce.
Dalio’s comments on “capital wars” come amid an increasingly contentious dispute between some lawmakers and The Federal Thrift Retirement Investment Board, which this week confirmed a decision to allow one of its funds to mimic the MSCI All Country World ex-US Investable Market Index. China is the third-largest country weight in the benchmark, at 7.5%.
Marco Rubio, along with several co-sponsors, introduced a bill this month aimed at preventing the move. Rubio called the FTRIB’s decision “unconscionable” and again charged that it would end up funneling the retirement savings of US servicemen and women (as well as federal employees) to Beijing.
“Investing in emerging markets is not only legal but is the overwhelming choice of fiduciaries across industries and the choice of individual Americans”, FTRIB chairman Michael Kennedy told lawmakers, in a letter. “The board is fulfilling its role as fiduciary of a retirement plan”.
Although that fight has been brewing for quite some time, it’s also a microcosm of a larger, more recent push to limit capital flows to China. In September, news that the White House was considering a menu of options for restricting investment in the country rippled across markets, sparking consternation and a bit of incredulity among investors and analysts.
The administration was quick to downplay the reports once it became clear that US equities were in no mood to swallow the prospect of Trump taking unilateral action to, for example, delist Chinese shares from US exchanges or strong-arm index construction decisions.
In his remarks on Thursday, Dalio also discussed how and why reserve currencies and the countries behind them rise and fall. Another clip from the event is below.