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Ray Dalio has spent 42 years visiting China, building relationships with senior officials and studying its political history back to 221 BCE. But after a recent 10-day trip to Beijing \u2014 part of a month-long tour of Asia \u2014 the Bridgewater Associates founder says something has changed, and changed fast.<\/p>\n
\u201cOver the past few months there has been a big shift in the world order,\u201d Dalio wrote in a sweeping essay published June 18 on LinkedIn, where his newsletter has 750,000 subscribers. (A truncated version of the piece also previously appeared in the Financial Times<\/em>.)<\/p>\n The catalyst, in Dalio\u2019s telling, was the United States\u2019 handling of Iran\u2019s seizure of the Strait of Hormuz. The episode convinced leaders across Asia \u2014 including those who host American military bases \u2014 of something they had long suspected but never quite said aloud: that the American public \u201cdoes not have the willingness to endure the discomforts of war,\u201d and that Washington \u201cdoesn\u2019t have what it takes to fight to maintain its empire.\u201d<\/p>\n The historical parallel Dalio reaches for is pointed. \u201cThis situation looks a lot like the British handling of Egypt\u2019s taking of the Suez Canal,\u201d he wrote, \u201cwhich signaled the end of the British Empire.\u201d<\/p>\n It is a comparison that Dalio has been building toward for months: in March, he wrote in Fortune<\/em> that the 2020s feel like \u201cthe rise of a new type of world order\u201d resembling \u201cpre-1945 world orders with great powers conflicts and gunboat diplomacy\u201d \u2014 a view he illustrated with a Bank of America chart tracing 2,000 years of GDP dominance that showed China\u2019s current ascent as a return to historical norms, not a disruption of them.<\/p>\n What Dalio observed in Beijing was not an adversarial standoff but rather a diplomatic migration. World leaders, he says, are now traveling to meet President Xi Jinping to \u201cbuild tribute-type relationships\u201d \u2014 a phrase that is the essay\u2019s central thesis. We are, he argued, witnessing the early emergence of a modern version of China\u2019s ancient tribute system: a hierarchical but non-military order in which smaller powers acknowledge Chinese primacy in exchange for economic access and stability.<\/p>\n The diplomatic traffic has been visible: President Trump made a state visit to Beijing in May, a trip that McKinsey\u2019s China practice leaders believe reflects a U.S.-China relationship that is no longer \u201cin free fall\u201d \u2014 though Dalio would argue the direction of that stabilization matters as much as the fact of it.<\/p>\n The tribute system governed Chinese foreign relations for roughly 2,000 years, from about 200 BCE until the late 19th century. It was not an empire in the Western sense, as China did not occupy or control subordinate states. Instead, it expected deference and received it \u2014 with rewards for good relationships and punishments, typically economic, for bad ones. \u201cIn the tribute system, relations are not between equals,\u201d Dalio wrote, \u201cbut between superiors and subordinates that recognize their relative positions in the hierarchy.\u201d<\/p>\n The last tribute system, historians know, crumbled under what the Chinese call the \u201c100 Years of Humiliation\u201d \u2014 a century of foreign invasion, unequal treaties, and national trauma that began with Britain\u2019s defeat of China in the Opium War of 1839 and ended only with the founding of the People\u2019s Republic in 1949. <\/p>\n Dalio\u2019s lens on the dramatic events that saw the British take control of Hong Kong and open Chinese ports to foreign trade, among other things, focuses on the terms of trade that China was forced to accept and its diminishing influence over Taiwan, Korea, and the South China Sea. These are all situations that he argues China will seek to reverse now that the U.S. has played its hand \u2014\u00a0but China will do so in a very un-American way. \u201cThe full story of the 100 Years of Humiliation remains vivid in Chinese leaders\u2019 and most Chinese people\u2019s minds,\u201d Dalio wrote, arguing that it is not history to them, but a wound that reunification with Taiwan would help close.<\/p>\n Xi has been saying as much publicly. In April, as the Iran crisis was roiling global markets and the IMF was cutting its global growth forecast to 3.1%, Xi told Spanish Prime Minister Pedro S\u00e1nchez that the international order was \u201ccrumbling into disarray\u201d \u2014 using a Chinese phrase that connotes not just chaos but moral decay. Fortune<\/em> reported at the time that the comment reflected Beijing\u2019s view that the current moment of U.S. retrenchment represented not a crisis to be weathered, but an opportunity to be seized.<\/p>\n Dalio said he suspects that Xi wants that reunification achieved during a potential new term beginning in 2028. Taiwan\u2019s own presidential election is scheduled for January of that year, and the island\u2019s KMT opposition party \u2014 which favors closer ties with Beijing \u2014 has been quietly meeting with both Xi and members of the US Congress. A KMT victory could open the door to a Hong Kong-style arrangement, Dalio suggests, without requiring American military intervention or Chinese military force.<\/p>\n Dalio believes that the model is returning and that Xi is actively engineering it through a new version of the 19th-century tribute system.<\/p>\n Dalio\u2019s framework for understanding Chinese strategy draws heavily on Sun Tzu\u2019s The Art of War<\/em>, which he recommended that readers study. Its central insight, as Dalio applies it: \u201cTo subdue the enemy without fighting is the acme of skill.\u201d<\/p>\n In practice, that means China will pursue reunification with Taiwan and the dismantling of US containment policies not through direct military confrontation but through relentless indirect pressure \u2014 economic, diplomatic, financial. The analogy Dalio offers is the difference between chess and Go. Chess is about annihilating your opponent. Go is about limiting their area of influence.<\/p>\n \u201cChina can gain ground by simply making the threats and not facing resistance,\u201d he wrote. \u201cThere is a good chance that the war will be so subtly fought that we won\u2019t see it being fought.\u201d<\/p>\n The most significant sign of this shift, Dalio says, was a private exchange between Xi and President Trump: Xi made clear, \u201cin the form of a veiled threat,\u201d that planned U.S. arms sales to Taiwan \u201cwould not be appreciated.\u201d Dalio expects Trump to ultimately cancel those sales. If he doesn\u2019t, he predicted China will respond with a dramatic demonstration of force \u2014 something far more severe than the military exercises that followed Nancy Pelosi\u2019s 2022 visit to Taipei.<\/p>\n The leverage China holds over Taiwan is not merely military. It is technological. Taiwan produces the overwhelming majority of the world\u2019s most advanced semiconductors \u2014 the chips that power AI. Dalio puts it bluntly: \u201cAI is everything, and AI without Taiwan is nothing.\u201d<\/p>\n A Chinese blockade of chip exports, he noted, would not need to happen to be effective. The threat alone would be enough to crater global stock markets, particularly AI-related equities. And China is racing toward the moment when such leverage becomes even more one-sided \u2014 Dalio said Beijing plans to achieve chip self-sufficiency by late 2027, while the US and its allies remain dependent on Taiwanese production.<\/p>\n For investors, Dalio\u2019s message is structurally bearish on U.S. primacy. China\u2019s external economy \u2014 what he calls \u201cChina, Inc.\u201d \u2014 is generating massive export surpluses and accumulating financial assets at speed. The renminbi\u2019s role in global trade is growing. Chinese companies are \u201cunderstandably reluctant to accumulate American assets that can be sanctioned.\u201d Capital is flowing away from the dollar-denominated system that has underpinned global finance for 80 years.<\/p>\n \u201cThe world order is now in the process of changing from a U.S.-led, multilateral, rules-based order to a bipolar, power-based, hierarchical order,\u201d Dalio wrote.<\/p>\n Fortune<\/em> senior contributing columnist Steve Hanke made a similar case ahead of Trump\u2019s May state visit to Beijing, arguing that China had spent six years methodically building leverage the U.S. no longer has \u2014 dominating rare earths, critical minerals, and materials supply chains that underpin both defense and AI hardware. \u201cChina has intellectual firepower and technical firepower,\u201d Hanke said in May. \u201cThe real strategic winner has been China.\u201d Where Dalio frames that leverage in historical and cultural terms, Hanke frames it in the blunter language of commodity markets: the U.S. simply doesn\u2019t control what it needs to control.<\/p>\n Dalio, who has been wrong about a third of his market calls by his own accounting, was careful to hedge, but not on the big picture. The tribute system, he believes, is not a metaphor for what is coming. It is the operating manual.<\/p>\n \u201cJust having power, showing it, and not having to use it is very effective,\u201d he concludes, \u201cand in keeping with the Chinese approach.\u201d<\/p>\n For this story,\u00a0<\/em>Fortune\u00a0journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.<\/em><\/p>\n<\/div>\n #Ray #Dalio #finished #10day #trip #China #global #leaders #America #win<\/p>\n","protected":false},"excerpt":{"rendered":" Ray Dalio has spent 42 years visiting China, building relationships with senior officials and studying its political history back to 221 BCE. But after a recent 10-day trip to Beijing… <\/p>\n","protected":false},"author":1,"featured_media":8938,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[11003,867,173,672,11002,485,1802,671,669,974,1344],"class_list":["post-8937","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-news","tag-10day","tag-america","tag-china","tag-dalio","tag-finished","tag-global","tag-leaders","tag-ray","tag-ray-dalio","tag-trip","tag-win"],"_links":{"self":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/8937","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8937"}],"version-history":[{"count":0,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/8937\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/media\/8938"}],"wp:attachment":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8937"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8937"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8937"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}A new hierarchy takes shape and the righting of a 100-year wound<\/h2>\n
Fighting without fighting<\/h2>\n
What this means for markets<\/h2>\n