Dalio: It's not the tariffs that matter, it's the collapse of the old order

Source: Wall Street News

According to CCTV News, on April 2, local time, US President Trump signed an executive order to impose so-called "reciprocal tariffs" on trading partners.

At a time when the tariff measures caused a brief panic, Ray Dalio, founder of Bridgewater Fund, warned investors not to be distracted by short-term market fluctuations.

On the 8th, Dalio posted on LinkedIn that what is happening now is far more important than tariffs - we are experiencing a "once-in-a-lifetime" systemic collapse of the global monetary, political and geopolitical order.

Dalio pointed out the five fundamental forces driving the current situation, namely the collapse of the monetary order, the turmoil of the political order, the reshaping of the geopolitical order, technological change and natural disasters.

This cyclical change will fundamentally reshape the investment environment, subvert the capital market, and the flow of wealth will be reshuffled in chaos.

01 Unsustainable Debt Bubble: Monetary Order Faces Collapse

Dalio pointed out that the current monetary order is collapsing due to the unsustainability of debt levels. The global debt system has reached a critical point: debtor countries (such as the United States) are heavily indebted but are still rapidly increasing their debts, while creditor countries (such as Japan) hold too many debt assets and their economies rely on exports to debtor countries. He said:

"In a deglobalized world, major countries cannot trust each other - one side is worried about supply chain disruptions, and the other side is worried about debt repayment issues. This large-scale trade and capital imbalance is obviously inconsistent."

Dalio believes that the current monetary system, that is, the model of debtor countries borrowing heavily and creditor countries exporting and buying debt in large quantities, will be forced to change. The size of the US government debt and its growth rate are clearly unsustainable. This will have a huge impact on the capital market and then on the overall economy.

02 The collapse of the political order: winners take all under extreme polarization

Dalio warned that the second biggest reason for the collapse of the political order is the deep social inequality - the huge gap in education, opportunities, productivity, income and wealth levels:

"There is a 'win at all costs' struggle between right-wing and left-wing populists for who will have power and control to run the country."

This political polarization leads to the collapse of democratic systems because democracy requires compromise and the rule of law, and history shows that these two principles are often sacrificed in times like these. Stock market and economic problems will only further intensify these political contradictions.

03 Transformation of the international geopolitical order: multilateral cooperation gives way to power politics

Dalio also believes that the international geopolitical order is also disintegrating because "the era of a dominant power (the United States) making rules and other countries following is over." The multilateral cooperative world order led by the United States is being replaced by a unilateral, "power is the rule" approach.

In this new order, unilateralism and the principle of "national priority" are on the rise. Dalio believes that this shift may trigger trade frictions, geopolitical conflicts, and competition in the fields of technology and military.

04 Technological change and natural disasters: catalysts for increased turbulence

Dalio pointed out that two other powerful forces are also reshaping the world: natural disasters (droughts, floods and pandemics) are becoming increasingly destructive; technological changes such as artificial intelligence will profoundly affect all aspects of life, including economic order, political order and international relations.

05 Don’t be fooled by appearances, today’s crisis is a replica of the past

Dalio emphasized that we should not be distracted by dramatic news such as tariffs, but focus on these five forces and their interrelationships, because they are the real driving force behind the overall big cycle changes.

"For example, how tariff policies affect the economic order, domestic politics, international geopolitics, climate issues, and technological development."

Perhaps what is happening now is just a contemporary version of history:

"These collapses in monetary, political, and geopolitical order, in the form of depressions, civil wars, and world wars, which then lead to the establishment of a new order, have happened over and over again."