Odds increasing for trade wars and ‘possibly even shooting wars’

Bridgewater Associates founder Ray Dalio said Monday that the chances for multiple types of global wars are rising.

“Recent geopolitical developments have led me to raise my probabilities of trade and other types of wars, such as capital wars, cyber wars (and possibly even shooting wars),” Dalio wrote in a LinkedIn blog post. “To be clear, I’m not saying they’re probable, and I’m not sure that my assessment is right. I’m just saying that it seems to me that the odds have increased relative to where they were.”

Dalio cited President Donald Trump‘s decision on Thursday to instruct the U.S. trade representative to consider $100 billion in additional tariffs against China. The Asian country vowed to retaliate. This is on top of Trump’s earlier proposed tariffs on $50 billion in Chinese goods, which was also followed by a retaliation pledge by China.

The moves “took me and people closer than me to the negotiations by surprise,” he wrote. “Before the last few days’ events, I thought trade tensions would subside because the Chinese are very amenable to a trade deal, because there are lots of ways to make a good deal happen … Now we have a very public game of chicken going on.”

The hedge fund manager said the current developments are similar to the global political environment of the 1930s in regard to the periods’ large wealth inequality, protectionist trade policies and the “emergence” of populist politicians.

“You know from my study of populism that I learned that the most important thing to watch when a populist leader comes to power is conflict,” he wrote. “If it increases between the left and the right to produce operational inefficiencies and if it increases between countries to produce international tensions, the odds of one or another or a few types of war developing increase.”

Dalio explained that a so-called capital war, when a country uses its asset holdings such as bonds to inflict pain on its adversary, could be even worse than a trade war.

“To whatever extent anyone believes that the US has the advantage in a trade war because it has a big deficit (so it has more to gain) one could say the same for China in a capital war because it has the bigger deficit,” he wrote.

Dalio founded Bridgewater Associates in 1975. The hedge fund now manages about $160 billion, according to its website.