By Steve Goldstein
Ray Dalio, the founder of Bridgewater Associates and a long-time observer of China, says there’s a formula for President Donald Trump to be successful in a trade negotiation with China.
“There are better and worse ways of handling our problems with unsustainable debt and imbalances, and President Trump’s decision to step back from a worse way and negotiate how to deal with these imbalances is a much better way,” said Dalio after Trump gave a 90-day pause to all reciprocal tariffs outside of China.
Dalio, who has been visiting China since the 1980s and led Bridgewater into being one of the first foreign hedge funds to operate there, says a deal should be reached that would appreciate the Chinese renminbi vs. the dollar. This would be achieved by China selling dollar assets while easing their fiscal and monetary policies to stimulate demand, he said.
“This would be a win-win. The Chinese should then restructure and monetize their excessive local government debts to get their debt overhang behind them,” he said.
China has slowly been letting its currency, also called the yuan, depreciate in value. The People’s Bank of China set its daily reference rate at the lowest level since Sept. 2023 and the offshore yuan this week fell to the lowest level on record since it was created in 2010.
The offshore yuan (USDCNH) refers to trading of the Chinese currency outside of the mainland with fewer capital controls.
Dalio’s comments come as Trump raised the tariff rate on China to 125%, after Beijing ratcheted its tariffs on U.S. goods to 84%. According to Bloomberg, China’s top leaders are meeting to discuss stimulus in response to the increases.
China on Wednesday said it was in favor of dialogue with the U.S. as Trump also said he would support talks.
Dalio says there’s a broader lesson for investors after the four-day sell-off that sent the S&P 500 SPX down 12% and Treasury yields rising.
“This is also a great time for investors who were shocked and terrified by what happened (and what might happen) to reconsider their approaches to structuring their portfolios so they don’t have such intolerable risks. I can guarantee that another worse case of the market moves that terrified them will come along eventually,” said Dalio.
-Steve Goldstein
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04-10-25 0923ET
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