Donald Trump's aggressive policies might trigger 'capital wars,' warns Ray Dalio
US President Donald Trump may believe that his threat of tariffs on EU countries could be used as leverage to get his hands on Greenland; however, he seems to be unaware of the financial consequences that his country may face. Recently, billionaire investor Ray Dalio said that the country must be ready for ‘capital wars’, which could be a direct result of Trump’s weaponization of tariffs and using them to wage trade wars against his allies.
“On the other side of trade deficits and trade wars, there are capital and capital wars,” Dalio said as per a CNBC report. “If you take the conflicts, you can’t ignore the possibility of the capital wars. In other words, maybe there’s not the same inclination to buy U.S. debt and so on.” In simpler terms, what this means is that countries holding large volumes of the US dollar could say no to financing the country’s deficits.
The US is still issuing large amounts of debts and Trump’s aggressive policies towards his allies could prove to be his undoing if their confidence in the country wanes, which has been happening over the past few days. “We know that both the holders of U.S. dollars are denominated ... and those who need it, the United States, are worried about each other. Right? So if you have other countries that are holding it, and they’re worried about each other, and we’re producing a lot of it, that’s a big issue,” Dalio explained.
Trump’s recent tariff threats against countries that oppose his Greenland takeover plans have already sent Treasury prices tumbling, and the President is showing no sign of letting up. As far as Dalio is concerned, such trade conflicts often escalate into capital flows and currency disputes. In such cases, a nation would not want to hold its ally’s debt.
“When you have conflicts, international geopolitical conflicts, even allies do not want to hold each other’s debt. They prefer to go to a hard currency. This is logical, and it’s factual, and it’s repeated throughout the world history,” Dalio explained. The billionaire investor then advised people not put all of their eggs in one basket and look towards diversifying their assets. He also recommended gold as a key hedge in periods of financial stress, recommending it make up between 5% and 15% of a typical portfolio, as per the report.
“It does very well when other assets don’t do well. It is an effective diversifier,” he said. This was well proven by market movements as the price of spot gold rose to an all-time high of $4,689.39 on Tuesday. Investors are flocking to safe-haven assets in these times of conflict, and gold seems to be the best option.
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