HomeAttacks on U.S.Dalio's grim forecast: US-China conflict set to escalate over flash points

Dalio’s grim forecast: US-China conflict set to escalate over flash points

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The threat of war between the United States and China has been looming over the international community for several years now, with both sides engaged in an increasingly contentious relationship. Recently, renowned China investor and billionaire Ray Dalio has issued a dire warning, stating that the two global superpowers are on the brink of war, and that their actions threaten to drag the rest of the world down with them.

Dalio, who runs the biggest foreign hedge fund in China and has 40 years of experience investing in the country, recently shared his thoughts in a memo on LinkedIn. He expressed his concerns that both the US and China are at severe risk of crossing each other’s red lines, and that diplomacy between them is clearly failing. “The United States and China are on the brink of war and are beyond the ability to talk,” reads Dalio’s grim message.

In recent days, China conducted a major military show of force near Taiwan, flying 38 fighter jets and other warplanes over the Taiwan Strait, while naval vessels were seen in the area, according to the Taiwanese Defense Ministry. This is the largest such display since China’s military exercise in early April, in which it simulated sealing off the island. China’s leader Xi Jinping has vowed to never give up “a single inch” of territory claimed by his country, which includes Taiwan. In response to Thursday’s flight of a United States Navy anti-submarine patrol aircraft through the Taiwan Strait, China’s People’s Liberation Army issued a protest, calling it a provocation that the US “openly hyped up”.

The billionaire investor fears that conflict will escalate over several immediate flashpoints, including quarrels over Taiwan, confrontations between American and Chinese aircraft and ships, the war in Ukraine, and threats of economic sanctions. While both sides know they need to deconflict, “there is growing belief that the unavoidable trajectory is toward war,” Dalio said.

The current state of relations between the US and China is deeply concerning. Whenever the two nations interact with each other, “discussions about big, important things have become exchanges of accusations that worsen relations rather than help them,” wrote Dalio. As such, it might be better if both sides don’t try to discuss these issues at all, he suggested.

The 2024 US election will likely worsen tensions between the two superpowers, according to Dalio. Politicians seeking reelection will probably try to keep pushing limits with Beijing to appeal to anti-China sentiment from voters, said the billionaire. “The hawkish political influences in the United States will exert more pressure on the relationship over the next 18 months because of the emergence of the 2024 election season,” he wrote. “That will be a very risky period because China and the US are now already on the brink of war.”

An additional risk is that US leadership is “fragmented” in how it projects anti-China stances, Dalio said. He cited then-House Speaker Nancy Pelosi’s August visit to Taiwan. Chinese leader Xi Jinping had personally asked President Joe Biden to block the trip, but Biden said he had no control over Pelosi’s foreign diplomacy. As both powers look to protect their sources of essential technologies and minerals, they’re making countries around the world choose sides, Dalio warned further. For instance, the US has sought to stop South Korean chip producers from increasing sales to China if Beijing sanctions the Idaho-based Micron Technology.

Dalio also pointed to Saudi Arabia — traditionally a US ally — recently engaging in new deals with China and Russia, and French President Emmanuel Macron criticizing Washington for provoking China.

The US and China, he said, are “like two giants wrestling with each other six inches from the edge of a cliff and threatening to pull others into this dangerous fight.”

“All things considered, I think that the greater provocations will most likely come from the American side, which I worry will cause a tit-for-tat crossing of the line,” Dalio wrote. Still, he doesn’t believe those grievances will push China to declare war soon, or even in the next three years. “I want to emphasize that by saying that they are on the brink, I don’t mean to say that they will necessarily go over the brink,” he wrote.

To de-escalate tensions, Dalio recommended several steps. This included having President Biden host President Xi in San Francisco at the November APEC meeting, and sending key US policymakers and congressional leaders to visit China. “Have all parties make clear that peace is better than war,” Dalio

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