U.S. may go further than just cutting capital flows to China, warns Ray Dalio

MarketWatch.- Ray Dalio, the founder of the world’s largest hedge fund, says the Trump administration may be “inching toward bigger moves” in its tit-for-tat trade hostilities against China, amid reports of limiting capital flows to Beijing.

“That’s why the proposed step of limiting American portfolio investments in China makes me both think about the implications of this step and wonder if it is an inching toward bigger moves,” said the co-chief investment officer at Bridgewater Associates, in a post to LinkedIn.

Dalio, known for his provocative takes, says wealth and political inequality is causing populism on both the left and the right, and that the limited ability of central banks to stimulate the economy will lead to more far-reaching actions — very large fiscal spending and large budget deficits that will have to be funded by substantially hiking taxes on the rich, printing money and the buying of debts coming from the deficits.

Dalio said the U.S. president can unilaterally cut off capital flows to China, freeze payments on the debts owed to China and use sanctions to inhibit non-American financial transactions with the world’s second-largest economy.

The Bridgewater co-chairman’s comments come after reports on Friday from Bloomberg indicated that the U.S. was considering a move to delist Chinese companies from U.S. exchanges.

The Treasury Department in recent interviews hasn’t exactly put to rest last week’s reports of limiting capital flows to China.

Despite blasting an initial Bloomberg News report on it as “fake news,” White House adviser Peter Navarro on Monday said in an interview with CNBC that there were significant issues about Chinese companies listed on U.S. exchanges.

U.S. stocks on Tuesday dropped sharply, with the Dow industrials DJIA, -1.28% and the S&P 500 index SPX, -1.23% suffering their worst one-day skids since Aug. 23, after the worst reading on a U.S. manufacturing index in a decade.

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