Ray Dalio spent 42 years visiting China, building relationships with high-ranking officials and studying the country’s political history since 221 BC. But after a recent 10-day trip to Beijing — part of a month-long tour of Asia — the founder of Bridgewater Associates says something changed, and changed fast.
“In recent months there has been a major shift in the world order,” Dalio wrote in a wide-ranging essay published June 18 on LinkedIn, where his newsletter has 750,000 subscribers. (An abridged version of the text had also been published previously in Financial Times.)
In Dalio’s reading, the trigger was the way the United States handled Iran’s seizure of the Strait of Hormuz. The episode would have convinced leaders across Asia — including those from countries that host American military bases — of something they had long suspected but rarely said out loud: that the American public “is not willing to endure the discomforts of war” and that Washington “does not have what it takes to fight to maintain its empire.”
The historical parallel that Dalio draws on is direct. “This situation is very similar to how the British handled Egypt’s seizure of the Suez Canal,” he wrote, “which signaled the end of the British Empire.”
It’s a comparison that Dalio has been building for months. In March, he wrote in Fortune that the 2020s recall “the rise of a new type of world order”, similar to “pre-1945 world orders, marked by conflicts between great powers and gunboat diplomacy”. To illustrate this view, he turned to a Bank of America chart that traces 2,000 years of global GDP dominance and shows China’s current rise as a return to the historical pattern, not a break.
A new hierarchy takes shape — and the healing of a 100-year-old wound
What Dalio saw in Beijing was not a standoff between adversaries, but a diplomatic migration. According to him, world leaders now travel to meet with President Xi Jinping to “build tax-type relations” — an expression that serves as the central thesis of the essay. In his view, we are witnessing the initial emergence of a modern version of China’s ancient tributary system: a hierarchical but non-military order in which lesser powers recognize Chinese primacy in exchange for economic access and stability.
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This diplomatic movement has been visible. President Donald Trump paid a state visit to Beijing in May, a trip that, in the view of leaders of McKinsey’s China operation, reflects a US-China relationship that is no longer in freefall — although Dalio argues that the direction of this stabilization matters as much as the fact that it exists.
The tributary system governed China’s foreign relations for about 2,000 years, from approximately 200 BC until the end of the 19th century. It was not an empire in the Western sense, as China did not occupy or control subordinate states. Instead, he demanded deference—and received it—with rewards for good relationships and punishments, usually economic, for bad ones. “In the tax system, relationships are not between equals,” wrote Dalio, “but between superiors and subordinates who recognize their relative positions in the hierarchy.”
The last tax system collapsed during what the Chinese call “100 years of humiliation” — a century of foreign invasions, unequal treaties and national trauma that began with China’s defeat by Britain in the Opium War in 1839 and ended only with the founding of the People’s Republic of China in 1949.
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In analyzing the dramatic events that led to the British taking control of Hong Kong and opening Chinese ports to foreign trade, among other consequences, Dalio focuses on the trading conditions that China was forced to accept and its dwindling influence over Taiwan, Korea, and the South China Sea. According to him, these are situations that Beijing will seek to reverse now that the US has already shown its cards — but it will do so in a very un-American way. “The entire story of 100 years of humiliation remains alive in the minds of Chinese leaders and the majority of Chinese people,” Dalio wrote, arguing that for them this is not just history but a wound that reunification with Taiwan would help close.
Xi has been saying something similar in public. In April, as the Iran crisis roiled global markets and the IMF cut its global growth forecast to 3.1%, Xi told Spanish Prime Minister Pedro Sánchez that the international order was “crumbling into disarray” — using a Chinese expression that conveys not just chaos but also moral degeneration. THE Fortune reported at the time that the comment reflected Beijing’s view that the current moment of US withdrawal did not represent a crisis to be faced, but an opportunity to be seized.
Dalio said he suspects that Xi wants to complete this reunification during a possible new term starting in 2028. Taiwan’s presidential election is scheduled for January of that year, and the island’s opposition party, the KMT, which advocates closer ties with Beijing, has been meeting discreetly with both Xi and members of the American Congress. A KMT victory could pave the way for a Hong Kong-style arrangement, Dalio suggests, without requiring US military intervention or the use of Chinese military force.
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Dalio believes that this model is returning and that Xi is actively working to rebuild it through a new version of the 19th century tax system.
Win without fighting
The way Dalio interprets Chinese strategy relies heavily on Sun Tzu’s The Art of War, a book he recommends readers study. The central idea, according to his reading, is: “Subduing the enemy without fighting is the height of skill.”
In practice, this means that China will seek reunification with Taiwan and the dismantling of American containment policies not through direct military confrontation, but through constant indirect pressure — economic, diplomatic and financial. The analogy used by Dalio is the difference between chess and Go. In chess, the objective is to annihilate the opponent. In Go, the goal is to limit your area of influence.
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“China can advance simply by making threats and meeting no resistance,” he wrote. “There is a good chance that the war will be fought so subtly that we will not even realize it is being fought.”
The most important sign of this change, according to Dalio, was a private exchange between Xi and Trump: Xi had made it clear, “in the form of a veiled threat”, that planned US arms sales to Taiwan “would not be well received”. Dalio hopes that Trump will eventually cancel these sales. If that doesn’t happen, he predicts that China will respond with a dramatic show of force — something much more severe than the military exercises carried out after Nancy Pelosi’s visit to Taipei in 2022.
The influence that China has over Taiwan is not just military. It’s technological. Taiwan produces the overwhelming majority of the world’s most advanced semiconductors — the chips that power artificial intelligence. Dalio sums it up like this: “AI is everything, and AI without Taiwan is nothing.”
A Chinese blockade of chip exports, he notes, would not even need to actually happen to be effective. The mere threat would be enough to bring down global stock markets, especially AI stocks. And China is racing to reach the point where this advantage becomes even more asymmetric: according to Dalio, Beijing intends to achieve self-sufficiency in chips by the end of 2027, while the US and its allies remain dependent on Taiwanese production.
What does this mean for the markets
For investors, Dalio’s message is structurally bearish regarding US primacy. China’s external economy — what he calls “China, Inc.” — is generating huge export surpluses and accumulating financial assets at a rapid pace. The role of the renminbi in global trade is growing. Chinese companies are “understandably reluctant to accumulate US assets that could be targeted by sanctions.” Capital is moving away from the dollar-based system that has underpinned global finance for 80 years.
“The world order is now in the process of shifting from a multilateral, rules-based, US-led order to a bipolar order, based on power and hierarchy,” Dalio wrote.
The senior contributing columnist for FortuneSteve Hanke, made a similar argument before Trump’s state visit to Beijing in May, saying that China spent six years methodically building an advantage that the US no longer has — dominating the supply chain of rare earths, critical minerals and materials that underpin both defense and AI hardware. “China has intellectual power and technical power,” Hanke said in May. “The real strategic winner was China.” Where Dalio frames this advantage in historical and cultural terms, Hanke describes it in the more straightforward language of commodity markets: the U.S. simply doesn’t control what it needs to control.
Dalio, who by his own count has already missed about a third of his market projections, was careful to make reservations — but not in relation to the bigger picture. For him, the tax system is not a metaphor for what is to come. It’s the operating manual.
“Having power, showing it and not needing to use it is very effective,” he concludes, “and is in line with the Chinese approach.”
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