Ray Dalio urges a U.S.–China economic rebalancing, warning current dependencies are unsustainable and could result in an economic "crash."

Bridgewater Associates founder Ray Dalio says the United States and China must pursue a “beautiful rebalancing” of their economic relationship — one that reduces mutual dependencies before they become dangerously disruptive.

In a new post on LinkedIn, Dalio lays out the contours of what this rebalancing would require. The U.S., he argues, must cut its deficit, rebuild manufacturing, reduce consumption, and lower its debt burden. China, in turn, would need to reduce its trade surplus, scale back manufacturing output, increase domestic consumption, and confront its own debt issues.

Dalio Warns of Economic ‘Crash’

But while Dalio outlines what each side needs to do, he stops short of saying how such coordination could realistically be achieved. He warns that the current economic arrangement, in which the U.S. is the world’s top consumer and borrower and China is the top manufacturer and lender, is fundamentally “unsustainable.”

Left unchecked, Dalio warns, these imbalances will ultimately be corrected in an economic “crash.”

Beijing’s ‘Circular’ Dead End

The problem is that China, under its paramount leader Xi Jinping, has already made a push to retool its economy toward domestic consumption — a strategy he’s called “dual circulation.”

But consumer demand has yet to meaningfully rebound since the COVID lockdowns. Unlike other major economies, China did not implement a large-scale stimulus package during the pandemic, and the effects are still being felt.

Real estate values have plummeted, and Chinese households remain cautious, keeping their wallets closed as a significant component of their wealth has taken a hit.

So, to sustain growth, Beijing has leaned heavily on its exporters, flooding not just the U.S., but also developing markets with what are effectively subsidized goods.

With official growth figures in the 4% to 5.5% range, cutting back on manufacturing and exports — as Dalio proposes — risks not only triggering an economic downturn in China, but potentially a political crisis as well.