Bridgewater Fund's Dalio: Six major effects of Trump's tariffs on the world economy

The US President Trump officially announced his latest tariff policy this morning at the White House Rose Garden. According to the White House statement, this tariff plan includes a 10% baseline tariff on all imported goods and higher reciprocal tariffs for specific countries, affecting over 180 countries globally.

Just yesterday, Ray Dalio, founder of the largest hedge fund Bridgewater Associates, published an article on X platform, systematically analyzing the multiple impact mechanisms of tariffs: the basic level includes six effects such as fiscal revenue, efficiency loss, inflation differentiation, and industrial protection; the deeper impact depends on policy countermeasures by various countries, exchange rate, and dynamic adjustments of monetary and fiscal policies.

The article points out that global imbalances must be resolved through drastic adjustments, with long-term effects depending on market trust and national competitiveness, and particularly explores the debt dependency problem brought by US dollar privileges. Below is Dalio's original content (slightly edited for readability):

Tariffs are essentially a special type of tax, with impacts mainly manifested in the following six basic levels:

• Revenue Generation Function: Shared by foreign producers and domestic consumers (specific sharing ratio depends on demand elasticity), this dual tax base characteristic makes it an attractive fiscal tool
• Efficiency Loss: Reduces global production efficiency
• Inflation Differentiation: Creates stagflation pressure on the global economy, causing deflationary effects on taxed countries and exacerbating inflation in taxing countries
• Industrial Protection: Enhances the competitiveness of enterprises in the domestic market of the taxing country, though causing efficiency loss, can improve enterprise survival rates when monetary and fiscal policies maintain total demand
• Strategic Value: Key means of guaranteeing domestic production capacity during great power competition
• Balancing Effect: Simultaneously improves current account and capital account imbalances, in simple terms, reducing dependence on foreign production capacity and capital - especially crucial during global geopolitical conflicts

The above represents first-level impacts.

Subsequent developments depend on four variables:

• Countermeasures by taxed countries
• Exchange rate fluctuations
• Monetary policies and interest rate adjustments by national central banks
• Fiscal policy responses by central governments

These constitute second-level impacts.

Specific transmission paths include:

1. If retaliatory tariffs are triggered, it will lead to more widespread stagflation
2. Deflationary pressure countries typically adopt loose monetary policies, leading to lower real interest rates and currency depreciation; inflationary pressure countries tend to implement tight policies, pushing up real interest rates and currency exchange rates
3. Fiscal policies will targeted stimulate in deflationary regions and contract in inflationary regions to offset some price fluctuation effects

Therefore, assessing market impacts of large-scale tariffs requires considering numerous dynamic factors, which goes beyond the six basic levels mentioned, and needs comprehensive analysis combining second-level policy feedback mechanisms.

Three basic judgments always hold true:

1. Production, trade, and capital imbalances (especially debt issues) must be resolved, as they are unsustainable in monetary, economic, and geopolitical dimensions - the current international order will be reshaped
2. The adjustment process will likely be accompanied by drastic and unconventional changes (as described in my book 'The Road to National Bankruptcy: Great Cycle Loops')
3. Long-term monetary, political, and geopolitical impacts ultimately depend on: credibility of wealth storage in debt and capital markets, production efficiency levels of countries, and the attractiveness of political systems

Current discussions about the US dollar's status are worth noting:

• The US dollar's advantage as the primary reserve currency is its ability to create excess debt demand (although this privilege often leads to over-borrowing)
• While a strong US dollar is beneficial, market mechanisms will inevitably induce privilege abuse, ultimately forcing us to take extreme measures to solve debt dependency

I will continue to track developments and analyze impacts at various levels in a timely manner.