Bridgewater Associates has a dire warning about President Donald Trump’s trade war: It’s increasing the “probability of a recession.”
Three co-CIOs wrote in a newsletter Wednesday that they see “exceptional risks” to U.S. assets under the current administration’s policies that are facilitated by a “rapid shift to modern mercantilism.”
“We expect a policy-induced slowdown, with the rising probability of a recession,” Bob Prince, Greg Jensen, and Karen Karniol-Tambour wrote.
“To state the obvious: We are now facing a radically different economic and market environment that threatens the existing world order and monetary system,” the co-CIOs wrote. “We have been through many big economic shifts over Bridgewater’s 50-year history, so we don’t speak lightly when we say this looks like a once-in-a-generation one.”
The hedge fund’s senior officials said the recent shift has “sharply accelerated and become chaotic” as the macroeconomic and geopolitical paradigm is “turning past tailwinds into headwinds and reshaping global flows of capital.” They said there isn’t much overlap in the defining characteristics of past decades and those of today.
Bridgewater’s newsletter comes as the U.S. (and global) economy remains in chaos as a result of Trump’s tariff policies. Markets are down heavily year-to-date and showed steep declines after the president’s “Liberation Day” announcement on April 2 — with heavy, swirling uncertainty since then. While many of the announced reciprocal tariffs have been paused, trade tensions continue to heighten between the U.S. and China.
Prince, Jensen, and Karniol-Tambour wrote that the Trump administration’s policy changes create substantial risks to U.S. assets, which are dependent on foreign inflows.
The three wrote, “This shift in asset allocations has created risks if the future is different than the past. Many portfolios are increasingly vulnerable to 1) any weakness in growth, 2) central banks not being able to ease into problems, 3) equity underperformance, and 4) U.S. underperformance relative to the rest of the world.”
They said three dynamics are at the heart of the new economic reality: a new geopolitical and macroeconomic paradigm, an “urgent” threat to investment portfolios because of this paradigm shift, and a “once-in-a-generation” technological disruption.
“Facing a new reality, everyone must adapt,” the three said in the newsletter. “Those who adapt fast and well will gain at the expense of those who adapt slowly and poorly.”
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