Ray Dalio, founder of Bridgewater Associates, stated that the trade war under President Trump has brought the U.S. economy close to recession. He expressed concerns about recent tariff changes, which are disruptive and have been postponed for 90 days, particularly regarding China.
Dalio also raised alarm over U.S. debt and the rising budget deficit, noting increasing geopolitical tensions. He mentioned that the world order is undergoing significant changes, which could worsen the situation if not managed properly. If several risks occur at the same time, the consequences could be more severe than those seen during past crises in 1971 or 2008.
real problems not abstract risks
Dalio points to a set of real problems rather than abstract risks. He mentions that the United States is edging nearer to a downturn, not necessarily because of a single policy, but due to the combined weight of tariffs, political friction and expanding debt levels. The delays to the latest tariffs aren’t a resolution—just a temporary hold. These types of pauses have historically proved unreliable if the underlying disagreements remain in place. His remarks should not be seen as predicting a downturn with certainty, but as a warning that the economic structure is under considerable pressure from multiple directions.
This isn’t just about the tariffs themselves; it’s also about their timing and the effects on global supply chains. Tariffs generally raise costs for businesses, which can squeeze margins or push prices higher for consumers. When markets can’t price those effects quickly or clearly, uncertainty grows across contracts with longer settlement mechanisms, particularly in hedging strategies tied to commodity flows or complex forward curves. The past often tells us what’s possible, but not what’s likely—so traders need to prepare for both volatility spikes and drawn-out grind phases with little directional clarity.
His emphasis on debt and deficits shouldn’t be ignored. As the budget expands and interest payments become a larger share of government outlays, markets respond. High leverage levels reduce flexibility, and central banks may have fewer tools left to soften any future downturn. What this means is simple: anything with duration exposure, from long-term bonds to calendar spreads involving rates, needs to be monitored more regularly and adjusted more dynamically.
staying nimble in a changing environment
Robust position sizing is essential now. We tend to underestimate how quickly things can move from stable to disorderly. It’s not about whether the worst happens; it’s about whether your model includes those tail risks and you’ve measured their impact. When traders get caught pressing at extremes, the damage often isn’t in the trade itself—it’s in the assumptions behind margin, correlation breakdowns, or incorrect vol bets.
From a relative value angle, this kind of macro backdrop doesn’t necessarily lead to a full risk-off. There are often overshoots in one asset class, followed by delayed reactions elsewhere. Watching cross-market flows and implied correlations can give us more guidance than economic forecasts right now. Price action frequently tells the story sooner.
Geopolitical pressures, like those Dalio alludes to, change where capital feels safe. If rules shift or economies become less open, then assumptions around liquidity premiums and counterparty trust get tested. Options with illiquidity baked in might see more interest, as investors look for ways to stay involved without large directional exposure.
This is where we benefit from staying nimble—not making grand all-in calls, but layering trades that account for dispersion across volatility surfaces and incorporating non-linear outcomes. There’s a lot of focus on downside scenarios now, but some of the better trades may lie in convexity where pricing lags reality.
Dalio’s warning using 1971 and 2008 as touch points isn’t about matching those events exactly—it’s about seeing how stress behaves when the usual tools don’t ease the pressure. Both were years when policy change collided with structural fragility. Simple breakdowns became far-reaching because confidence vanished. That sort of mispricing is often visible ahead of time, but only when your process includes history and not just modern data.
In the short term, adjustments should lean towards flexibility—making sure capital is preserved if things slow down, but more importantly, that it can move quickly when conditions shift. In compressed rate environments, directional bets weaken, so relative volatility and term structure spreads could see more opportunity. Building cushions while retaining optionality has worked in times like these before, and it makes just as much sense now.
