Why the US–China Economic Rebalancing Won’t Fix What’s Coming

Ray Dalio, Trade Talks, and the False Calm in Markets

Markets have bounced on hopes of a U.S.–China trade breakthrough.

According to Ray Dalio, the problems run far deeper than tariffs or temporary diplomacy. And for gold investors, the “quiet” may be just the pause before the next storm.

1. Markets Cheer the US–China Trade Deal — But Should Investors?

As of May 12, 2025, the United States and China have officially announced a deal to slash tariffs and rebalance trade, following two days of negotiations in Geneva, Switzerland.

According to officials, the agreement includes significant reductions in tariffs across both sides and sets the stage for ongoing economic coordination.

📎 Source: Reuters – “US, China Reach Deal to Slash Tariffs”

Markets responded with enthusiasm:

• 📈 The S&P 500 rose 3.3%
• 📈 Nasdaq soared by 4.4%
• 🇺🇸 President Trump suggested a “total reset” in trade relations

But should investors trust the rally? Because as we explore in this article, the real question is whether this agreement solves anything lasting.

Why the Optimism May Be Premature

• Temporary pause — the tariff reduction is only for 90 days.
• Structural tensions persist, it will take years to restore US manufacturing.
• Geopolitical rivalry is far from over.

The market’s reaction feels familiar: risk-on enthusiasm based on hope, not substance. But as Dalio has warned before, the true issues lie deeper. Short-term calm may be masking long-term volatility.

2. Dalio: It’s Not Just Tariffs — It’s a Changing World Order

At first glance, trade progress between the U.S. and China seems like a win. But Ray Dalio warns that what’s happening runs far deeper than tariffs or deficits.

In his article, Don’t Make the Mistake of Thinking That What’s Now Happening is Mostly About Tariffs, Dalio explains that we’re in a major global transition — one that mirrors past shifts in world order.

🔍 So What’s Really Going On?

Dalio points to a powerful combination of forces:

• Rising internal conflict within countries — especially in the U.S.
• Geopolitical tension between declining and rising powers (i.e. U.S. and China)
• Surging debt, inflation, and widening wealth gaps

These are not short-term cycles. They reflect the late stages of a long-term debt and power supercycle — a recurring pattern Dalio outlines in his “Changing World Order” framework.

Why This Matters to Investors

Dalio argues that:

Most people are missing the bigger picture. We’re not in a normal business cycle. We’re in a restructuring of the global system.

This means:

• Tariff deals won’t fix structural debt
• Policy tweaks won’t solve inequality or declining trust in institutions
• Monetary tools are losing effectiveness

For investors, it’s not about reacting to headlines — it’s about preparing for massive structural changes. And in times like these, that often means turning to assets that hold value across systems and eras.

📎 See also: Trump’s Tariffs and Precious Metals

3. The “Beautiful Rebalancing” or a Temporary Truce in the Global Financial Reset?

In another post, The US-China Beautiful Rebalancing, Dalio outlines a hopeful scenario: one where the U.S. and China manage to rebalance power peacefully, through mutual understanding, cooperation, and structural reform.

Sounds good in theory — but can it actually happen?

🤝 What Dalio Hopes For:

• A shift to cooperative competition rather than zero-sum rivalry
• Balanced trade and capital flows
• Respect for each nation’s strengths and differences

Dalio describes this as a “beautiful” outcome — a soft landing for an otherwise fragile global system.

⚠️ But There’s a Problem…

Each country faces serious internal pressures that make cooperation difficult:

• 🇺🇸 U.S. political division and soaring debt
• 🇨🇳 China’s property crisis and slowing growth
• Both rely on loose monetary policy and rising debt to fuel their economies

Even if leaders ink a short-term deal — like the recent Geneva talks — it’s unlikely to undo years of imbalance.

Dalio warns: A rebalancing may be possible, but it’s unlikely to be smooth or painless.

📉 Markets Love Calm — Even When It’s Temporary

Investors often mistake temporary diplomacy for lasting resolution. But without deep reform, today’s “progress” may just be a pause before the next shock.

This is why Dalio keeps urging for long-term focus. The real rebalancing is happening under the surface — not in headlines.

4. Gold as the Anchor: Hugo Salinas Price, Ray Dalio, and Why Gold Still Matters

While Ray Dalio speaks to the macro transitions in geopolitics and debt cycles, Mexican economist Hugo Salinas Price takes it one step further: he argues the real crisis is a crisis of money itself.

In his essay, Gold Standard: Generator and Protector of Jobs, Salinas Price explains how modern fiat currencies — backed by nothing — have removed the discipline that once came with gold-backed money.

🟡 His Key Argument:

• Real economic growth flourished when money was tied to gold.
• Today’s “growth” is often fuelled by debt and speculation, not productivity.
• Without an anchor like gold, governments can print without limit, pushing wealth into fewer hands and hollowing out the middle class.

📉 In short: Financial engineering has replaced real value creation.

What This Means for Investors

Gold is not just a commodity — it’s monetary insurance. In an age of monetary distortion:

• Gold doesn’t rely on political promises
• It has no counterparty risk
• It offers stability when currencies fail

In this way, Salinas Price’s message aligns closely with Dalio’s own guidance.

Dalio has long encouraged investors to hold 5–10% of their portfolios in gold, precisely because of these long-term uncertainties.

📎 Related reading: Ray Dalio Recommends Gold – Here’s Why

When systems fail, gold offers more than protection — it gives you a Plan B outside the financial system.

5. Why a Gold Correction May Be a Gift — Not a Warning

With all the attention on trade deals and market rallies, you may have missed it: gold slipped slightly last week.

Some took that as a signal that the worst is over. “Maybe gold isn’t needed anymore if tensions ease?”

That’s a dangerous assumption.

📉 Corrections Are Normal — and Healthy

As we discussed in Gold Correction 2025: Why It May Be Just What the Market Needs:

• Strong rallies are often followed by temporary pullbacks
• Short-term traders may sell on “good news” — even if it doesn’t solve the problem
• Corrections offer opportunity. Don’t be alarmed

This latest dip? It may be exactly that.

As of May 12, USD gold is down $41 to $3237, bringing it back to the top of our major support zone — just above $3200 and near the top of the green trend channel.

This move follows the official announcement of a US–China trade deal — another example of how “good news” can trigger a short-term rotation out of gold.

Key support levels now to watch:

• $3100–$3150 (50-day moving average)
• $2950
• $2850
• $2770

For long-term holders, this isn’t a reason to panic — it’s potentially another strategic entry point. Especially when the structural problems haven’t gone away.

🎯 The Drivers of Gold Haven’t Gone Away

• Debt levels are still climbing
• Geopolitical risk remains elevated
• Inflation is quieter, but not gone

So while markets cheer the idea of “peace” between the U.S. and China, the fundamentals driving gold are still very much in place.

Smart investors know: dips aren’t just exits — they’re entries.

If the coming reset is as serious as Dalio suggests, then this current correction may be the cheapest gold gets for a while.

6. The Real Reset: What the US–China Truce Misses and Why Gold Still Wins

Markets love headlines. A few optimistic words from a politician or central banker can send stocks soaring. But beneath the noise, something deeper is unfolding — and Ray Dalio says time is running out to prepare.

In his latest post, It’s Too Late. The Changes Are Coming, Dalio writes:

“…we are moving beyond the ideal time to be knowledgeable about and properly plan for these big changes in the world order… investors, policy makers, and other decision-makers need to stop undulating their views and positions in reaction to the day-to-day market moves and policy announcements and instead deal with these big fundamental changes in the world order calmly, intelligently, and, ideally, cooperatively.”

🔄 The Pre-2020 World Isn’t Coming Back

From Dalio’s view — and history’s — we’re now in the final stage of a long-term cycle where:

• Global power is shifting
• Trust in institutions is declining
• Debt levels are unsustainable
• Currencies are being quietly debased
• Short-term optimism doesn’t fix long-term structural imbalances — it often masks them.

This isn’t just another financial phase. It’s a global reset — where the rules are changing.

🧭 So What Should Investors Do?

• Zoom out — stop reacting to headlines
• Hold real assets — especially those with no counterparty risk
• Stay informed — understand the big cycles shaping the next era

Gold isn’t just a safe haven. It’s a vote of confidence in what survives when systems break and rebuild.

So while the world celebrates a handshake in Switzerland…
It’s wise to keep your eyes on the foundations. Because that’s where the real story is being written.

Editors Note: Updated 13 May to include details of the USA-China agreement