As far as a big hot war between the United States and China is concerned, it would include all the previously mentioned types of wars plus more pursued at their maximums because, in a fight for survival, each would throw all they have at the other, the way other countries in history have, so it would be World War III, and World War III would likely be much more deadly than World War II, which was much more deadly than World War I because of the technological advances that have been made in the ways we can hurt each other.  

In thinking about the timing of a war, I keep in mind the principle that when countries have big internal disorder, it is an opportune moment for opposing countries to aggressively exploit their vulnerabilities.  For example, the Japanese made their moves to take control of European colonies in Southeast Asia in the 1930s when the European countries were challenged by their depressions and their conflicts.  History has also taught us that when there are leadership transitions and/or weak leadership, at the same time that there is big internal conflict, the risk of the enemy making an offensive move should be considered elevated.  For example, those conditions could exist in the upcoming US presidential election.  However, because time is on China’s side (because of the trends of improvements and weakenings shown in prior charts), if there is to be a war, it is in the interest of the Chinese to have it later (e.g., 5-10 years from now when it will likely be more self-sufficient and stronger) and in the interest of the US to have it sooner.   

I’m now going to add two other types of war—1) the culture war, which will drive how each side will approach these circumstances, including what they would rather die for than give up, and 2) the war with ourselves, which will determine how effective we are, which will lead us to be strong or weak in the critical ways that we previously explored. 

Eoin Treacy's view

Governance is Everything has been a mantra at this service for decades. It is becoming increasingly relevant because standards of governance are in flux all over the world. Governance is never static, it’s the relative trend that determines the risk factor for investors.

China’s debt accumulation, switch to single party rule, aggressive crack down on even a hint of internal dissent and bullying tactics internationally all point to a major transition from the governance model that prevailed ahead of Xi Jinping’s accession. Meanwhile the trend of deploying technological innovation is accelerating and military spending is outstripping the USA.

The USA’s debt accumulation has been even greater, the trend of governance is downwards with political polarisation, street protests, repeatedly bailouts and an expanding underclass of disadvantaged people all weighing on the value proposition. The country’s strengths reside in energy and resource independence, technological innovation and implementation, military and financial power.

It is clearly in the interests of the USA to fight a war sooner rather than later because that would improve the chances of winning. Waiting another decade so China can build a domestic semiconductor industry, expand its military and perfect additional technologies is going to make the situation much more difficult.

A new cold war is emerging but it is likely to be more difficult because China is a more formidable opponent than the USSR. The big question in this emerging picture tapestry is how countries like India, Russia, ASEAN, Australia and Europe will align themselves.

South Korea and Taiwan are some of the lynchpins for China’s rise because they offer the ability to make significant technological leaps much quicker. That can be achieved through military adventurism or with money but technology transfer is going to happen one way or another. The big question is which bloc can advance technology quicker.

The challenge is that with internal conflict and political polarisation rising, geopolitical opportunism is likely to rise. That represents clear potential for occasion volatility spikes in markets.