Readers are familiar with our thesis that currency wars lead to trade wars, which lead ultimately to shooting wars. Currency wars begin in the condition of too much debt and not enough growth. Countries try to steal growth from their trading partners by devaluing their currencies.

The problem is that this doesn’t work because the trading partner devalues in retaliation. The devaluations go back-and-forth and no one gets ahead. That’s when the trade wars begin.

The result is the same; no one wins in a trade war; it’s just a question of who loses less. The only proven way out of the debt/growth trap is a shooting war, but we’re not there yet. The currency war began in 2010 and the trade war began in 2018.

Real wars produce collateral damage and trade wars are no different. Companies with good business models get caught in the crossfire and suffer pain in terms of lost orders and lost opportunities to expand through investment or acquisitions. This article reports that the body count is starting to pile up.

U.S. companies with business in China are being harassed and pending acquisitions are being slow-rolled or denied outright. The same is true in terms of U.S. treatment of Chinese acquisitions here.

Investors should expect this state of affairs to get worse and act as another drag on global growth. Meanwhile, the debt keeps piling up and the countdown to a shooting war, perhaps in 2020, keeps ticking.

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