The currency wars began in January 2010 with President Obama’s State of the Union address and his declaration of a National Export Initiative. The trade wars began in January 2018 with President Trump’s imposition of tariffs on solar panels, appliances and aluminum, mostly from China and South Korea.

The tightening of monetary policy began in December 2015 with Janet Yellen’s “liftoff” in interest rates and October 2017 with the start of Fed balance sheet reduction called “quantitative tightening,” or QT. All three policies have important implications for global investors. But what do they have to do with each other?

According to this article, there is a close-knit relationship among trade wars, currency wars and monetary policy that has dire implications for emerging markets and could lead to another global monetary crisis worse than 2008. When countries are losing in the trade wars, they can fight back by cheapening their currencies to reduce unit labor costs to offset the higher prices from tariffs.

Countries can also fight the currency wars by tightening or loosening monetary policy as a way to attract or fend off international capital flows into their markets. The currency wars, trade wars and interest rate wars are all just forms of market manipulation conducted by central banks and finance ministries under the guise of “policy.”

The problem is that as big countries like the U.S., China and German duke it out in these financial manipulations, the emerging markets are caught in the crossfire and end up as collateral damage. As the world learned the hard way in 1997–98, what happens in emerging markets does not stay in emerging markets. Through financial contagion, an emerging-markets liquidity crisis can take the world by storm and affect advanced-economy capital markets also.

Crises are never the same twice, but they do have much in common. A replay of the 1998 crisis on a scale larger than 2008 could be starting in front of our eyes in places like Argentina, Turkey and Indonesia.

All of the major market manipulations are deeply connected. Let’s hope they don’t spin out of control again.

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