Military war: the role of US-China relations and their impact

It's hard to envision the next great military war and its impact on financial markets (and, of course, the world), as the range of unknowns is wide. But one thing we have to recognise is that it will likely be much more brutal than most people can possibly imagine.

World War II was much deadlier than World War I, as the roughly 24 years between them allowed weaponry and military technology to develop tremendously.

We are now decades past World War II, and many weapons have been secretly developed. The capabilities and creative new ways of causing damage have increased dramatically since the last time the most sophisticated weapons were used in full military engagement.

The different types of warfare and the different types of weapon systems that compose them have also multiplied. While nuclear war is obviously frightening, there are many more forms of warfare today than those experienced in previous world conflicts.

There are potential wars on different levels, including chemical, cybernetic, space and biological.

We've never seen these kinds of conflicts, so we don't know at all how they might work.

What we know now

We are right in the middle of a situation where the United States and China are engaged in different types of "wars" or conflicts.

Categorically, there are six main types of wars between countries:

trade and economic war
capital (currency, debt, capital markets)
technology
geopolitics
military
internal / domestic

We think this is important, as the two largest global economies and the two largest debt and equity markets increasingly compete in a quest for power.

How this happens will have important implications for capital flows and markets. There are many possibilities.

At present, it seems generally true that China will continue to grow its economy, currency, markets, technology, and military might at a faster rate than the United States (and developed Western economies in general).

Does it lead to a more bipolar, yet peaceful world or does it lead to fighting and a possible hot war to decide what the next world order will look like?

Current hot spots

The United States and China have a geopolitical conflict in the East and South China Seas. This increases the chances of a military conflict, as each tests the other's borders.

China is militarily stronger than the United States in these regions. The United States is stronger overall and expects to win a larger war.

But the United States should face an uphill battle to defend the two regions over which China believes it has sovereignty.

Other potential "hot spots" include Taiwan, North Korea (a buffer region between China and an ally of the United States), and potentially India and Vietnam.

All in all, a full-scale conflict would be difficult to imagine due to the large number of unknowns.

It's also about how other countries fit into the picture and how alliances would form.

What technologies exist, what forms of war will be used and how?

If it came to that, it would be a horrific conflict that would be of great surprise to the state of the world we find ourselves in now. When the world is largely at peace (unlike 1940-1944, for example), it is easy to extrapolate peace into the future.

China's improvements

China's military capabilities are developing rapidly. This is expected to progress even faster as China's economic and technological improvements empower it in other ways. These include moving faster than the United States.

It is not excluded that China will become militarily superior to the United States in a few years, and even earlier in some respects.

A military war between the United States and China would also include all other types of "wars" or conflicts - ie economics and commerce, capital, technology, geopolitics.