Economic War Precedes Hot War
Use this file when: Assessing the investment implications of escalating US-China economic conflict, or evaluating Russia sanctions as a template for future financial warfare.
The Historical Pattern
“Before there is a shooting war there is usually an economic war.” — a-00149
Economic warfare stages (historical template):
- Trade friction: tariffs, quotas, dumping allegations
- Technology denial: export controls, IP theft accusations, standards wars
- Financial exclusion: correspondent banking restrictions, SWIFT exclusion
- Asset freeze/seizure: foreign-held assets frozen, investment restrictions
- Full economic war: comprehensive sanctions, trade embargo
- [Potential] Hot war: proxy conflicts, direct military engagement
The US-China conflict as of 2025: clearly in stages 1-3, moving toward stage 4.
Financial Warfare Toolkit
“Asset Freezes/Seizures: Preventing an enemy/rival from using or selling foreign assets they rely on.” — a-00151
Russia 2022 provides the modern template:
- $300B in Russian central bank FX reserves frozen by G7
- Russian banks excluded from SWIFT
- Oligarch yacht/asset seizures
Lesson for other non-aligned central banks: holding reserves in G7 currencies creates confiscation risk. This is the primary driver of central bank gold buying since 2022 (Russia, China, India, Saudi Arabia, etc.).
Nuclear Deterrence Constraint
“Nuclear deterrence has prevented direct great-power military conflict since 1945 despite multiple proxy wars. The risk scenario for investors is not direct nuclear war but rather proxy conflicts, economic warfare (tariffs, sanctions, technology bans), and fragmentation of the global trade/financial system.” — a-00043
The key investment insight: nuclear deterrence changes the calculus but does NOT eliminate geopolitical risk for investors. It changes the form: instead of direct great-power war, investors face:
- Trade fragmentation costs (supply chains, inflation)
- Technology decoupling premiums
- Proxy conflict commodity shocks
- Reserve currency diversification
Current State: Multilateralism Collapsing
“We are now seeing the international order changing in ways that are typical at this stage in the Big Cycle — a shift from a more cooperative, multilateral world order to a classic great power conflict in which there is a more confrontational, unilateral world order that pursues self-interest through the bold use of financial, political, and military power.” — a-00274
The shift from multilateral to bilateral creates:
- Higher transaction costs for global trade
- Premium for supply chain regionalization
- USD hegemony weakening (bilateral settlement in local currencies)
- Commodity market fragmentation
Asset Implications by Escalation Stage
| Stage | Commodities | USD | EM Bonds | Defense | Gold |
|---|---|---|---|---|---|
| Economic friction (current) | Mild up | Mild up | Weak | Up | Up |
| Technology war | Oil up | Up | Down | Up | Up |
| Financial exclusion | Oil up | Up | Very down | Up | Very up |
| Asset freeze | Oil spike | Mixed | Extreme down | Surge | Surge |
| Hot war (proxy) | Oil spike | Safe haven | Crash | Surge | Surge |
The current US-China technology/tariff conflict has already partially repriced commodities, defense, and gold. The next escalation step (financial exclusion at larger scale) would produce sharper discontinuities.