By Eric Peters, CIO of One River Asset Management

“Today, humanity is once again faced with critical choices: peace or war. Dialogue or confrontation,” said Xi Jinping, celebrating the 80th anniversary of the victory in the Chinese People’s War of Resistance Against Japanese Aggression and the World Anti-Fascist War. “Win-win co-operation or zero-sum rivalry?” continued Xi, his People’s Liberation Army rolling its tanks across Tiananmen Square as it does from time to time.

“The Chinese people firmly stand on the right side of history and on the side of human civilization and progress.” North Korea’s pudgy leader stood with Xi. Russia’s little dictator too. A proper Burning Man festival for autocrats.

Xi pulled out his newest big boy toys. Pyrotechnics. Killer drones. Hypersonic missiles. Lasers. His nuclear triad, with weapons of mass destruction built to be fired from air, land and sea. Military strategists marveled at the innovations. But none of it came as a surprise.

Everyone now knows the US and China have embarked on a multi-decade long war that neither can afford to lose, nor dare wage. The capital expenditure necessary to maintain a standoff will be as staggering as the deficits required to fund them.

“Many Americans died in China’s quest for Victory and Glory. I hope that they are rightfully Honored and Remembered for their Bravery and Sacrifice!” posted Trump on his Truth Social network. “Please give my warmest regards to Vladimir Putin, and Kim Jong Un, as you conspire against The United States of America.”

No one quite knows how to avoid direct kinetic conflict. The best we can reasonably hope for are low-level proxy wars.

The Chinese appear to be implementing the strategy the US used to win its conflict with the USSR. The US, on the other hand, is adopting an unorthodox and isolationist stance, at least for now.

It’s far too early to tell which approach will prevail.

And if we, in finance, have learned anything, it is that governments tend to fight the last war, even as history tells us that future crises rarely resemble their predecessors. 

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