A capital war is the next logical step after the trade war, with downside for Treasuries, risk assets, and the dollar.
Trade wars are damaging for markets and the economy. But their logical consequence – a capital war – could do even more harm. The imbalances that have built up will cause potentially trillions of dollars of capital to shift around the globe, generating instability and likely prompting governments to take action to limit or direct its flow. The dollar faces a secular weakening, other currencies are at risk of overvaluation, while US assets are exposed to capital outflows.
