Politics

Coronavirus is accelerating a 'capital war' between China and the US, investor warns

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Coronavirus crisis has accelerated US-China rivalry: Crossborder Capital CEO

The coronavirus crisis will accelerate a capital, trade and technology war between the world's two largest economies, one investor has warned.

Speaking to CNBC's "Squawk Box Europe" on Tuesday, Michael Howell, CEO of Crossborder Capital, warned that the preliminary trade deal between the U.S. and China was under threat, and there could even be a new battleground: investing capital.

"I think the real tension oncoming is not just trade wars but capital wars — we're in a world where capital wars matter," he said, noting that there was "an awful lot of liquidity" being poured into markets amid the coronavirus crisis.

Governments and central banks around the world have rolled out unprecedented stimulus packages in an effort to curb the economic shock from the pandemic, with President Donald Trump in March approving a historic $2 trillion coronavirus relief bill

Meanwhile, demand for the dollar — generally considered a safe haven in times of crisis — has risen amid the outbreak, creating shortages and affecting other currencies. In response, the Federal Reserve has expanded existing dollar swap lines, adding lines to more central banks — including those in Australia, South Korea and Brazil — so that more institutions can access dollar funding.

However, Howell told CNBC on Tuesday that he believed American policymakers had ulterior motives for making their currency more internationally accessible. 

"The decision to share dollar swap lines with 14 other nations, effectively forming a de facto group of 15 countries, including America, that have access to dollars, that is a critical development," he said.

Howell called the move the "economic equivalent of NATO," which he noted was established to contain the Soviet Union militarily.

"This is trying to contain China economically," he said. "There will be further salvos fired in this capital war, this technology war, this trade war. Essentially, America and China are clear rivals and the coronavirus crisis has simply accelerated these trends."

Hedge fund magnate Ray Dalio predicted in November that capital wars would mark the next stage in the economic conflict between the U.S. and China, saying that the power struggle could soon evolve into a fight over the dollar's long-held place as world's preferred form of exchange.

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Campbell: The U.S. holds all the cards in the latest round of the trade war with China over Hong Kong

Agathe Demarais, global forecasting director of The Economist Intelligence Unit (EIU), also told CNBC that pre-existing geopolitical tensions would likely be accelerated by the pandemic.

"The coronavirus epidemic is not going to change the ongoing fragmentation, the ongoing polarization of the geopolitical picture," she said in a phone call. "But we think it's going to accelerate ongoing processes of countries such as Russia and China seeking to play a bigger role in the global stage and to reassert their position on the global stage."

The U.S. and China signed a long-awaited "phase one" trade deal in January — shortly after Covid-19 was first reported to the WHO — but Sino-U.S. tensions have since been reignited.

President Donald Trump has openly blamed China for the pandemic and threatened new sanctions on the country in retaliation for the coronavirus.

U.S. officials have also been critical of Beijing's draft national security law for Hong Kong, with some threatening sanctions over the legislation which is accused of being used to destabilize Hong Kong's freedom.

CNBC's Patti Domm, Thomas Franck and Yen Nee Lee contributed to this article.