Last week, we reported that satellite images had captured China’s only aircraft carrier in deployment, the Liaoning, flanked by 40 other warships and submarines, conducting unprecedented live-fire drills in the South China Sea. This massive Chinese naval exercise was observed for the first time, with China watchers pointing out that such a forceful display of deterrence was highly unusual for the People’s Liberation Army Navy. Perhaps in light of recent events, it was merely a warning.

Li Jie, a Beijing-based naval specialist, said, “it was the first time the Liaoning had taken part in live-fire drills. This will test the Liaoning’s real combat strength as well as joint-operations skills between the aircraft carrier and warships from other fleets.”

“China wants to show the outside world its determination to defend the fruits of its economic reforms over the past 40 years,” Beijing-based military analyst Zhou Chenming said.“Like the US, China’s military might is one of the government’s political tools to protect the country’s national interests.”

Now, according to the South China Morning Post, as Beijing flexes its naval war muscle, the US is preparing for its own "show of force" naval drill in the Asia-Pacific region, and in close proximity to the Liaoning. The Pentagon is reportedly sending an unprecedented three aircraft carrier battle groups to the region, with the USS Theodore Roosevelt flotilla arriving in Singapore sometime early next week.



Separately, the USS Carl Vinson and its fleet have just paid a first visit to the Vietnamese coastal city of Da Nang since the end of the Vietnam war, a move Chinese military experts said was aimed at countering Beijing’s influence in the region.

Meanwhile "China is believed to have deployed the DF-21D, dubbed the “carrier killer”, in the East and South China seas to fend off any possible US aircraft carrier battle group attacks on coastal cities, the country’s economic heartland," according to the SCMP.

Overlapping naval war drills could be a symptom of diplomatic and economic relations between the United States and China rapidly deteriorating with the onset of a rapidly expanding trade war. Both countries announced tit-for-tat tariffs this week, which sent shockwaves through global markets.

President Trump maintained his aggressive approach to trade policy on Friday and Treasury Secretary Steven Mnuchin warned there is the possibility of a trade war with China. For anyone who missed it, in just the span of 72 hours, on Wednesday China reacted to Trump’s $50 billion tariff threat by declaring matching tariffs of its own on 106 U.S. exports including aerospace, autos, defense, and even soybeans. Then in a tit-for-tat retaliation on Thursday, Trump slapped China with an additional $100 billion in tariffs.

Here is what Mnuchin said Friday on CNBC’s “Power Lunch” about the Trump administration’s trade dispute with China:

“Our objective is still not to be in a trade war with [China],” Mnuchin said on CNBC’s “Power Lunch.” “I’m cautiously optimistic that we will be able to work this out.” But, he added, “there is the potential of a trade war.” Mnuchin said the U.S. is in “communications” with China, but he didn’t want to comment on the progress of the talks. “Right now we have initiated a plan. The tariffs will take some period of time to go into effect. There will be public comment, while we’re in the period before the tariffs go on. We’ll continue to have discussions,” he said. “The president wants reciprocal trade.”

America’s last full-blown global trade war was ignited by the notorious Smoot-Hawley tariff of 1930, as the U.S slid into a Great Depression — all in attempt to protect struggling American farmers by increasing tariffs on agricultural imports. The global reaction was short and quick, after that, a trade war ensued. These protectionist and nationalist economic policies severely disrupted global trade, facilitated the rise of fascist leaders, and ultimately some years later contributed to the outbreak of World War II.

The lesson from history is clear: trade wars have no winners and generally damage the economies of the world, raising tensions and increasing the risk of an international shooting war. If anything, trade wars serve to accelerate some pre-designed systemic "reset."

In the context of recent events, and a world which both Goldman and Bank of America recently admitted has too much debt to be sustainable, it is starting to emerge that a reset is precisely what the endgame here is, especially the final "hot war" outcome.

Is the catalyst for this grand escalation currently preparing for a face-off, somewhere in the South China Sea?