Economic tensions between the U.S. and China could yet flare into armed conflict as there’s “usually an economic war” before “a shooting war,” Ray Dalio warns in the latest installment of his LinkedIn series on the changing world order, drawing on historical parallels to the start of World War II.

In an 8,000-word essay published on the social networking platform, the billionaire founder of Bridgewater Associates said looking at the volatile period between the 1930s and World War II -- in particular how countries inflicted economic sanctions on each other -- could be useful in thinking about the future.

“Because the United States and China are now in an economic war that could conceivably evolve into a shooting war, and I’ve never experienced an economic war, I studied a number of past ones to learn what they are like,” he wrote.

In reviewing the build-up to the war, Dalio noted the times that countries had turned protectionist and raised tariffs to protect domestic businesses and jobs to cope with economic travail.

While tariffs eventually contribute to increased global economic weakness, they do tend to benefit the entities they protect and can be used to create political support for the leaders that impose them, he wrote.

“The only thing that is known at the outset of war is that it will probably be extremely painful and possibly ruinous,” Dalio said. “Losing wars typically leads to a total wipeout of wealth and power.”

Key Quotes:

• “The Great Depression brought economic suffering to virtually all nations, which led to fighting over wealth within and between countries that led to the hot wars that began a decade later.”

• “Severe economic downturns with large wealth gaps, large debts, and ineffective monetary policies make a combustible combination that typically leads to significant conflicts and revolutionary changes within countries.”

• “During periods of great conflict there is a strong tendency to move to more autocratic leadership to bring order to the chaos.”

• “Because power rather than law rules international relations, there was a sequence of intensifying tests of power that led to war and then to peace and the new world order in 1945.”

• “During periods of severe economic distress and large wealth gaps, there are typically revolutionarily large redistributions of wealth. When done peacefully these are achieved through large tax increases on the rich and big increases in the supply of money that devalue debtors’ claims, and when done violently they are achieved by forced asset confiscations.”

• “Borrowing in one’s own currency and increasing one’s own debt and deficits can be highly productive if the money borrowed is put into investments that raise productivity that produces more than enough cash flow to service the debt and, even if it doesn’t cover 100 per cent of the debt service, it can be very cost-effective in achieving the economic goals of the country.”

• “As a principle, when countries are weak, opposing countries take advantage of their weaknesses to obtain gains.”

• “Protecting one’s wealth in times of war is difficult, as normal economic activities are curtailed, traditionally safe investments are not safe, capital mobility is limited, and high taxes are imposed when people and countries are fighting for their survival.”

• “Harmful acts of nature (e.g., droughts, floods, and plagues) have often caused periods of great economic hardship that when combined with other adverse conditions have led to periods of great conflict.”