Markets met the resistance at the classic Fibonacci levels and are going higher as the U.S. rapidly reopens, but while it is easy to be optimistic about the near-term, the markets are not yet discounting the mounting tension between the U.S. and China, Ed Harrison said during today’s Real Vision Daily Briefing. He says a new Cold War is brewing.

Amid the global backlash about the virus, China announced a five-year plan to implement a more domestically driven economy absent of growth targets based on exports, making it clear that its geopolitical ambition is to no longer be dependent on the west. 

Meanwhile, the Trump administration has expressed willingness to pay U.S. companies to re-shore their supply chains – but decoupling from China is easier said than done. 

Harrison said China’s total integration with U.S. supply chains means we won’t be able to have the same level of global growth if they’re stripped out. He thinks this will lead to increasing economic friction, which will be negative for shares and other risk assets over the long-term. 

Unlike the Soviet Cold War, China is embedded in the framework of global trade and technology, meaning that this conflict will be significantly disruptive on a number of economic and geopolitical fronts.

Countries will eventually have to take sides, Harrison said, and if Russia moves into the Chinese orbit, it would increase their ability to deal well in Asia and the Middle East, which could be a huge problem for the U.S.