Deglobalization, Energy and Supply chains, China | Peter Zeihan

so that's globalization globalization let's  say that it does uh start to slow down what   are the knock-on effects of that oh dear  god okay uh so i just wrote this book uh   the book split into six big chapters based  on the various economic sectors so transport   finance energy industrial commodities agriculture  manufacturing uh everything that we understand   about all six is dependent upon the idea of global  security and so you remove the global security   and all six of them have to unwind and reform  in different ways so really it's kind of pick   your poison with transport long haul goes out the  window that's an end to among other things super   tankers so if you are getting your oil from  3 000 or more miles away you're out of luck ships are going to have to be smaller and go  faster because the concentrated risk that a   giant container vessel has you lose one of  those and the shipping company goes away   if you're doing smaller tankers or smaller ships  that are going faster they can't carry as much   you just lost most intermediate goods trade that's  an end to electronics manufacturing in its current   form so you can play this on really any topic that  you want but the structures that have all held it   together and made it work are dependent upon the  ceiling not falling and it's falling it seems to   me like the current way that the world set up  has got most people myself included to believe   that everyone's just a bit nicer now than we were  for most of human history do you understand what i   mean i totally do uh how would you say it's global  policing masquerading as virtuous human nature   we established penalties  for people who didn't play   and because the americans started with europe  which was the headquarters of most of the empires   it's stuck uh the only non-european empire that  mattered at the time was the soviet union which   was the target of all this and japan which was  subjugated so everyone who in the past had been   a bad actor if you want to use that very loaded  term all of a sudden was on the same side everyone   who had ever had a projection-based military  throughout human history was in the same coalition   it worked for a while you've said that energy  is one of the sub-components of globalization   presumably because in order to get the energy you  need to move it around the world in order to take   it from where it's taken from to where it needs  to be used is just how crucial of a port a point   is energy because alex epstein's been on the show  nate hagan's been on the show richard betts from   the ipcc's been on the show i understand that  they have their priors with regards to where   their research lies but obviously their focus is  that especially with nate you know energy is is   absolutely everything what are your views on the  current sort of state of the energy climate and   then moving forward climate change as well i would  say that there's not a lot of light between me and   those names i mean obviously when you get into the  details analysts can quibble about everything and   they can they do absolutely but the the core idea  that without energy none of this works is solid   um we've spent the last 70 years bringing the  energy from where it's produced to where it's   consumed which means primarily from the middle  east to europe and east asia north america is   more or less a self-contained component even was  before the shale revolution now it certainly is   that was one of the prices the americans paid  in order to get their alliances making sure the   energy would flow in the environment we're in  now we're at a risk of losing all russian crude   now i've always thought this  was going to happen eventually   i didn't think it was going to happen this  soon russian crude is what has largely fueled   the global economic expansion since 92 because  when the soviet system collapsed their energy   production did not and all of their commodities  were just dumped on the international market and   that has kept prices relatively low for 35 years  that period is now closing and so we're gonna lose   five percent of global crude which doesn't  sound like a big deal until you remember   that energy demand is inelastic and a 5 loss in  crude can easily generate a tripling in price   so an energy induced depression that is broadly  global in scope will start because of the ukraine   war at some point and this is probably the  reason that no one's gone after that raft yet   because that would be the death  blow for the russian energy sector   so that would kind of be like have  you seen a um margin call the movie   not recently no but do you remember what it was  about this is the 2008 financial crisis and it's   it's semi-fictional and they bring everybody in  overnight and they say look if you decide to do   this if you decide to dump all of everything  into the market you are choosing to begin   the most armageddon-like financial situation that  anyone's ever seen so that that's interesting   um that for somebody to go and do that they're  aware that downstream five degrees of separation   there are a bunch of externalities that are  basically going to ruin the whole system yeah now   the math is going to be different for everybody  take take latvia latvia has the capacity to do   this all they have to do is grab one shuttle  tanker as it's leaving st petersburg that would   do it and the latvians have already managed to  wean themselves off of russian crude and while   it would crush most of their european partners  they would see the destruction of the primary   income stream for russia as an unemployed good or  consider the americans we're self-sufficient we   have the capacity of putting a wall around  our energy exports so they stay at home   so we could actually see energy prices in  the us go down because of this but then   the rest of the world would lose access to  russian and american crude at the same time   so everyone has their own math to run and  a lot of it is going to depend upon how   everyone interprets the loyalty or the actions  of their allies so i mean look at germany   the russians are in the process of jerking with  the germans on natural gas and you know for those   of us and the rest of the world like yeah natural  gas it's an energy source whatever no biggie   that's not what it is in germany the entire  german economy is based on taking cheap russian   gas processing into petrochemicals and then using  those inputs in their entire manufacturing sector   if they lose that gas it's not just that  electricity prices go off it's that the german   manufacturing model fails so the germans are being  presented with the choice leave the coalition and keep the lights on or lose your gas  and no longer be modern so what's more   important to the germans being western  or being modern that's a that's a [ __ ]   choice but it has consequences and people  will judge them done based on what they do   peter you need to give me something positive here  man i'm just i'm terrified this this doesn't sound   like a very good situation at all what are there  bright lights what are some of the bright lights   there are countries that were damaged by  globalization uh the empire specifically if you   were a country that had a pretty good geography  at the start of this then when the americans came   through and changed the rules so that everyone can  play you saw a massive drop in your overall power   if you are one of those countries and you have a  positive demographic structure you could actually   make a lot of hay out of what's coming because  you could i don't want to use the word imperial   nero imperial might be the right word uh you can  definitely make a bid for your own neighborhood   so uh the two countries that are on the top of my  list as regards that are turkey and france decent   demographics good manufacturing base largely not  integrated into their neighborhoods economically   the french actually trade less with the eu  than the brits do uh fun fact um and i can see   part of western europe becoming part of a french  victim and obviously parts of the middle east   for turkey i would have put japan on that list  but the japanese managed to cut a deal with   both donald trump and joe biden which makes the  japanese the only people who have been able to get   on with both sides of the american spectrum  of late so i think they've basically agreed to   partner up with the us rather than go their  own way which i think will be the best for   everyone in the long term unless you're chinese of  course how's the uk going to do that's up to you   you really need to figure out this brexit thing i  mean it's just yes you've left but you still don't   have any plan for what's next and that is really  hurting you with every day that that is pushed off   your negotiating power with whatever the  structures of the future end up looking   like are going to be weaker and weaker and you're  very rapidly getting to the point where the only   option you're going to have is a trade deal  with the united states on america's terms   there are worse things that could happen but uh we  will be as um what's the best way to phrase this   we believe be as gentle in the negotiations  as we were during the lend lease talks   where you basically had to give up half of a  hemisphere of military presence in exchange for   40 destroyers that you used to  laugh at because they were so bad not good it doesn't seem no it's not a  good negotiating position that's for sure   okay you think that mexico is going to be a  big part of america's future also canada is   good because it's over yeah uh because it's  able to do good immigration it's able to keep   its demographics pretty well what's the future  for america look like in your opinion well the   united states is starting this process with very  little trade exposure to the wider world outside   of manufacturing in asia a net energy exporter  of all forms a the largest refining power in the   world the largest agricultural power in the world  so a lot of the things that every single country   in the world is just going to have to stress about  us is just kind of a no-brainer it's already there   in addition successful manufacturing requires  proximate labor that is at different skill   sets and price points so the person who's  doing the injection molding is not the p   the same guy who's making the microchip with  mexico we've got that already so for us a   lot of the hard work has already been done and  while i'm not a huge fan of donald trump by any   measure his renegotiation of nafta was a stroke of  genius and it got ahead of a lot of these issues because of that north america's unit looks pretty  strong and we're already seeing established   linkages to other powers that might be useful  so we for example already have free trade deals   with colombian chile which are in my opinion  the two most dynamic south american economies   uh we already have a long-term agreement  with both the koreans and the japanese   uh the australians have a free trade  deal with the united states and were   in league with the australians and the japanese  really starting to become engaged with southeast   asia which is another part of the world where  the demographics and the geography line up   so that kind of greater american co-prosperity  sphere is about as good as it's going to get i   mean you'll have to deal with the americans  we tend to be a little twitchy sometimes   but we're twitchy in a different hemisphere for  most of the partners which most people really like   in your neck of the woods france is  just going to be completely insufferable   because they're going to become the broker  for the germans they're going to become the   the first power in iberia and in italy and  they're probably going to make a bid for   the low countries too and the longer it takes  the uk to become a self-sustaining power again   the more advantage the french are going to have  in rewriting the local rules so a good example is   that you know you've you've built these two super  carriers they're top notch pieces of equipment   but between budget cuts and austerity and the  financial crisis you let the rest of your navy   die so you've got these two fantastic vessels with  no defensive rings which means the only way that   you would ever let them leave port is if they're  sailing as part of an american battle group   again not a good negotiating position  what ways could america mess this up   oh so many so many uh we're in one of our  once in every generation or two political   reshufflings and as long as that is going on we  really don't have eyes for the rest of the world   so there's a huge strategic and economic  opportunity here for the long run if the   united states would chose to lead and kind  of define what the new world was going to be   uh what i've outlined here is probably what's  going to happen on autopilot and in many cases   because the australians and the canadians  and the japanese are doing most of the   diplomatic heavy lifting thank god they're  there because it would be a mess otherwise one of the great things to keep in mind about the  united states is because the population is so big   and so young and because the land area is so huge  and so fertile we've never had to be at the top of   our game we can rely on geography and demography  to do most of the heavy lifting for us and that   allows our politics to be completely batshit  uh and that's where we are now there are many   degrees of freedom that you can mess up within yes  uh this this isn't france where if you screw up   you have to pay for it for two generations if  the u.s population is big and young does that   not mean that downstream from that you need to  have an even bigger younger population in order   to not end up with that inverted pyramid shape  on your demographic it's definitely possible um   our while most of europe and japan and korea have  that v-shape in their demographics ours is more   of a double hourglass because we've got a bulge  where the boomers are and then a bulge where the   millennials are but then a big cutout for  gen x and a big cut out for the zoomers the ins and outs of that are going to dominate  our economic and our financial world for   forever so right now we're about  to go through a capital crunch   in 15 years when the millennials are in their  50s we will be going through a capital boom   as a rule large generations make large  generations and small generations make   small generations so we would expect this  wave to continue uh what that means is that   the american propensity for overdoing things and  then over correcting that's just part of our dna   now and it's backed up by our demographics that  will take us all number of bizarre directions   and we will drag along a lot of other countries  with for the ride i was with jonathan height a   few months ago at the heterodox academy conference  and he was talking about the dangers in the dating   market for gen z at the moment the high levels  of social anxiety the fact that you've got   one third of people aged 18 to 35 is still living  at home with their parents the number of 18 to 30   year olds reporting no sex has tripled in the last  10 years from about 10 to 30 a bunch of things   that are causing young people to be less socially  out there presumably to have children later   i think it's 2019 that for the first time ever  more women had children over the age of 40 than   under the age of 20. for the first time ever in  history more women at the age of 30 were childless   rather than with child so all of these things seem  like they would predict a ever aging generation or   an ever-ranging demographic what your suggestion  is that you have this sort of hourglass shape and   there will be some sort of inflection point  presumably with the 15-year capital boom should hopefully encourage more families  more children more population offset this   going from an hourglass into a inverted  pyramid that's what the data we have today   suggests but i i've gotta underline we're in  uncharted territory here the world has never   had a population bust uh without having some  sort of massive endemic disease or war event   so when i say you know the chinese collapse  has to happen you know i don't know how you   make it work without kids or young adults when  i say that the americans are going to experience   a another baby boom as the millennials really  come into their own history and data suggests   that but we've really never seen this combination  of factors before the zoomers i have concerns   they are not like millennials millennials  are very outgoing they're very social   because they were raised by the baby boomers  and they were always told that they were special   that's one of the reasons why a third of them  still live at home the zoomers were grazed by   gen x my generation and we took a very different  view of things you know we kept track of the score   at the soccer game we wrote it down we showed  it to him before each game we read it to him   to bed so that they wouldn't forget and when  they turn 18 they're the hell out of the house   they're they're insular they're competitive they  don't like relying on anyone for anything and so   the whole group dynamics and managerial dynamics  that the millennials are positively known for   and recognized for they're the antithesis their  dream job is to code alone in the dark in a closet   and that makes it hard to have kids so i think we  can guarantee that when it's the zoomers time when   they're in their 30s that their birth rates are  going to be low their marriage rates are probably   going to be the worst we've ever had their  suicide rates are already the worst we've ever had   which just means that the millennials will save  us all okay right you're relying on you're relying   on me and my lot fantastic given given the  current state and obviously there's a lot of   uh contributing different countries  what's going on with demographics   people talk about population collapse overall  globally what is your view of global population   uh before we start talking about deglobalization  so assuming that globalization continues from   its height onward we were already in the  process of revising down our estimates   so it used to be 15 years ago that we thought by  2050 we were going to have 11 to 12 billion people   that number is now under 10 and as the data  continues to get upgraded we'll probably   assuming nothing goes wrong peak it just  below 9 and then start falling back gently   if i'm right about deglobalization we're going  to have a significantly sharper drop off and as   soon as globalization hits agriculture at large  which may be in the fourth quarter of this year   population peaks wow okay positive stuff uh looking at the ways in which population collapse  and the reduction of that could be tied in with   automation is there any technological savior that  can come through and assist us with the problems   that we're facing at the moment there's always  unknown unknowns when it comes to technology   i'm aware of that but are there things that you  can foresee if we get particular advancements   that may alleviate some of this absolutely so pros  and cons uh there are a lot of technologies with   automation ai and robotics that look really  good now ai the whole idea of general ai and   skynet we're decades away from that so i  was put that in a box i'll let ian musk   talk about that ai is all about image  recognition today and getting it so that   machines can recognize different things and then  do pre-programmed tasks there's no there's no   real autonomy but it's automated that allows  manufacturing to reshape but it also requires   massive economies of scale the most expensive  thing a country can do isn't industrialized   it's to automate and it's not a one-off cost you  have to constantly update it because every time   there's a change to the production line you more  or less have to start over with the programming   so it's a very expensive way to go it does use  different labor and less labor but it's not clear   to me that it really moves the needle in a huge  way and if we're breaking down global transport   and intermediate goods trade then we're losing  the economies of scale that make that model work   in north america where you've got  one third of global consumption   we'll probably still be doing that but i see  that broadly leaving the east asian sphere which   combined with their bad demographics are awful  we also have the baby boomers leaving so we know   that the capital crunch is coming that means less  money is available to do this sort of upgrading   the the technologies i'm most interested in are  the combination of automation and agriculture   we're very close to having facilities  that you can latch onto a tractor   that identify each individual plant and identify  if it needs water or fertilizer or pesticide or   if it's a weed or whatever and then it gets a  squirt of whatever is appropriate so you do like   six passes of stuff in one pass and each plant  gets individual attention that suggests that we   would be able to reduce fertilizer and pesticide  use by 80 percent and maybe even double yields   but again economies of scale it only works on  mega farms where you can afford the equipment cost   so if you've got giant farms in the united states  or the netherlands or argentina or australia sure   doesn't work for most of the world talking about  technology i've heard that we are unbelievably   reliant on getting cheap technological parts  out of china silicon chips and other such   stuff how much of an issue is it going to be if  china is facing demographic collapse and then   can't make anything anymore how much is that  going to have downstream effect for the rest   of the world's technology well we've been a little  bit lucky that the chinese have kind of become a   bag of dicks and really encouraged everyone to  outsource and resource everything that they can   it's that's bought us a lot of time now in  the united states everyone is paranoid about   semiconductors and we all see that 12 percent  number that the us now only produces 12 percent   of global chips as a panic point but that's  by number by value we produce 60 percent so   all the food ships are designed in japan the  united states they might be manufactured somewhere   else if they're further down the the scale but  in terms of cell phones and server farms the   important stuff that that's already safe uh the  problem is going to be the mid and the lower land   the mid ones are usually malaysian thailand  the lower ones are almost certainly china so when you're talking about the lower tech stuff  the internet of things yeah that's just going away   but i'd argue that i don't really need a  meat thermometer that is going to tell my   phone what the temperature of the meat is  i mean we can get by without that i think   it's overall electronics manufacturer  that's going to be the big issue   because remember differentiated labor  force is what makes manufacturing work   china is a huge place it's got a lot of that  internally and then it has access immediately   to taiwan japan korea and southeast asia that's  what's breaking down that whole ecosystem uh   we can't rebuild all of that i mean just just to  serve electronics needs for north america probably   would require a workforce of 4 million people  in manufacturing we're already in labor shortage   and the mexicans are kind of tapped out already  so there is going to be a huge amount of pressure   americans do well at the really high end  manufacturing and the very low end because we're   energy rich it's the part in the middle that we're  really relying on the mexicans to save us for   what ways could you be wrong  about all of this stuff you know   like i said this is perspective we're dealing with  an environment that we've never been in before   the way i would like to be wrong is  that the americans would actually   do what george herbert walker bush wanted  to do back in 1991 and have a conversation   with ourselves about what sort of world  we wanted to live in and how to get there   we weren't interested then i would argue  that we're really not interested now   so that the risk here from my point of view  is that globalization does manage to persist   because of some lingering american commitment  i'm not seeing that i'm certainly not seeing   that with ukraine war yes we're seeing nato having  a new lease on life but the whole guns for butter   deal that we made during the cold war none of the  economic stuff is on the agenda all the sanctions   that the trump administration enacted are still  there with one exception that the airbus case   uh i don't see it's very likely and then  on the demographic front that's just math   if you want more 30 years 30 year  olds you had to start 31 years ago what difference would it make if china invaded  taiwan uh that would probably lead to the end of   the chinese system as an industrialized economy  in less than a year why that's fascinating it's   an open question of whether or not the chinese  could pull it off and with the ukraine war we   finally got some good signposts of what it might  look like the chinese have always assumed that the   war would be a walk over that no one else will get  involved and that china is such a big place that   everyone will just suck it up and move on well  that clearly hasn't happened with ukraine and   the united states and the west have a much tighter  relationship with taiwan than they do with ukraine   ukraine was only preparing for this war for  eight years taiwan has been preparing for 60.   ukraine can you can walk to ukraine from  russia it's a bit of a swim to get to taiwan   the sanctions that are in place against russia  would absolutely devastate china because while   russia has a lot of faults it's a major exporter  food and energy china imports those things 75   of their oil is imported  from a different continent   and 75 percent of their oils imported and then  i think it's really the boycotts that have   really scared the chinese the most the idea that  individual citizens might have any say on policy   they had they did not see that coming they  have no way to process that in a one-man state   because it's so different to the setup that they  have yeah exactly so every assumption that they've   based the last 40 years of military planning on  has proven to be wrong and then of course there's   the question of whether they could actually do it  if they did a slow-motion mobilization like the   russians did it took three months the taiwanese  would see that they'd build a few nukes and so   the cost of capturing taiwan would  be losing shanghai and beijing   that doesn't seem like a good plan so the only  battle plan that i've seen that might work is   if they just text every member of the army and  say go to a port get on a fishing boat and sail   you'd lose a million people in the crossing  just to get to the beaches so there's nothing   about this that works and if they did pull  it off even if they do capture taiwan they   are now cut off from global manufacturing global  investment global energy and global food trucks   stop running within a couple of months the lights  go out in less than six and that is all she wrote   remember agriculture is an industrial sector so  you're talking about mass famine in under a year   dude now normally i'd say the chinese  aren't stupid they wouldn't do this   but it's a one-man show now and nobody wants to  bring ji any information because they don't know   how he'll react he's shot the messenger literally  so many times that everything is a surprise to   him yes i understand what you mean i suppose  there's a lot of criticisms around the fact that   the vote of a stupid person is worth as much as  the vote of a well-educated person in a democracy   but the problem is if you condense all of that  power down to a single individual the decision of   a an angry or grumpy individual is the  same as them on a good day or them if   they were less idiotic or somebody else  had got to power so yeah i suppose it's a   forcing function that condenses all of these  things down to one individual human that is   just as fallible as the rest of maybe even more  fun human is perfect every time okay but even a   minor mistake just cascades through the system and  it's a full cult of personality so you know we've   got basically people who are zealously trying  to do what they think she wants them to do and   just one of the more inane ones is seeing teams  of people in hazmat gear disinfecting airport   runways because they think that's what you have  to do for covid just that people talk about the   americans now in a fact-free zone that's nothing  compared to what's going on in the chinese system okay so what do you think uh for most of the  people that are listening to this uk us some   in australia what is life going to be like what is  the quality of life going to be like over the next   10 to 20 years what can people expect well the  next five years are going to be rough we basically   in the west need to at least double the size of  our industrial plant let me correct that in the   west minus germany germany is its own special  case everyone else has largely hollowed out   their manufacturing as part of globalization we  focus on the really high-end stuff and the design   but a lot of the middle and the lower stuff is  now done in other countries that's got to change   if you are part of a network where you can access  lower skilled labor like the americans are with   the mexicans great if you're not you either  need to attach yourself to another system   or find some way to go without now if you are in  that kind of friends and family network of the   americans energy is covered food is covered  investment will be tight but available and   there's a degree of security that you won't have  in the rest of the world so the biggest problem   is going to be building out that industrial plant  that means we should expect inflation in the u.s   of maybe 9 to 15 percent for the next five or six  years because that's what it's going to take to   get through this and if we do succeed in building  that industrial plant over that time frame   then that inflation rate will come down and  we'll have supply chains that are shorter simpler   cheaper and closer to the end consumer so better  all around so if you're part of that network   and you can get over that hump it looks pretty  good if you decide to go your own way things are   going to get a lot tougher unless you are one  of those regional powers who actually has the   geography and demography to make it work france  after the financial collapse of say the euro   might not notice the rest of the world  going to hell their manufacturing is   already in place their energy system is fine  they've got oil just across the mediterranean   they're going to have subsidiary economies  in spain and italy it's a fairly good setup that means that cost of living is going to  increase that means cost of energy is going   to increase quality of life going to go down i  mean are we going to see civil strife in your   opinion what's going to go on i think we'll see a  lot of governments collapse but again it depends   upon where you are uh the americans will always  complain more than what the problem is worth and   the fact that we're going through our political  transition at the same time we're doing this is   you know awkward to say the least we're going to  blame a lot of things on a lot of things that have   no direct connection that's very american uh if  you're talking about britain that's up to you guys   it's like you know if you can figure this  out and figure out a relationship with   the united states or the french before  the break that would be your best bet   is that because after the break bargaining power  goes through the floor yeah exactly now is the   time to cut a deal you've just had a change  in government the ukraine was hot and heavy   if you were going to have a lead or take the  country in a more sustainable direction now is the   time if people want to keep up to date with the  stuff that you're doing with the work with keeping   themselves abreast of all of everything that's  happening at the moment where should they go   uh the website is z-e-i-h-a-n-dot and if you go  to that slash newsletter you can sign up for our   video logs and newsletters they're free they will  always be free peter i appreciate you thank you via septum you

2022-08-23 02:40

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