Mapping the Collapse of China and Globalization | Peter Zeihan
so let's start with so you're telling us the world's going to end but let's just work out how we got here you talk a lot about the order we've lived in a freakishly good time which was dominated by the order but that's coming to an end so what was the order sure so in the world before world war ii everything was imperial he had a british system french system and so on and they competed for everything and if you weren't one of those imperial systems you were probably one of the pieces that was getting fought over so technology did not advance all that quickly markets were small and segmented and fragmented and there was always the looming risk of military conflict well that ultimately that competition brought us world war ii and the destruction that came with it uh at the end of world war ii the americans made a deal made an offer to most of the what we now know is the advanced world for a different way of operating we would patrol the global oceans so that anyone could go anywhere and interface with any partner and sell into any market if in exchange everyone would line up with us to fight the soviets in the cold war and it worked and for the first time in human history there was such a thing as a global market and by combining all those little disparate pieces into a single global whole whether it was an imperial center the united states or a colony everyone could access manufactured goods and energy and finance and global transport really for the first time and everyone started to specialize and in that specialization we founded the value-added that eventually brought us to the world we're in today where products can cross the world in a matter of days and supply chains can have hundreds of steps with no risk and yet people can still finance the purchases relatively easily now that was certainly true back in 2019 since covid and the recovery from covid we are already moving into a deglobalized era we're only at the very beginning of the end of what we've come to know but why does it need to end it brought many good things now you might say well that's to you sitting where you are and who you are but to other people they might not agree but in terms of the number of people living in poverty life expectancy sharing of technology speed of technology moving around the world it's not difficult to make the case for why it's been good so why should it it's it's been fantastic i don't think there's a case that can be made on the other side very easily you just have to remember that it wasn't free what the united states did is agree to indirectly or directly subsidize the economic growth of the rest of the world and when the cold war ended we kept doing that but we were no longer getting the strategic deference that we had during the cold war so from the american point of view ever since 1992 the world has been kind of careening out of control we're still paying the upkeep but it has indirectly led to the rise of a number of countries that we're not exactly thrilled with china is at the top of that list and the return of countries that the whole idea of globalization in the first place was that strategic deal to box in the soviet union and now the russians are back so the americans in the last seven or eight presidential elections have gone with the more populist anti-globalist candidate that's not an aberration that's a trend the americans are for the most part done and without someone holding up the ceiling we go back to kind of the dog-eat-dog world but it's a world in which there are billions of interconnections and it doesn't take much to break them so we are now in the early stages of all those interconnections breaking down and countries regions having to figure out how to do it alone and for most that will not be possible energy and food are not necessarily produced in the same places where you live and if you break down global trade we see cascading failures in absolutely every economic sector so the order isn't finishing as a result of it not being good it's finishing because it was inevitable because it required the us to be super power that protected the world and the key mechanism for doing that chrome for wrong was us naval power maple power was absolutely the biggest piece there's actually an argument to be made now that even if the u.s wanted to continue it couldn't we have shifted the way our navy works over the last 30 years and we're almost exclusively focused on projecting power through our carrier groups we're going to have 14 of them by the end of the decade and you know they're incredibly strong that's how you knock off a country for sure but if you want to patrol the global seas you need destroyers about 800 of them we have 70. so there isn't a coalition of countries that could theoretically step in and take the americans place here but there's another piece to it too the rest of the world is not willing to defer to the united states on security matters and that's the other half of the globalization equation so whether it's from the point of view of the security provider or the consumer this was always going to end and now it is so the question and i guess what we're really going to talk about today is not is it going to end you would argue that's something you pretty much know for sure what we're going to debate is what comes next absolutely so we have a whole another generation to figure out yes yes yes well for anyone who who reads your book or indeed has read it already you're not shy and coming forward when it comes to outlining what the future could look like so i thought maybe we could do this we could actually think about the future in two ways firstly through the different drivers the big chunks of the economy particularly that are relevant in terms of connecting the world and secondarily your mental model for thinking about countries so who who wins and loses from this because it's not the same as it was what it is it is in terms of who's in first place but we can reveal who's in first place when we get there but in terms of the economic path how about we start with talking around transport and manufacturing so i think they're quite linked so how do you think transportation is a enabler of global trade so before world war ii transport was a little dicey you had all these conflicting imperial systems and you would either have to have de facto control over a body of water or you would have to send your ships out to escort and that meant there was limits on to how much could be shipped and the cost was relatively high you had to go fast to avoid foes at limited range with globalization that all went away all the hostile navies of the world were sunk pretty much during world war ii the us was one of the very few to survive and then it was put to the service of the global commons so that anyone could put any product on a ship and have high confidence that would get to its end destination now in the early days of this as europe was recovering from the war as japan was rebuilding and then ultimately as the colonies were being freed this started with the same basic stuff that we had during the imperial era iron ore food oil the basics but as time went on it became apparent that you could have more and more ships with more and more product on the float we started getting into this crazy idea called intermediate good trades where you would make a bumper for a car or a carburetor and you just specialize in that one thing and that specialization expanded the volume of what we would transport by an order of three orders of magnitude and that brings us to the world we are today where an iphone has like 1100 parts and 10 000 independent supply chain steps because the risk within the system is negligible so everyone specializes in the specific thing you shuttle intermediate products about and then ultimately the final product will end up in your front door that is something that is so far past what has been reality in human history as to almost be obnoxious but this is our normal today and as we're discovering whether it's because of the ukraine war or the china lockdowns or the trump tariffs or brexit you disrupt one piece of one supply chain and you do not get an end product so now we have to do all of this in screaming reverse unspecialize bring production supply chains closer to their end consumer make them shorter make them less energy intensive and that means that roughly two-thirds of the people in the world that are in the sector of manufacturing no longer have a means to earn a living that cascades through absolutely everything else and the main reason that would happen is because of security of supply or security of transport are you saying it's literally going to be a lot of piracy on the high seas it's going to be difficult to move things around the world or is it more countries being less willing to share materials so is it is it more of a security of supply i don't want to integrate as much or is it more i can't integrate as much because it just isn't safe actually all of the above we've already seen the french the greeks and the brits start to confiscate vessels for russian sanctions we now have an insurance pargo embargo on russian crude and the russian state is offering sovereign indemnities which is just like asking for nato countries to start picking up a few of their tankers in order to crush the russian economy and convince other countries to not play we also no longer have sanctity of supply in china because of the kovid lockdowns shanghai's bid was locked down for all of april all of may reopened on june 1 it's in the process of closing down again whether it's for health or for populism or for trade or for security or for energy or for interruptions and the actual flow of goods this doesn't work anymore and that means we have to rebuild the supply chains and if we're going to rebuild them based on our own consumption needs most of that is going to be internal so the uk once it figures out brexit will probably join the nafta alliance we'll see what happens with germany in a system where they can no longer access materials from ukraine or russia that's going to be very difficult for them to change but most of all you've got this disconnect between supply and consumption if you don't have a lot of people in their 20s and 30s and 40s you don't have the big bulk that allows modern consumption driven systems to work that means you can only play on the production side on the export side and that makes you very vulnerable to changes in anything in the international environment or changes in the political and or economic environment of your ultimate consumers so we're seeing this what has been a flawless frictionless system face pressures from every point of the compass at every step of the supply system and a logical conclusion from everything you just said of course is it's inflationary as the world uses its resources less efficiently that i mean that is something we didn't go deeply into in the book because it's more about the transition but that is absolutely part of this transition process you don't break up an old supply chain and build a new one in a period of demographic decline without massive inflation and here we are this is not a one-off this is not a biden thing this is with us for years i want to be an optimist i think is probably a better way to go through life but i don't want to be a mindless optimist i don't think that's a great way to go through life there is such a thing as human ingenuity there is necessity as the mother of all invention when you think about things that are going to inflate or be in demand when you think about solutions to some of these problems i mean automation must spring up as one that if you are going to make more stuff closer to where you consume it and you've got demographic decline you're going to need you know if your cost of labor is going up you're going to need more automation would you agree with that and what else do you think as we're sort of talking around manufacturing what else do you see as a whole set of new problems what do you see as the problem solvers automation's great if you can afford it one of the problems with demographic decline is we let me back up when globalization hit everyone could play at every part and so we moved off of a subsistence living in agricultural zones into the cities where we took higher value added manufacturing and service jobs and when you move into the city you find that necessity you have a smaller living footprint so you have fewer children also on the farm kids are free labor so you have a bunch the city not so much you play that forward for 70 years and a lot of the world stopped having kids in large numbers 50 years ago so we're now in this decade at a point where a lot of the advanced world their last generation is moving into retirement and when you have a mass retirement event like what is going on with the baby boomers right now they change the way that their capital works and they cash out their stocks and bonds and they go to t bills in cash so we're going to have a financial shortage here as well that's a real problem for automation automation is expensive to develop to install and everyone forgets the third step to update whenever there's a change to the product set that's the most expensive part of all we just don't have the capital that we're going to have so we need to retrain workforces shrinking workforce environment we need to relocate manufacturing assets in an environment of de-globalization at the same time we have to find enough capital to power all of this so for countries that are more advanced in age i'm thinking here japan germany italy i don't see how they pull that off for younger ones the uk the united states i can still see it working with automation but it's just better to have another labor force that's proximate at a different price point with a different skill set in the case of the united states that's mexico so you can have limited automation and integration with the mexican system and avoid most of these pressures but most of the advanced world doesn't have that sort of option the germans have tried it they're very good at automation but their population is so far past terminal and most of the younger countries that they've integrated with are actually aging faster whether poland or slovakia and so the next step was supposed to be ukraine that is now off the menu so we're looking at the german manufacturing model arguably being the second worst one in the world to adapt to the world we're moving into i told you it was going to be interesting dear listener so let's talk about what's more important energy maybe food i'm not sure which one is more important but i would come with food but i can see why people would you know go back and forth on those two let's talk about food how the changes of food flows around the world are going to happen and what they mean we're getting an unfortunate introduction to the early parts of this with the ukraine war russia used to be the world's largest exporter of both fertilizers and the inputs that go into fertilizers and we're now seeing shortages on a global scale in the united states that has resulted in a lot of crop switching in the european union a lot more subsidies have been required and a lot of the developing world they're just not using fertilizer at the scale that they normally would so we don't know just how bad it's going to hit this year but we will find out in september that's usually when we get our first reasonably accurate forecast for what the harvest will be and we're going to be shy of food for probably about 400 million people this year that assumes that the war in ukraine stops right now and that the ukrainians are able to harvest and export normally which is exceedingly unlikely you add that in we're talking malnutrition probably for about a billion people starting at the end of the fourth quarter of this year this is just a taste of what's to come unfortunately agriculture is the economic sector that is most vulnerable to disruption if something happens to finance farmers have a hard time sourcing the inputs they need if something happens to manufacturing they don't get the gear they need to operate large fields if something happens to industrial commodities the fertilizer system falls apart and you look at yields potentially dropping by as much as two-thirds on a global basis if you have a problem with energy there's no fuel and oil is one of the components that goes into most fertilizer and pesticide and herbicide inputs so any disruptions anywhere in the world in any parallel economic sector ultimately cascades through to agriculture and it's not like building a phone if apple has a problem with getting their cameras in you know a couple months later it'll probably come through and you'll just get your phone two months late but if farmers are delayed two months in terms of harvesting or applying fertilizer or planting you don't have a crop that season and we're seeing what that looks like right now unfortunately and you don't foresee again back to my kind of you know we we extrapolate what we know but there's the sort of hidden option value of innovation invention solving stuff you don't think we're in for another green revolution where we can see food grown in different places whether that's vertical farming in cities you don't see much there in terms of kind of that right tail outcome where actually we didn't know we could do this this and this and it's transformed supply you don't see that i would love to be surprised let me give you the bad news and i'll give you the good news because there is some good news on this one let me knock down a couple of those vertical farming is great for hot house plants that can potentially be grown close to an end city a population center where food prices are high but rain and soil just cannot be replicated a scale for any of our staples so about as exciting as you can get with vertical farming as maybe tomatoes but you really you're talking like greens and micro greens is really all you can do economically viable in that environment the input costs are just too high for anything else problem is going to be capital there are a couple of technologies that look very promising that are past the point of prototyping so they're actually getting into mass manufacture now the first one is genomics whether that is gmos or gene editing people have very strong opinions about one being better than the other or whatever but these are technologies that are in play that can substantially increase yields year on year and probably in the places where they are applied you're looking at an increase in yields of 50 to 75 percent over a decade that's substantial second we have now merged facial recognition with agricultural technologies so there are now modules you can attach to a tractor with a bunch of tanks and they take an individual photo of each individual plant and then give it individual attention so does it have a bug infestation give it some pesticide is it yellow give it some fertilizer is it a weed give it some herbicide and in one pass you can treat an entire field which would normally take three or four or with organics 15 or 20 but you use a fraction of the inputs and in the world we're going into that sounds really attractive the problem is capital this new equipment is really expensive and gene editing is definitely not cheap so you can only apply these in places where the manufacturing system is more or less homegrown and where the financial capacity of farmers is relatively high so they can afford to buy this stuff and that means they can only be applied on the really large farms that grow row crops so you're talking canada the united states australia if they can get the politics right maybe argentina a little bit of france a little bit of uk a little bit of the netherlands that's great that's probably going to stop a billion people from starving over the next 10 years but the number of people who are going to be suffering extreme malnutrition and famine is still looking to be north of a billion people even with these advances and that is a a scary and deeply concerning number so what is that i mean we're going to come on to this but food supply food security food supply versus political upheaval unrest we all know the history that whenever you get severe food shortages or rampant food price inflation political unrest political change often goes hand in hand absolutely so that would be your prediction that history is right i think we're going back to that in a very big part of the world heavily concentrated in the eastern hemisphere writ large the western hemisphere is a significant exporter and the southern hemisphere is a significant exporter so it's kind of like that northeast quadrant of eurasia and the middle east that i'm most concerned about most of the green revolution the green revolution that took place in the 60s and 70s in agriculture was an input story we got capital equipment fertilizers pesticides and so on to places that didn't have them before and in lands that normally would not produce with the pre-industrial skill set they could produce with the industrial skill set i mean that's the story of brazil right there that's the world's third largest exporter now we're seeing a disruption in every part of the input stream and it's going to get more and more intense so the places that have seen the greatest output increases over the last 40 and 50 years those are likely to be the places that are now going to see the largest decreases i said food first then energy let's do energy we know kind of where energy is located at source around the world very convenient isn't it yeah so play it forward how does the flow of energy change and then what about our our right tail bit of luck option value that actually renewables saves the day sure so there's three big sources for conventional energy the north american system is shale based and it is broadly okay the technology is local the workers are local the infrastructure is local the consumption is local now for people who live in that space yes there are small forests of caveats but overall north america looks pretty good the second big source is the former soviet union and even if the russian government fell tomorrow and was overtaken by a small band of kindly kindergarten teachers the problem's technology the russians don't have the tech to operate most of their own fields particularly in the eastern half of the country in east siberia the stuff that goes to east asia this is all stuff that was brought online post-soviet and now that there are no longer western texts in the space you should expect that production to collapse we don't have a metric to determine how fast but it's really difficult for me to see most of it lasting more than three years and that assumes no boycotts no war no sanctions that's just from getting the stuff out of the ground in the first place and then the third big source of course is the persian gulf the oil fields in the persian gulf are simpler than the ones in the russian space or the american space so a broader array of players can produce their problem security and the two biggest producers iran and saudi arabia hate each other so very very much and now that the united states has left they are having a spirited debate about who should actually be in charge in the region and are trying to sabotage each other's systems at every level there are very few countries that have the naval force to reach the persian gulf at all and there's really only three that can potentially do so in force the united states is one we're not interested japan is the second one and the japanese have not yet turned the page to the point that they're willing to deploy marines to take over oil fields and the last player is turkey and turkey is still trying to figure out what its future is going to be so i can see an environment where a lot of countries including france and britain and china attempt to put expeditionary forces in the region but can't sustain it so we can have kind of the worst of all worlds a regional blood feud and a neo-imperial battle all at the same time none of which argues well for long-range oil transport the biggest losers out of this of course are the east asians specifically the chinese china imports 85 percent of its energy 85 of that comes from by tanker from the persian gulf and the remainder is from that part of the russian space that is going to go to zero so on this factor alone ignoring everything else that's enough to throw china back into a pre-industrial standard of living let's go to the implications of and when we scratch the surface on on a lot of the things you discuss in your book and actually in previous books but the implications of all that rolled up into what does it mean for countries because there's a bit of a cliffhanger there with regard to china but could you first before we talk about whatever comes next we don't have a name for yet because it hasn't happened but we know what was there which is the order but as the order ends we kind of know who the order was beneficial to the answer lots of people but before we get to kind of conclusions for what the future looks like in terms of winners losers countries that go from winners to loser some maybe goes to loser to winner but what's your mental model for thinking about the drivers of what makes a very well positioned or advantageously positioned country in your mind whether it's through the vectors of demographics command of resources location location location all those things can you share your mental model before we get on the countries sure well you just listed three of them so that's good you want a demographic structure that is sustainable now that doesn't necessarily mean that you have to have more babies than teenagers than 20-somethings and so on but it's hard to screw that up because if you do have a lot of people who are younger they are self-sustaining once you age past the point that you have more people than their 40s than their 30s that's where things start to fall apart because you have now aged past the point of theoretical biological repopulation and there's a lot of the world that's in that right now location is absolutely critical it's kind of a candy bar analogy you want a gooey center where it's easy to move things around and as crunchy of an outside as you can swamps are okay mountains are better oceans are the best if people can't park their tanks on your lawn this is a plus and if you're on an island or have more or less a continent to yourself that means whatever military force you have is probably going to be naval based it means you can go visit them instead of the other way around that's kind of the ideal position to be in and is one of the reasons why the united kingdom is able to rule the world for so long you also need a certain breadth of resources first and foremost most important is food you need to be able to feed your own population because if you're dependent upon a colony or a trading partner for being able to keep your population alive you're not gonna go very far that's one of the reasons why back in the age of the empires all of the successful european empires were ones that might source some food from abroad but for the most part they were capable of feeding themselves it wasn't until we got to the industrial age when the brits were industrialized and no one else was that was the first time that we had long range food supply for an imperial core and it could only work because the brits literally brought a gun to a knife fight for 150 years which is how you win a fight let's see what else raw materials energy conventional crude is great conventional natural gas is great unconventional works if you know how to do it solar and wind are a little messy there isn't a lot of the earth's surface that is either windy or sunny and proximate to population patterns so there's always going to be this disconnect between what you need and what green tech is able to produce we also don't have a very good technology yet for battery chemistry so doing grid at scale good storage at stale just isn't happening yet california is the best example in the united states they are by far the greenest state they have one minute of battery storage if you really want to go green you need it for hours so we're not in a place right now where there's enough lithium production in the world to allow the united states to get four hours of battery storage even if no other country used any lithium and we only used it for power systems so no phones no clocks nothing just batteries for power systems there's not enough in the world so we need something better we're not there yet you overlap all of these and there's certain parts of the world that look great and certainly parts of the world look awful the middle east imports all their food they actually even have in many cases other countries process their energy that's not self-sustainable in a post-globalized world north america is self-sustainable in almost everything you can see that system having some hiccups as they adjust especially in manufacturing but that works the united kingdom is kind of in between self-sufficient food british food we can talk about that if you want to because but they have a foot in both worlds which honestly i think is always where the brits have been more comfortable than all completely with one side or the other so a partnership with the united states on defense and energy partnership with nafta in terms of manufacturing that works there's a lot of change that has to come that will be inflationary that will be disruptive yes but it's the sort of change that the brits have done before far more concern for germany all of the inputs everything absolutely everything except for the labor comes from somewhere else and their labor is dying out as well how germany transitions through these geopolitical changes is going to be one of the most shocking things that the german people have done ever and we all know from history that the germans do not culturally deal well with systemic shocks i've got concerns there so you're you're top tier if i'm wrong in first place subject to local politics is the us of course yeah we'll always make a mess of the politics that's just a given so us is number one now i know some of the other places you've mentioned in your previous book but one there are some surprises in there so number one is us but let's say in the next tier down below the us who've you got in that by far the french and the japanese the french have the best demography in europe they have a electricity system that is largely nuclear and if they that doesn't work they're on the far western edge of the continent and oil sources are not too far away they also never really invested their economy into the eurozone and one of the dirty little secrets of the brexit debate is that the united kingdom and the french kind of treat the rest of europe the same way from an economic integration point of view and so just as the brits can go their own way without too much pain so can the french the japanese on the other side of things their demographics are horrible but they've been horrible for 30 years and they found a way to deal with it they're the only country that has successfully automated through that and they also have a long-haul navy so they can make it to the persian gulf if they need to more likely they'll partner with the western hemisphere in order to get the inputs that they need and they already have the world's second most powerful navy so the idea that they can go and get what they need is a reasonable one japan i think is a surprise it is to most people yes yeah we think of them as a spent demography and a spent force but they've become more and more active and more and more militarized over the last 20 years and one of the uh the big surprises from my point of view about the japanese because i used to think they were going to go their own way they cut a deal with the trump administration and then they cut a deal with the bible administration they are the only world government out there right now that has found a way to deal with both the center left and the far right and the united states cleanly so they were the third country to sign under the sanctions against russia for example and they have decided to purchase themselves a place in the american friends and family plan they're not in nafta but they have a free trade deal so it's about as good as it can get right okay next to turkey stable demography surprisingly shockingly diversified and stable manufacturing system self-sufficient in food oil's close hand natural gas is close at hand and they are already the premier military power in their neighborhood based on how the ukraine war goes that neighborhood might widen a little bit i see no version of the future in that part of the world where the turks are not playing a much larger and more stable role now europe of course is going to have to come to terms with that again and it will be just as uncomfortable this time as it was last time and then finally one that kind of shocks most people is argentina argentina was the world's fourth richest country per capita back during world war one and while they have had a government that is creative in its destruction they're still a massive producer of food they're almost self-sufficient with energy they have some of the the simplest oil fields to engage in production in and they do most of the work themselves they even have a functional shale sector which only happens in three countries in the world most importantly though there's not a threat near them they're at the southern end of the western hemisphere their closest countries that are capable brazil and chile are going to in the case of chile become a bit of a satellite in the case of brazil become a bit of a no-man's land there's no security threat here at all the biggest challenge they're going to have is bringing manufacturing back and if global manufacturing is breaking down they're going to have a choice build it yourself or go without and like the americans the argentinians do not like to go without okay yeah i mean argentina i think would be a surprise given i hear you on its previous position in the world in terms of share of gdp but it's it hasn't really got back there over quite a long period of time so the problem there is purely politics and i don't mean to suggest that's going to vanish but if we're moving into a world where transport breaks down and rule of law is not enforced and shortages are the orders of the day this is what the argentinians call an average thursday it's not so much that they're rising to the median as the medium is falling to them and that's assumed that they don't change anything they change a few things and things get golden very quickly got it got it so other surprise well not other surprise but other winners coming out of this india looks interesting they don't do a lot of manufacturing right now because of a cost issue compared to the chinese but if that system goes away kind of like the americans and the argentinians they'll have to choose what they want to go without i don't think it's going to be a globally engaged india they're the first stop for oil out of the persian gulf so probably no oil crisis they have the capacity and the demography internally to rebuild their manufacturing system but even if all they do is build enough for themselves 1.4 billion people that's globally significant even if they're not globally engaged so you can kind of see india taking a page from the british book and existing in splendid isolation for a fair period of time okay so there are some big countries that we have not mentioned one of them in this section of the interview we mentioned a little bit earlier but you have not mentioned china china dies this decade this is a short version their demographics are now so atrocious that we're looking at having the population have between now and 2050 and that's primarily through aging that assumes no breakdowns in the input systems that allows them to have energy and grow their food with just that the entire economic model will collapse before 2030. if we have disruptions to energy and this is a country that imports everything in its energy sector you are looking at a de-industrialization well before that and with covid we're seeing manufacturers up and leave as quickly as they possibly can because this is now the new norm for china china's vaccine doesn't work versus omicron b and so china is no longer a partner in reliable international supply chains so everything that can go wrong in china right now is going wrong the ukraine war is particularly problematic because it means they're going to lose energy from the russian space and probably even a lot of food from the russian space they're probably the biggest losers out of the war after the ukrainians themselves obviously because they're the last country in the kick line everyone else gets their stuff first so that that is i'm going to say that's controversial and perhaps push back a bit and say doesn't china have a ton of naval power military power does it not have a pretty good record of innovation or at least not every country is innovative in itself but they can be fast followers and adopt and adapt more countries do that than than not and china has proven very good at doing that so if japan was faced with very challenging demography which it was and invested overseas to build production overseas and built a navy to protect why can't china do that indeed i would argue it has been doing that i'd actually argue that it hasn't worked out for the chinese on any of those measures let's start with the copying and the innovation china makes low-end stuff they do assemble it i don't mean to suggest that's insignificant it's a critical part of the process but the chinese cannot make the machinery that makes the low-end stuff they have to import that from somewhere else they can operate it and they can operate the machinery that makes the mid-end stuff but they can't make any of it themselves about 80 percent of the value added in the chinese economy is from imported parts that makes them the king of the assembly and the masters of the low end and that is critical but that is not what allows you to be an independent poll in international economics especially since all of their other inputs come from anywhere else as well and unlike the brits and unlike the french and unlike the turks and unlike the indians and unlike the japanese they can't go to get what they need on paper yes the chinese navy is huge it has more ships than the british the japanese and the american may be combined by a significant margin but 90 percent of them can only go a thousand miles from shore and that assumes that they're going in a straight line not zigzagging and not under attack so they can go slow to save fuel under combat situations you're talking 400 miles so in any war scenario where the chinese are involved someone india japan the u.s someone australia is going to put a couple destroyers in the indian ocean basin and that will be the end of china's energy imports there's no way deglobalization breaks for the chinese in a positive way and we've seen with the ukraine war that everything that they thought was true that the war would be quick clearly not so they now have to apply that to taiwan that no one will sanction russia well that didn't work out and so they now have to consider that there might be sanctions on food and energy with the russians that's an export issue that's a numbers issue with the chinese it's an import issue it's a national survival issue and i think they were really floored by all the boycotts the idea that private citizens can have an influence over corporate policy they have no frame of reference for that one so everything that could go wrong for the chinese is going wrong all at the same time right now and we're seeing it start to break down to their decision-making systems china's economic rise china's the number of people who've seen their incomes rise however you want to set the the poverty level has been astonishing and it's been an amazing achievement i agree on every point and now we get to see it go in reverse okay so let's um let's finish up with a couple more countries brazil why not brazil versus argentina or can they both succeed together or why have you selected argentina over brazil i don't think that brazil's gonna collapse but i think their golden era is over the brazilian farmland most of it especially in the northern 90 percent of the country the area that was reclaimed from tropical savanna in particular it has no nutrient profile in the soil so it is an input story and in a world where the chinese are ravenous consumers and finance is cheap and all the inputs are easily available brazil is a success story because you're basically growing food in a petri dish and the petri material itself is the fertilizer if you break down that supply chain system you're in a semi-tropical desert and you're looking at yields simply not being possible so the extreme southern provinces that are kind of an extension of the pampas region in argentina they can still grow just not at the same scale but those northern ones that the story of the agricultural explosion in brazil over the last 20 years that just stops and if anything we get a small volume of crop and some low grade beef and that's about it in argentina it's actual soil it's a bit like the american midwest or the midlands region in the uk and it's prairie soil it rains so the inputs are low you use fertilizers to get higher crop yields not just to get crop yields so we can see the argentinian output being more or less in the future what it is now and if they change some policies increasing significantly but brazil brazil has had its moment unfortunately okay so one more country and then uh we'll wrap russia russia oh wow okay i never bought into the hyper optimism of the last couple of months for the ukrainians i mean don't get me wrong they have outperformed by every possible measure i don't see how they win this the russians have more men they've got longer-range weapons they've got a better logistical system and despite all of their problems they have a very very very deep bench whereas the weapons that the ukrainians can use are limited in supply first the former soviet satellites are providing them with some older equipment that the ukrainians can use right now and then we're trying to train up the ukrainians on a number of other weapons systems of which in the united states the javelin and the stinger are the most famous those are all available in very limited supply and we'll probably run out of all of them this year against that you have low morale russian conscripts operating 30 year old tanks that have been inexpertly maintained going against unarmed ukrainian infantry there's no math there so the russians will pour over the ukrainians and i think we're going to be dealing with a war of occupation within a year and which will just be the next phase but this is russia's last war the russian demography was the worst in the world until the chinese screamed by them a few years ago this is the final century for the russian population and what they're fighting for right now is to try to establish a more coherent defensive perimeter where they can concentrate forces in things like the polish gap where normally they've been invaded through and if they can do that successfully they will probably last another 50 years if they fail at that you're looking at the russian system collapsing in less than 20. and whereas the chinese system is very heavily densely
populated so a breakdown in supply chains means mass famine and mass return to the countryside russia despite all of its faults is still going to be producing enough food and energy for itself so it can disaggregate into kind of a regional principalities model like it used to be and cease to be a regional power but still be a recent regional center weight you will never be able to ignore russia if you are on its border but it will degrade in time into a series of competing fife domes unfortunately they also have nukes and that is something we will have to stress about a few years from now well at no point did we promise this was going to be sunny optimism but it has been fascinating we've covered a lot of ground your book your work covers tons more but peter i want to say thank you for coming on the show thank you for sharing your views thank you for making it very stimulating conversation my pleasure until next time at this time passing zero seven zero four one four zero rtb linking via septum you
2022-09-01 23:20
