What this covers
Was 2019 the last great year for the world economy? For generations, everything has been getting faster, better and cheaper. Complex, innovative industries were created to satisfy consumers, but are we at the brink of not being able to sustain ongoing demand?
Geopolitical strategist Peter Zeihan asserts it is only a matter of time before major changes will start to unfold that will affect how we manufacture goods, grow food and produce energy. Additionally, the list of countries able to sustain this model is much smaller than you might think.
Zeihan issues an urgent call to avoid what he sees as a catastrophic ending and maps out what the “next” world will look like.
Notes
This program is supported by the Ken & Jaclyn Broad Family Fund.
Photo by Barton Wilder.
December 2, 2022
Speakers
Peter Zeihan Author, The End of the World Is Just the Beginning: Mapping the Collapse of Globalization; Twitter @PeterZeihan
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Zeihan argues that the 75-year post-WWII order of American-guaranteed global free trade and security is collapsing due to demographic decline, resource depletion, and the rise of competing economies, forcing a fragmented world where the US—uniquely positioned with young demographics and geographic advantages—will experience unprecedented growth while most of the world contracts.
- The Pax Americana was a security arrangement, not an empire, where the US subsidized allies to contain the Soviet Union; once the USSR fell, American willingness to maintain this system eroded
- Demographic collapse (aging populations, declining birth rates) has made global consumption insufficient to support global productive capacity, breaking the consumer-led growth model that globalization required
- The US alone has a millennial generation comparable to global cohorts, positioning it for growth while Europe, China, Japan, and Korea face demographic catastrophe and economic contraction
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The United States is uniquely positioned among developed economies because it had suburbs with single-family homes and yards, which allowed Americans to have more children than their European or Japanese counterparts, resulting in the US having a millennial generation that is larger and exists in greater numbers than the equivalent millennial cohorts in Britain, Germany, Italy, Korea, Japan, or China.
“The prominent one is in the United States, where we had the suburbs. Suburbs in the United States mean something different than suburbs in most other countries. Most of the countries, the suburbs are slums here. Single family homes rule. And as if you have a yard, you can have more kids... the millennials exist. There isn't the equivalent of a millennials in Britain or in Germany or Italy or Korea or Japan and China. And for the next 40 years that is going to make all the difference.”
The post-World War Two order established by the United States was fundamentally different from previous imperial systems because it was not based on military domination and economic extraction, but rather on creating a security alliance where the US used its Navy and market access to incentivize allies to align against the Soviet Union during the Cold War.
“the American period was not an empire. When you're an empire, you use your military force to force your way upon the world and extract economic concessions... the United States didn't do it that way because the United States wasn't interested in the economic side of dominating the world. We saw it as a security problem... we needed to have a deep roster of allies who were willing to be cannon fodder... And so we bribed. We created globalization and used our Navy so that any of them could go anywhere at any time and interface with any partner and access any market.”
The United States at the end of World War Two was a larger economy than everyone else in the world combined by all meaningful measures, but over 75 years of deliberately encouraging global growth through market access and military underwriting, the rest of the world grew collectively more powerful economically to the point that the US, even if it wanted to continue subsidizing everything, now cannot afford to do so.
“when this was established in the 1940s, the United States was a larger economy than everyone else in the world put together by all meaningful measures. But year by year by year, as the United States basically encouraged everyone else to grow. We used our military capacity and our access to our market to underwrite the entire alliance. You do that for 75 years, and collectively the rest of the world got powerful, more powerful and more powerful economically to the point that the United States, even if it wanted to continue de facto subsidizing everything, it couldn't.”
After 75 years of industrialization and urbanization, the demographic structure of the world has fundamentally changed such that in most of the advanced world, there are now more people in their sixties than in their fifties, forties, thirties, twenties, or teens, creating a top-heavy demographic full of people on the verge of retirement with insufficient young people to sell to, breaking the consumer-led growth model that globalization depends on.
“After 75 years of industrialization and urbanization, the very population structure of the world changed. And in most of the world now, especially in the advanced world, there are more people in their sixties than their fifties, in their forties, in the thirties, in their twenties, in their teens. And we now have such a top heavy demographic that's full of people who produce, who are now on the verge of retirement, that there aren't enough people to sell to.”
The debt overhang from post-WWII baby boomer retirement is a global tsunami that will be 'crushing'; the US faces about one-third less burden because it has millennials to help pay and a replacement generation, but the problem is still severe.
“As the boomers retire globally, that they're taking their capital with them. At the same time, they're going to demand more capital from the system for health care and pensions. So this is a global tsunami and it is going to be crushing. Now in the United States. We've got the millennials to help pay with things, pay for things. We have a replacement generation. So in relative terms, we know that the the carry here is about a third less than what it is everywhere else.”
Even if Europe decided to exploit shale gas tomorrow, the projects require financial authorization, project management, regulatory approval, pipeline construction, drilling, and operation—all of which require years to complete, making even a best-case timeline of 3-4 years for major infrastructure projects like deepwater ports, assembling navies, and running pipes, which is far too slow to address immediate energy crises.
“projects like this deepwater ports, assembling navies, they take finance, they take project management, they take regulatory approval. Then you got to run pipes. Then you got to drill dig holes. Then you got to it's years. It's years to get to that. Like, if they decided to drill the loop tomorrow, it would still be three or four years, which you consider a fairly critical time... there's still physical limitations, even if the permitting goes away.”
China faces the worst demographic situation in world history, having recently admitted overcounting population by over 100 million people since the one-child policy began, such that there will not be enough people aged 40 and under by 2030 to maintain any version of any economic system yet devised, and there is no theory for what such a demographic collapse might look like.
“the demographic situation is the worst in world history, and the Chinese are in the process of updating their data and they're now admitting it. Since the book came out, they're admitting that they overcrowded their population by in excess of 100 million people, all of whom would have been born since the one child policy was adopted... we're already looking at a demographic structure that's not even in decline. It's in full collapse. And there will not be enough people aged 40 and under in China by 2030 to maintain any version of any economic system that we have yet to dream up in our heads. We don't even have a theory for what this might look like.”
International transport, which has historically been cheap and reliable at a global scale, is now becoming fragmented and regionally based due to the collapse of US naval protection and security guarantees, which will break down the current systems of manufacturing, energy, and agriculture that depend on global just-in-time supply chains.
“The concept of being able to move anything at scale anywhere in the world at a very low cost, reliably with no security cost whatsoever. Historically speaking, that is a laughable concept, but it's indelibly woven into how we think of the world today... We're moving into a world where international transport is not going to be safe. And in that sort of world. Everything about our current manufacturing, energy, agriculture, everything else breaks down. And transport becomes a local and a regional concert instead of a national one that forces a complete reimagining of how the world works.”
The future world will be marked by dead space—zones with low population density and no industry between the power centers (France, Argentina, Turkey)—similar to the Roman marches, where nation states will remain strong authorities but ethnicity is disintegrating globally in real time, forcing new economic models, though not within 30 years.
“there's a lot of dead space between the power centers of the future that are going to have a feel like the old Roman marches where population density drops off or industry stops. And it's a bit of a no man's land... for demographic reasons we're actually seeing the disintegration of a lot of ethnicities in real time. And if you break that, then you can't have the nation state without the nation. And that is going to force new economic models. Now, we don't get that in ten years. We probably don't get that in 30 years.”
Renewables like solar and wind are interesting as part of the energy picture in Europe, but Europe doesn't have many sunny or windy places, so Europeans will need oil and natural gas, but oil and natural gas are the internationally traded fossil fuels that are relatively low carbon compared to coal and wood.
“I'm a big fan of solar and wind in places that are sunny and windy. There are not a lot of those in Europe. Okay. Yeah, that's done. Then they're going to need oil. That's not just oil, because oil people forget that oil, natural gas or the internationally traded fossil fuels are the ones that are relatively low carbon.”
Opening the Dutch natural gas fields would cause flooding problems for the Netherlands since most of the country is below sea level, and the country is very nervous about this for good reasons given that earthquakes have been caused by gas bubbles.
“According to the Dutch, if you take much more natural gas out of that, they're going to have flooding. And remember that the majority of the Netherlands is below sea level already. So that is a non trivial concern. So earthquake on it basically flowed on a gas bubble.”
American factions have shifted significantly over the past 30 years due to globalization's rise and fall, China's rise and fall, the Ukraine war, and the information revolution, making it logical that political factions move around based on these changes, and the US electoral system (first-past-the-post, voting for persons rather than parties) creates weak big-tent parties with many factions.
“Our electoral system strongly encourages big tent parties because we're first past the post. So you and you vote for a person rather than a party. So our parties tend to be weak, and that means they have to have as many factions within them in order to win office. Well, those factions move around based on issues and demographics and economics and geopolitics. And in the last 30 years, we've had a lot of change. The rise of globalization, the fall of globalization, the rise of China, the fall of China, the Ukraine war. Now the information revolution makes sense that the factions are going to move around and we're going to treat our politics different.”
Xi Jinping has consolidated more power to himself than any human in history, including Caligula, making it impossible for him to receive accurate information because people fear his reactions, which isolates him and causes him to believe propaganda on energy policy, tech policy, and COVID, leading to systemic collapse visible in protests and policy failures.
“Xi has become the strongest cult of personality in human history. And he's consolidated more power to himself than any human in history, including Caligula. It's impossible now for him to get information because people won't bring it to him because they're scared of what he'll do... So he's completely isolated. And so all he's doing basically is drinking Kool-Aid. He's drinking the Russian Kool-Aid and believing them on energy policy. He's drinking Chinese policy, and he's believing that China's propaganda on tech policy and on COVID”
The US dollar is now more powerful than ever before because it is the only currency with a growing population (millennials) creating forward demand, and every other major currency (euro, yen) has been subordinated to the dollar through sanctions regimes, making the dollar the only viable medium of exchange globally and ensuring it can only go up for decades.
“So the U.S. dollar is more powerful than it has ever been before. And if you consider that only the United States has millennials and it's only the United States now that has a demand moving forward. And so it can use normal monetary policy tools like raising interest rates. And there is no but the dollar for the dollar to go but up for decades to come. And the last the US trades with the world, the more attractive the U.S. dollar is as a method of exchange for everyone else, because you are less concerned that the U.S. is going to manipulate it now.”
Mexico entered serious industrialization 30 years ago with NAFTA, causing its birth rate to halve as people moved to urban industrial jobs, eliminating the source of Mexican migration to the US, and the Central American wave currently being experienced will end in a few more years when similar development occurs there.
“Mexico started industrializing very seriously 30 years ago with the NAFTA accords and the birth rate halved as everybody moved into the towns to take the industrial jobs. So there's no longer a volume of Mexicans to come north. And then Castor was adopted five years later. So the Central American wave are currently experiencing only has a few more years to run before that is gone.”
The Russia of 2022 proved unexpectedly fragile, demonstrating that even states with long historical durability can be paper tigers when military capacity has degraded, making it unclear how fast China can actually collapse and suggesting the CIA's historical overestimation of Soviet strength (C+ to C- rating in the 1980s before collapse in 1989) may apply to current assessments of other powers.
“When you look at states that have survived and as long as Russia has been around, you assert assume there's a certain durability. But here we have a country that keeps threatening and launching wars that when someone pushed it back, we discovered that it's a paper tiger, not just any stretch of the imagination, but utterly incapable of learning the lessons of the Crimean campaign, much less the world. Worse, Russia has regressed in terms of military capacity over 50 years since the Cold War ended... makes you wonder who else out there is not nearly as strong as we think they are... The CIA kept predicting how strong the Soviet Union was, and you'd give them about a C plus to a C minus on the overall verdict because it just cascaded apart in 89.”
The Black Plague killed a third of Europe but created advantages for labor, arbitrage disruptions that spawned new power players and merchants, and eventually led to the Renaissance; similarly, the current demographic collapse will create disruption, isolation, and new power players, though it will be a rough ride with a period of mourning and economic disorientation.
“The plague is really interesting because a third of Europe gets wiped out. Agriculture like labor, gets an advantage the way it didn't get until the end of World War Two... But the really interesting thing is there's the arbitrage, the loss of life. Suddenly there's like all this loose armor that the dead night isn't using and it gets sold into another town, or there are shifts of power, and that means there are more weddings and you have to make more silk... But for people who are from the old order, there also is a two man's period of mourning and missing... you've got Petrarch writing in in 1350 and 60 about like we just don't hear anything from the east anymore... But in that disruption, there were new power players and merchants rose up and yeah, that's how you got to the Renaissance eventually. But it's a rough ride.”
Japan is the only significant power that could theoretically challenge the US in the next 30 years but has chosen not to, instead making friends with both American political factions by ratifying a humiliating trade deal with Trump that Japan's successor endorsed to Biden, treating the US as a strategic partner rather than competitor.
“I would have said Japan because it was the only power that is both navel and has a zone of interests that overlap and potentially clash with the United States... Shinzo Abe realized, like his predecessors, that from a demographic and a network point of view, if the Japanese people are going to have economic growth and security, it had to be hand in glove with the United States. So he came to the United States. He cut a humiliating trade deal with Donald Trump. And then his successor told Biden that the trade deal stands. We don't want to renegotiate it. So Japan is the only country who has seen this coming and who has anticipated what needed to be done. And they found a way to make friends on both sides of the American political aisle.”
Russia attempted to diversify away from the US dollar by investing half a trillion dollars in yuan, but when they tried to sell it, China refused to buy it back, causing Russia to lose half a trillion dollars in liquidity and demonstrating that efforts to move away from the dollar system have made countries more dependent on it.
“the Russians are realizing that they're actually more dependent upon the US dollar now than they were before, which is hilarious because they they showed a half a trillion dollars into yuan and then when they tried to get it up, China was like, No, we don't want to buy that back. And they just lost a half a trillion dollars in liquidity. So their option is dollars or euros in physical currency that they move in bridge or barter. So their efforts to move away from the American dominated system has made them closer to the American dominated system.”
Iran's current internal protests over government policies are significant but have not yet reached a level where the Iranian military (designed to occupy its own multi-ethnic country) faces serious existential threat, and unlike China's one-man system, Iran's religious leadership class of 10,000+ members provides deep institutional resilience against overthrow.
“I think Iran can tough it out. Or are they? How about this? I don't disagree. I would just say that we're not there yet. The Iranian military is designed to occupy its own country. I mean, you guys remember the movie 300,000 Nations of Persia. That's actually pretty accurate. Even today, after 4000 years of cultural unification, Iran is only 50% Persian... We have not yet gotten to the point where I think that the mullahs feel a serious level of threat... This isn't China, where it's a one man rule, and this isn't Russia where it's a 100 man rule. This is a rule of a religious class that has over 10,000 members... The degree of resistance that would have to boil up to wipe this government away is extreme, seem so extreme that we've only seen it once in the last few centuries. And that was when the Shah fell and the Shah didn't have a 10,000 deep bench.”
There is a paradox in demographic strategy: if countries continue having many children and growing population they face resource exhaustion, but if they don't have children and don't maintain a young consumer cohort, they exhaust the tax base and cannot support an aging population, making them 'doomed where the paradox is always going to triple up.'
“If we kept having children and kept growing the population, you get resource exhaustion. If we didn't have children, which we kind of didn't, we haven't kept up with a new young cohort to become consumers and fill out the tax base. We're also kind of doomed where the paradox is always going to triple up.”
Piracy is currently concentrated in no-man's-land zones between major economic powers where rule of law does not exist, but as larger political and economic blocks break down and can no longer provide regional security, there will be more such zones, creating conditions for piracy, state piracy, and privateering to return at scale.
“we have very few zones that are in-between where the rule of law on the sea exists or doesn't exist. And that's where we see piracy... when you break down some of these bigger blocks and they can no longer function and the writ of the state is no longer able to provide regional security, and then we have more of those zones. And the more of them that we have, the more countries will have a vested interest in disrupting trade for their own reasons.”
If Iran escalates drone and naval attacks in the Persian Gulf in the absence of US military presence, Saudi Arabia (not the US) will be responsible for the response, and with Saudi capacity to export crude oil to the Red Sea rather than through the Strait of Hormuz, Iran would lose its entire oil export capacity, making such escalation strategically catastrophic for Iran.
“if we do get to the point where the Iranians feel this is a good idea, keep in mind that with the United States largely not present in the Gulf anymore, the onus will not be on the United States to do something. The onus will be on the Saudis to do something. And since the Saudis have the capacity to export crude oil to West to the Red Sea instead of having to go through Hormuz, the country here, that's likely to lose a lot of its oil export capacity is Iran. So if they start playing that game in the absence of the United States, I have no doubt that the Saudi Arabians have the military capacity necessary to utterly destroy all Iranian oil export capacity.”
Only a century and a half ago it was cheaper to move goods from London to Massachusetts than from Massachusetts to New York by road, demonstrating that cheap international transport is a very recent phenomenon not a permanent feature of the world.
“you only have to go back a century and a half to get to a period when it was cheaper to move things from London to Massachusetts as opposed to moving them from Massachusetts to New York on a road.”
East Asia (China and Southeast Asia) cannot produce significant outmigration due to geographic barriers (too big mountains, deserts, jungles between them and any migration destinations), so East Asia can be removed from global migration math.
“If you are in China or Southeast Asia, there are too big of mountains and too big of deserts and too big of jungles between you and anywhere you might walk. So you can remove East Asia from that math as well.”
European shale gas reserves exist but are located under population centers (unlike US shales in North Dakota and West Texas), making fracking politically impossible due to neighborhood opposition, and even if pursued, European shales are deeper, smaller, thinner, and less petroleum-dense than US shales, yielding only 1/6 the oil production for equivalent investment.
“the best shales that were in Europe were under population centers, whereas the best shales in the United States were in North Dakota, in West Texas... the problem is, in the ten years since that book came out, people have put sticks in the ground to see whether this stuff is commercially viable or not. And in most cases, it's not. The shales are deeper, they're smaller, they're thinner, and they're not as petroleum dense. So if you if you took the amount of money that it's taking to get the United States where it is right now and spend exactly the same amount in Europe, assuming they had the cash, which they don't, you would probably only get one sixth as much petroleum out.”
Chinese vaccines don't work at all against Omicron, so when COVID lockdowns are lifted in China there won't just be danger to old people but to the entire under-vaccinated population, creating conditions for a mortality crisis.
“Remember that the Chinese vaccines don't work at all against Omicron. So it's not just the old people that are in danger.”
The United States will need to roughly double the size of its industrial plant to manufacture goods that were previously sourced from China and Germany, which will be inflationary but will create the greatest economic growth story in the history of Canada, Mexico, and the United States, lasting for approximately a decade.
“we're looking in the next few years at the Chinese and the German systems dissolving as economic players. That means that if we want to have manufactured goods in North America, we have to build them here, which means we need to roughly double the size of the industrial plant. Will that be inflationary? Oh, yeah. But it will also be the greatest economic growth story in the history of Canada, Mexico and the United States.”
Semiconductor manufacturing is a unique case where the US high-end production dominates globally and competes with Japan, South Korea, and Taiwan, but the Biden administration's Chips Act targets mid-level chips where shortages occurred due to COVID (made in Thailand and Malaysia, not China), while China produces only low-end Internet of Things chips that require all imported equipment, tools, software, and managers, and Biden's recent restrictions on chip exports, equipment, tools, and employment make the Chinese tech story already over but may push the US to build capacity in the wrong place.
“not all semiconductors are created equal... By value, we produce more semiconductors than everyone else in the world put together, and the competitors in that space are Japan, South Korea and Taiwan... we are competing with our partners, the mid-level chips where the shortages have been because of COVID. That's aerospace. That's automotive... China makes the Internet of Things... China can only make them with equipment that is imported, with tools that are imported, with software is imported, with managers who are imported... the Biden administration has done in recent weeks is basically say you can't import the high end chips, the mid-level chips, the equipment to make the low level chips or the tools or the software. And every American working in the sector has to choose between their job or their citizenship... the Chinese tech story is already over.”
George H.W. Bush was the last president to attempt a serious national conversation about the shape of the world Americans wanted to see in the post-Cold War environment, and Americans voted him out for trying, whereas both Clinton and W. Bush were governors who actually governed, but Obama never managed anything in his life (his first grownup job was managing a 12-person campaign office before becoming president), locked himself in the Oval Office for 8 years, and produced only one law (Obamacare, which Congress wrote).
“Herbert Walker Bush was the last president to try to get Americans to have a conversation about the shape of the world we wanted to see in the post-Cold War environment, and we punish him for it... Both of them were governors, and they actually governed... Obama did not. Obama he was kind of a one man show. His first meeting with the Joint Chiefs, he told them bluntly that I'm smarter than all of you and I could do all of your jobs better than you... he had managed a 12 man campaign office as he was going for junior senator. That was his first grownup job period... he basically locked himself in the Oval Office for eight years and eight years. We got one law, Obamacare. And the White House didn't write it.”
European and Asian companies are realizing they must move to markets where they sell or die, and are carrying out massive industrial relocations to the United States as a result of understanding that supply chain disruptions from COVID and loss of blue-water naval order require regional supply chains.
“we are seeing that mantra carried out by almost every European and Asian company because they realize you either move orders markets or you die. Yes. And given the supply chain disruptions of the COVID period and given the difficulties of not having a blue water order on the high seas, you're going to see a lot more regional supply chains”
The American system's strength is its noise—distributed power across federal, state, local governments, business, civic, and academic communities—each with their own legitimacy and power sources, so that if one collapses completely, the others prevent systemic failure, whereas China has collapsed all policy into one person, making it unable to manage a billion-person country and vulnerable to total system collapse.
“What people forget about managing a system is it requires a lot of fingers and ice and the strength of the American system is its noise. We have a federal government, state governments, local governments, a business community, a civic community, an academic community. They all have their own sources of power and they all have their own sources of legitimacy. And the glory and the horror of the American system is how they rub against each other and clash that noise that oftentimes Americans think of as a negative is actually a huge positive because it means if one of them completely collapses, the others don't... Well, China has one person. It's not even the CCP anymore. They've become a cult of personality. It's one guy. The policy start the policy stop with him... there is just too much going on for one guy to manage, especially in a country with over a billion people.”
The Jones Act, dating from the 1920s, prohibits cargo transport between American ports unless the vessel is American-built, owned, captained, and crewed; loosening these restrictions to allow 50% foreign ownership would attract Japanese capital to upgrade American waterway infrastructure, and for approximately $300 billion (equivalent to one year of interstate highway spending), the US could replace every piece of waterway infrastructure and triple goods flow, dropping total transport costs by half.
“the Jones Act is a law that dates back to the 1920s. It says that no cargo can be transported on any vessel between any two American ports unless the vessel is American built, owned captain and crew. So you can loosen those four restrictions. You can say 50%. For example, if you do something like that, you start getting a lot of foreign money, most notably Japanese money into the American transport network. And for the cost of about $300 billion, which is one year of spending on our interstate highway system, you could basically replace every piece of physical infrastructure on the entire waterway network... we would probably drop in total transport costs by half in the United States, and the waterway could probably support a 20 fold increase in traffic flows.”
Future migration patterns will be driven by agricultural collapse rather than pure climate factors, and will primarily affect the Eastern Hemisphere (Central Asia, Africa) as they migrate to Russian and European spaces, rather than the Western Hemisphere, because even if agricultural collapse destroys Brazil as a producer, it will still feed itself and internal migration will dominate.
“I think it's far more likely to be agriculture, migration. We're moving into a world where transport is going to be more difficult. And the inputs that allow for modern agriculture to happen on a global basis are going to be constrained... Most of Brazil's agricultural sales go to the Eastern Hemisphere. So this is an eastern hemispheric problem. And if you are in China or Southeast Asia, there are too big of mountains and too big of deserts and too big of jungles between you and anywhere you might walk. So you can remove East Asia from that math as well. What we're really talking about here is Central Asia and Africa, and all of those people would go to the Russian space and to the European space”
About 70% of the electricity generated in Germany in the last month was coal and lignite, and European nations are returning to burning wood for heating and power at a scale not seen since the early industrial age, which is as carbon-intensive as burning lignite, creating a sharp trade-off between global warming and staying warm in winter.
“about 70% of the electricity that was generated in Germany this last month was coal and lignite... we are seeing the Europeans go to that at a pace that we have not seen since the dawn of the indoor dust, early industrial age when people were making charcoal in mass... it is as carbon intensive as a lignite if you're burning it for either power or heat”
The United States will retain technological leadership over the next 5-10 years compared to the rest of the world, but the pace of technological advancement globally will slow considerably because the US educational system is broadly adequate and capital is available, whereas everywhere else faces capital constraints and worse demographics, and the US millennial class is larger than the millennial class in the rest of the free world combined.
“The American educational system is broadly okay... the volume of the capital that is available to pursue technological leads still exists... the millennials are aging out... You need a lot of people in their twenties who are unattached, who can network together with a lot of capital... the overall pace of technological advancement globally to slow consider early and the technologies that we do pursue are going to be ones that are pretty close to being operationalized... we're still the by far the tallest of the midgets, if you will. And the millennial class in the United States is larger than the millennial class. In the rest of the free world combined.”
Large COVID lockdown protests in Chinese cities involving thousands of people in every major city have become automatically conflated with opposition to Xi personally because they oppose his COVID policies, creating pressure-testing of the system that will go one of two ways: either protests continue and spin out of control leading to national dissolution, or the state surges control and implements lockdowns resembling Tiananmen.
“large protests involving thousands of people in every major city. They conflate accurately opposition to the COVID policies. And so we're seeing the Winnie the Pooh with the black piece of paper protests. That's a real problem, because every protest is automatically about Xi personally. And this is going to go one of two ways. Option A, the protests continue. They spin out of control because they're pressure testing. They'll literally everything and that is national dissolution option B Nigeria's surge control and we get a lockdown let's looks a lot more like Tiananmen than what we've seen so far.”
American companies that have delayed exiting the Chinese manufacturing and market system have missed a critical window and are now screwed, particularly Apple, which has taken every example of trade disputes or genocides and ignored them while doubling down on Chinese exposure.
“We've seen a significant exodus out of the Chinese system since the last year of the Obama administration. It's accelerated every year for different reasons, but not everybody has started that process. Apple's by far the one that has been the slowest and is dragging its feet and has taken every example of trade disputes or genocides and just ignored them and doubled down. And now they're and now they're screwed.”
With baby boomers retiring at the end of this year and the wealthiest holding the most free capital in their final decade before retirement, domestically available capital will crater by at least half, but shocks to other countries drive mobile capital seeking safe havens with rule of law and property rights toward the United States, making enormous volumes of foreign capital available for industrial buildout.
“With the baby boomers retiring, we know that the volume of domestically available capital is going to crater. It's going to drop by at least half a year. The wealthiest in India have the most free capital in your system in the final decade before you retire. On average, the baby boomers retire at the end of this year... the greater the shock to any individual country, the more money becomes mobile and seeks a home in a place where there's a rule of law and private property rights. And so we're already seeing absolutely mammoth volumes of capital moving out of Europe and the Chinese system specific to the United States.”
The Russian oil export disruption has not yet occurred because Russia was able to shut in wells in non-core permafrost zones (Tatarstan and Kyrgyzstan), reducing exports by only about one million barrels per day for 6-8 weeks before restarting, but when sanctions on maritime insurance expand on January 1st to cover any vessel carrying Russian cargo combined with European oil price caps, this will lock in at least 2-3 million barrels per day of disruption, which will be sufficient to cause pump freeze as water freezes in pipes, taking Russian oil offline for decades.
“The Russians were able to shut in wells in noncore permafrost zones, specifically Tatarstan in Kyrgyzstan. And so they only shut in about a million barrels a day for about 6 to 8 weeks... The specific issue to watch for is on January one, the sanctions regime on maritime insurance expands from any Russian flagged vessel to any vessel carrying any Russian cargo. That combined with the oil price cap that the Europeans are about to adopt, is probably going to lock in at least two or 3 million barrels a day. And that's more than enough to cause that pump freeze.”
BASF, the world's largest chemical company, is dismantling its German operations and moving to Louisiana to survive, but even if successful, it would require industrial buildout faster than Nazi Germany's mobilization during World War Two to export enough petrochem back to Germany to keep Germany alive, making survival unlikely.
“BASF, you know, the world's largest chemical company, they're in the process of basically dismantling everything in Germany and moving it to Louisiana because it's their only chance to stay business. They hope that will allow them to export enough petrochem back to Germany to keep Germany alive. But that would require an industrial buildout faster than what the Nazis did during World War Two. I don't think they're going to be able to pull it off, but they're going to try to build where you sell.”
Germany has become so addicted to inexpensive, reliable Russian natural gas that it based its entire economic system on it, not just providing electricity but serving as the base material for the entire petrochemical sector which is exported, and without this gas the electricity sector, petrochemical sector, and entire German industrial model will be gone within two years.
“the Germans have become so addicted to inexpensive, reliable natural gas supplies out of Europe or out of Russia that they base their entire economic system on it... the natural gas doesn't just provide them with power. It's the base material for the entire petrochemical sector... the entire German industrial model is going to be gone within two years”
Modern warfare has shifted from mass troop deployments to cyber, robotic, and drone-based warfare, but Ukraine proves that boots on the ground remain critical, with drones now part of the tactical landscape rather than replacing traditional soldiers.
“warfare robotics, we don't staff wars with lots of young men, perhaps because we don't have them, perhaps because they don't want to fight. But war has become cyber robotic drone based in the form of robots... I would start saying that the Ukraine war is proving that boots in the mud are still absolutely critical. It's just that there's more pieces in the ocean right now of which drones are part of the landscape.”
When Germans become nervous about economics and energy, it has historically led to radical political shifts in Europe that 'rarely go well', cautioning that German economic desperation could trigger dangerous geopolitical upheaval.
“Whenever the Germans get a little nervous about. The neighbors asking them. You know, whenever the Germans get nervous about economics and energy should gets real in Europe really fast. I'm not saying they're going to march on Moscow, but for Germany to survive as a modern economy will have to have a radical political shift that rarely goes well.”
The less the US trades with the world, the more attractive the US dollar is as a method of exchange for everyone else because people are less concerned that the US will manipulate it.
“the last the US trades with the world, the more attractive the U.S. dollar is as a method of exchange for everyone else, because you are less concerned that the U.S. is going to manipulate it now.”
For most American businesses, the collapse of globalization is actually a positive story because the US has exceptional geographic advantages (an entire continent), demographic advantages (millennials), and capital availability; if the US stops subsidizing global competitors and instead invests in North American supply chains, economic growth will be immense.
“Part of what made globalization work is that the Americans sublimated their own geographic advantages. And we basically have the best part of a continent all to ourselves. And metabolizing that land has been the American story from reconstruction until World War Two...We took everything that we had going for us and pushed it to the side to help everyone else grow. Assuming you were complete pricks about this and we withdraw all that assistance, the growth story is immense because all of a sudden geography and demography is going to be working for us again.”
Zeihan himself was bullish on Ukraine and expected it to be completely overrun and occupied within six months; his forecast was 'laughably wrong,' suggesting he may also be wrong about how fast China collapses.
“I was probably one of the people in my field that was most bullish on Ukraine, and I thought this would be completely open with Ukraine, completely broken and occupied within six months. It's all all of bots were laughably wrong.”
France, Argentina, and Turkey are countries of the future that will rise to take command of their own destiny in their own region, unlike the commonly assumed rising powers like China, Russia, and Brazil.
“the countries of the future that we think of, you know, the Chinese, the Russians, the Brazils and why they won't be and why a different set of countries is going to rise up and kind of take command of their own destiny in their own region. It's the France's the Argentina's the turkeys”
Nation states are likely to persist as a governing form because they control violence better than other systems, and the ones that will do well in a disorderly world are powerful because they are nation states with strong national identity, though some will break down due to demographic disintegration.
“the countries that are actually going to do well in a more disorderly world are all in part powerful because they are a nation states. And if anything, I see their authority strengthening... for demographic reasons we're actually seeing the disintegration of a lot of ethnicities in real time. And if you break that, then you can't have the nation state without the nation.”
China will absorb the entirety of the energy shortage from disrupted Russian energy flows to the Eastern Hemisphere, which is more than enough to trigger something far worse than the 1970s oil crises specifically for China.
“the Chinese are the ones that are at the end that chain. So they're going to have to suck up the entirety of the shortage that is more than enough to trigger something far worse than the 1970s oil crises, but specifically for China.”
The real priority for US semiconductor development should be expanding English (English-speaking) technical capacity in Mexico to build low to mid-quality chips, which in the best case scenario is still several years away from producing meaningful volumes.
“What we really need is an expansion of English technical capacity in a place like Mexico in order to build more of the low to mid quality fabs. And that does that in the best case scenario is still several years away.”
Future migration to the US from the Eastern Hemisphere will require candidates to travel by ship or fly, necessitating that the US adopt a stated, formal national migration policy focused on the Eastern Hemisphere rather than simply having a de facto open border.
“everyone else that might come to the United States can't walk. They have to be on a ship or fly, which means they have to come from the Eastern Hemisphere. And that has to be a stated firm national policy”
Deep history meets the market in the current moment: arbitrage opportunities abound from disruption of the old order, and opportunists will jump in and fill niches in new ways, a pattern that has repeated throughout history.
“deep. History meets the market in the here and now. Basically, there's a lot of arbitrage here. There's a lot of disruption to the orders. And opportunists jump in and fill that out in new ways. And that's kind of the scenario. And we've seen that in history a lot.”
The post-WWII order could have been reformed and sustained if George Herbert Walker Bush's 'thousand points of light' conversation about post-Cold War global order had been accepted by voters instead of him being voted out of office, representing a missed opportunity to avoid systemic collapse.
“It's possible. We had a moment back with George Herbert Walker Bush. You remember a thousand points of light and the new world order. That conversation where he tried to get us to have a national conversation about what we wanted out of the world. Now that the Cold War was over, what did we want to leave for our children? And we voted him out of office for trying to have that conversation.”
India is the country to watch most closely as the US withdraws from global order, because India is the first major economy east of the Persian Gulf and will not tolerate an energy crisis; India has strong incentives to disrupt regional trade if necessary to secure its own energy supply.
“I would argue that the country to watch the most robustly as the United States kind of backs away from things is India because of the first major country out of the Persian Gulf. And there is no way in hell they will let themselves have an energy crisis if they can avoid it.”
The key political faction in the current US system is organized labor, which is in a tug of war between the two parties, and the issue organized labor cares about most is immigration, so no one at the national level for either party will talk about immigration reform until organized labor's position is known.
“the faction right now is in the middle of a tug of war between the two parties as organized labor. And the issue that they care about the most is immigration. So no one at the national level for either party is going to breathe a word about immigration reform until such time as we know where organized labor lands.”
The US has a 'wonderful opportunity right now to open the doors and bring in just scads of skilled labor from the world over' but is incapable of doing so, and it probably won't be capable of having this conversation at a national level until 2028, which is when a lot of the damage will already have been felt.
“We've got this wonderful opportunity right now to open the doors and bring in just scads of skilled labor from the world over. And we are incapable of doing that right now. And I would guess that we won't be capable of having that conversation at a national level until 2028.”
The Ukraine war's nature as a media event, involving social media, online networking, and virtual nationalist mobilization, may be as important as the physical military dimensions in sustaining resistance.
“The nature of the war is very interesting too. As a media event, how much of this is based on ridicule, networking, people creating a kind of nationalist sense in a virtual level in Ukraine, which is possibly the topic for another day?”
Political obstacles to Jones Act reform stem from union jobs concerns and the political question of labor, meaning reform will not happen unless there is sufficient political pressure, which relates to broader obstacles to other improvements like Mexican rail networks.
“What holds us back. Remember that political question that right we you where. We are again... Let me let me go to my last question... union jobs right now.”
Ukraine has proven the nation state is not exhausted as a model, as Ukrainians have demonstrated they can sustain resistance against a larger power through national cohesion and identity.
“The Ukrainians are proving that it's not done yet. That's a good note. That's very true, Peter. That's all the time we have for today's program.”
Trump's foreign policy was chaotic and outcome-based, lacking coherent strategy, whereas Biden, while potentially disagreeable in specific policies, has actually attempted to be president with outcome-based policy, something the US did not have for the previous 12 years.
“Then we got Trump. I think people are a little bit more familiar with what happened in the Trump administration, not exactly what I would call outcome based policy and see word. I'm sorry I said chaotic is an appropriate word. Perhaps that's fair. Say what you will about Biden. You can disagree with everything that this dude's trying and we haven't had that for the previous 12 years. So while there's a lot of things about Biden, I'm not thrilled with. I would say that the jury's still out on whether he's going to be a decent president. I would say right now, whoever he is a president, which is something we didn't have for 12 years.”