Author and Political Strategist
The End of the World As We Know It
|Host Hugo Scott-Gall introduces today’s episode and guest.
|Conversation starts with how we got where we are today.
|Why is the globalized era ending?
|What comes next in terms of drivers and countries?
|Zeihan talks about transport and manufacturing.
|Automation may help some countries but not others.
|Conversation shifts to food and the shortages to come.
|There are three sources of energy, and Zeihan anticipates conflict over them.
|Zeihan’s mental model of what makes for a well-positioned country.
|Some parts of the world look great, whereas others do not; Zeihan offers an initial run-through.
|Are there any other winners? India looks interesting, and China looks terrible.
|Zeihan comments on two final countries: Brazil and Russia.
Peter founded his own firm, Zeihan on Geopolitics in 2012 in order to provide clients with direct, custom analytical products. He is a critically acclaimed author whose first two books, The Accidental Superpower and The Absent Superpower, have been recommended by Mitt Romney, Fareed Zakaria, and Ian Bremmer. His third title Disunited Nations: The Scramble for Power in an Ungoverned World was published March 2020. His fourth book very recently published is called The End of the World is Just the Beginning: Mapping the Collapse of Globalization. If that’s not a catchy title, I don’t know what is.
So, Peter, thank you for coming on the show. Delighted to have you.
Peter Zeihan: It’s great to be here.
Hugo Scott-Gall: 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 is dominated by the order, but that’s coming to an end. So, what was the order?
Peter Zeihan: Sure. So, in the world before World War II, everything was imperial. You had the British System, the 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, ultimately, that competition brought us World War II and the destruction that came with it. At the end of World War II, the Americans made a deal, made an offer, to most of what we now know as 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 hold, whether it was an imperial center of 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 found 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.
Hugo Scott-Gall: But why does it need to end? It brought many good things. 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 end?
Peter Zeihan: Oh, it’s been fantastic. The case could 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’s at the top of that list—and the return of the 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 go 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.
Hugo Scott-Gall: 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 U.S. to be the superpower that protected the world, and the key mechanism for doing that—correct me if I’m wrong—was U.S. Naval power.
Peter Zeihan: Naval 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 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.
Hugo Scott-Gall: 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?
Peter Zeihan: Absolutely. We have a whole other generation to figure out.
Hugo Scott-Gall: Yes. Well, for anyone who reads your book or has indeed read it already, you’re not shy in 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 wins and loses from this? Because it’s not the same as it was. Well, it is in terms of who’s in first place, but we can reveal who’s in first place when we get there.
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 of transportation as an enabler of global trade?
Peter Zeihan: 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 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 U.S. 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 it would get to its end destination. Now, in the early days of this, as Europe was recovering from the wars, 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’d just specialize in that one thing. And that specialization expanded the volume of what we would transport by and order of three orders of magnitude.
And that brings us to the world we are today, where an iPhone has like 1,100 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 at 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. Un-specialize. 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.
Hugo Scott-Gall: And then, 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 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?
Peter Zeihan: 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 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 COVID lockdowns. Shanghai 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 in 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 or economic environment of your ultimate consumers.
So, we’re seeing what has been a flawless, frictionless system face pressures from every point of the compass, at every step of the supply system.
Hugo Scott-Gall: And a logical conclusion from everything you just said, of course, is it’s inflationary as the world uses its resources less efficiently.
Peter Zeihan: 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.
Hugo Scott-Gall: I want to be an optimist. I think it’s 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.
Peter Zeihan: Agreed.
Hugo Scott-Gall: But there is such a thing as human ingenuity. Necessity is 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 come up as one. That if you are going to make more stuff closer to where you consume it, and you’ve got demographic decline, and if your cost of labor’s 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 positive new problems? What do you see as the problem solvers?
Peter Zeihan: Automation is 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 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, by 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. In 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 and 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. That’s the most expensive part of all. We just don’t have the capital that we’re going to need to have. So, we need to retrain workforces and change workforce environment. We need to relocate manufacturing assets in an environment of deglobalization. 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 skillset. 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.
Hugo Scott-Gall: I told you it was going to be interesting, dear listener. So, let’s talk about—what’s more important than energy? Maybe, food. I’m not sure which one is more important.
Peter Zeihan: I would go with food, but I can see why people would go back and forth on those two.
Hugo Scott-Gall: Let’s talk about food, how the changes of food flows around the world are going to happen and what they mean.
Peter Zeihan: 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’re looking 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 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, 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.
Hugo Scott-Gall: And you don’t foresee—again, back to my kind of—we extrapolate what we know, but there’s this sort of hidden option value of innovation and 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?
Peter Zeihan: I would love to be surprised. Let me give you the bad news, then I’ll give you the good news, because there is some good news in this one. Let me knock down a couple of those. Vertical farming is great for houseplants that can potentially be grown close to a population center where food prices are high. But rain and soil just cannot be replicated at a scale for any of our staples. So, about as exciting as you can get with vertical farming is maybe tomatoes, but really, you’re talking greens and microgreens is really all you can do economically viable in that environment. The input costs are just too high for anything else.
The 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% 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 home grown 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.
Hugo Scott-Gall: And that is a scary and deeply concerning number. So, what is that? I mean, we’re going to come onto this. But food supply, food security of 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.
Peter Zeihan: Absolutely.
Hugo Scott-Gall: So, that would be your prediction, that history is right?
Peter Zeihan: I think we’re going back to that in a very big part of the world, heavily concentrated in the eastern hemisphere. At 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 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 skillset, they could produce with the industrial skillset. I mean, that’s the story of Brazil right there, and 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.
Hugo Scott-Gall: I said food first, then energy. Let’s do energy. We know kind of where energy is located as source around the world.
Peter Zeihan: Very inconvenient, isn’t it?
Hugo Scott-Gall: Yeah. So, play it forward. How does the flow of energy change? And then, what about our right tail bit of luck option value that actually renewables save the day?
Peter Zeihan: 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 is 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 techs 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 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 there. Problem is 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% of its energy; 85% of that comes 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.
Hugo Scott-Gall: Let’s go to the implications of—I mean, we scratched the surface on a lot of the things you discuss in your book and actually in previous books—but the implication of all that rolled up into: what does it mean for countries? Because it’s a big of a cliff hanger there with regard to China. But can you first, before we talk about whatever comes next—we don’t have a name for it 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 winner to loser, some that maybe go from loser to winner, 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 vexes of demographics, command of resources, location, location, location, all those things? Could you share your mental model before we get onto countries?
Peter Zeihan: 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 in their 40s than their 30s, that 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. That’s one of the reasons why the United Kingdom was 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 going to 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 industrializing 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 very good technology yet for battery chemistry. So, doing grid storage at scale 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 four 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 certain parts of the world that 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 in food. British food. We can talk about that if you want to. 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 this 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.
Hugo Scott-Gall: Your top tier—correct me if I’m wrong—in first place, subject to local politics, is the U.S.
Peter Zeihan: Of course. Yeah. We’ll always make a mess of the politics. That’s just a given.
Hugo Scott-Gall: So, U.S. is No. 1. Now, I know some of the other places you mentioned in your previous book but one, and there were some surprises in there. So, No. 1 is U.S., but let’s say in the next tier down below the U.S., who have you got in that?
Peter Zeihan: By far the French and the Japanese. The French have the best demography in Europe. They have an electricity system that is largely nuclear. And if 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. 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.
Hugo Scott-Gall: Japan, I think, is a surprise.
Peter Zeihan: It is to most people, yes. 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 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 Biden administration. They are the only world government out there right now that has found a way to deal with both the central left and the far right in the United States cleanly.
So, they were the third country to sign onto 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.
Hugo Scott-Gall: Right. Okay. Next tier.
Peter Zeihan: Turkey. Stable demography. Surprisingly, shockingly diversified in stable manufacturing system. Self-sufficient in food. Oil is close at 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 I. 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 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.
Hugo Scott-Gall: Okay, yeah. Argentina, I think, will be a surprise—I hear you on its previous position in the world in terms of share GDP, but it hasn’t really got back there ever in quite a long period of time.
Peter Zeihan: The problem there is purely politics. And I don’t mean to suggest that it’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 order of the day, this is what the Argentinians call an average Thursday. It’s not so much that they’re rising to the median. The median is falling to them. And that’s assuming that they don’t change anything. They change a few things and things get golden very quickly.
Hugo Scott-Gall: Got it. Got it. So, other surprise—well, not other surprises but other winners coming out of this.
Peter Zeihan: 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.
Hugo Scott-Gall: Okay, so there are some big countries that we have not mentioned, one of them—in this section of the interview—we mentioned it a little bit earlier, but you have not mentioned China.
Peter Zeihan: China dies this decade. That’s the short version. Their demographics are now so atrocious that we’re looking at having the population halve 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.
Hugo Scott-Gall: So, 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 could be fast followers and adopt and adapt. More countries do that 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 build a navy to protect, why can’t China do that? Indeed, I would argue, it has been doing that.
Peter Zeihan: 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% 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 pole 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 navy combined by a significant margin. But 90% of them can only go 1,000 miles from shore. And that assumes that they’re going in a straight line, not zig-zagging, 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 would be 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, then they’ll 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 in their decision-making systems.
Hugo Scott-Gall: China’s economic rise, China’s number of people that have seen their incomes rise—however you want to set the poverty level—has been astonishing. It has been an amazing achievement.
Peter Zeihan: I agree on every point. And now, we get to see it go in reverse.
Hugo Scott-Gall: Okay. So, 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?
Peter Zeihan: I don’t think that Brazil’s going to collapse, but I think their golden era is over. The Brazilian farmland—most of it, especially in the northern 90% of the country, the area that was reclaimed from tropical savannah in particular—it has not 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 some 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 in that 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.
Hugo Scott-Gall: Okay, so one more country, and then we’ll wrap. Russia.
Peter Zeihan: Russia. Ooh, 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 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 weapon 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, 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 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 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 fiefdoms.
Unfortunately, they also have nukes, and that is something we will have to stress about a few years from now.
Hugo Scott-Gall: 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 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.
Peter Zeihan: My pleasure. Until next time.
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