Unlike most countries in East Asia or Europe, the United States never managed to get its caseload under control. Between the economic re-openings, Memorial Day parties, and ongoing protests against police violence, cases are rapidly ticking up. On June 24th, the U.S detected 38,672 new cases – that is not only double the low of June 8th-9th, it is already more than the United States’ original peak of new cases registered 10 weeks ago.
If it doesn’t feel like there’s an imminent crisis, that’s because back in March and April, the majority of American COVID cases were concentrated in the New York City metro. It wasn’t ridiculous for many Americans to question whether or not the virus was their problem. Not ridiculous, although certainly myopic.
Fresh – record – outbreaks exist in half the states. While the New York City area has made great strides in lowering case numbers, those gains have become overwhelmed in the national numbers by exploding epidemics in California, Texas, and Florida – three of America’s four largest states by population. Heavily rural states like Montana, Kansas, Oklahoma, Wyoming, Idaho, Oregon, Iowa, and Utah are hitting record high infection levels. Arizona now leads the nation in positive cases on a per capita basis. Within a week, it is likely to surpass even New York City’s peak infection rates, making Phoenix a necessary candidate for a severe lockdown. The American South – the most infected region overall – appears to be no more than three weeks behind Arizona. So much for heat or humidity impeding the virus.
It is worth recalling how the virus progresses. From the point of a mass exposure event (i.e., Spring Break or Mardi Gras), it is typically three to five weeks before the virus spreads sufficiently to show up in the data. At the time of this writing, Memorial Day happened three and a half weeks ago, while mass re-openings around the country average to approximately five weeks ago. From that point, it is another two to four weeks before hospital admissions explode, and then an additional two to three weeks before hospitals start reporting deaths. If this pattern holds true, many hospitals will be pushed to their limits by July, and August will be a very rough period.
There are some (faint) silver linings. When New Yorkers grappled with the first epidemic, there were no best practices or treatments or warnings. We now know that putting everyone on a ventilator is not the best plan. We have at least one drug treatment program for COVID (Remdesivir) that shows some effectiveness. And most of all, this time, we are certain that a massive epidemic is coming nationwide.
For a country as large and diverse as the United States, making broad projections is always squishy, but there are some pretty clear outcomes here:
The infection levels and timing of the new wave suggests that the fall school semester is a no-go. It suggests what re-openings we’ve seen in travel and restaurants will reverse. It suggests the next flu season, which generally begins in October, will be the worst one on record as COVID and the flu strike simultaneously. It suggests the presidential election season will be…fraught. And it certainly suggests that Americans are stuck with COVID until there’s a vaccine.
Our advice today remains similar as it was at this crisis’ beginning: Wash your hands (with soap). Get the new flu vaccine when it comes out (in September). Limit your outings (skip the bars). Wear masks when you so venture (replace or clean them often). Stay six feet apart (don’t be a dumbass). And if you catch the virus, stay home and try to limit your household’s exposure.
The team at Zeihan on Geopolitics hosts regular webinars on the state of the world and industries from energy to agriculture to manufacturing and beyond.
Our next webinar, scheduled for June 29th, will be on China.
Scheduling and sign-up information can be found here.
If you enjoy our free newsletters, the team at Zeihan on Geopolitics asks you to consider donating to Feeding America.
The economic lockdowns in the wake of COVID-19 left many without jobs and additional tens of millions of people, including children, without reliable food. Feeding America works with food manufacturers and suppliers to provide meals for those in need and provides direct support to America’s food banks.
Food pantries are facing declining donations from grocery stores with stretched supply chains. At the same time, they are doing what they can to quickly scale their operations to meet demand. But they need donations – they need cash – to do so now.
Feeding America is a great way to help in difficult times.
The team at Zeihan on Geopolitics thanks you and hopes you continue to enjoy our work.
Just a decade ago, the financial world was abuzz discussing the future of the BRICS – Brazil, Russia, India, China, and South Africa. This group of largeish developing countries had little to do with one another, and their inclusion with one another made little sense (like optimism for their respective country’s economic development). Their only commonality? These countries have some of the worst global COVID-19 outbreaks, with little reason to believe that they can be contained.
(Once again, big thanks to the FT for making data pulls like this possible. You can make your own comparisons here.)
Let’s begin with Brazil, whose coronavirus epidemic is downright bizarre.
Every country’s physical and economic geography is different. In the case of Brazil, a sharp escarpment parallels the southeastern coast where most Brazilians live. From a viral communicability point of view, it’s the worst and best of all worlds.
The worst: Brazil’s coastal cities are positioned on tiny plots of land, with population densities that exceed even the ant-like living spaces of Japan’s megaplexes. And that’s before one considers the extremely-tightly-packed favelas (slums) that sprawl up city hillsides. Social distancing? HA!
The best: because those plots are small, and because Brazilian coastal cities have pathetically thin infrastructure connecting them, locking down various cities suffering from outbreaks – particularly those at the bottom of the Escarpment – would provide a substantial viral firebreak at a minimal cost. All it would take to limit COVID’s spread from city to city is a modicum of responsiveness from the central government.
That…has not happened.
Brazilian President Jair Bolsonaro initially denied COVID’s existence, then derided it as a “little flu,” then condemned his political opponents for fabricating its existence to discredit him, and now has taken to leading dozens of mass press-the-flesh protests against governors and mayors who would dare COVID-response policies.
The data in the graphic undoubtedly understates the depth of Brazil’s pandemic by a massive margin. Initially, this was because Brazil’s near-confederal governing structure hands a great deal of policy authority to the provincial level. This complicates the gathering, collation, and cross-comparisons needed to generate accurate national-level pictures. But as of the first week of June, Bolsonaro has banned the gathering and publishing of any data that exists. The only government we are aware of that has been more militant in denying COVID is Turkmenistan, where the local dictator primly banned the term “coronavirus” from usage and called it a day.
Consequently, we don’t even have a guess as to how bad things really are. Even if/when a vaccine becomes available, we have very low expectations that the Bolsonaro government will allow distribution. Bolsonaro’s position flat out ends economic growth opportunities for the country until the central government’s policy shifts. Assuming Bolsonaro doesn’t change his mind and is not impeached, he will remain large and in charge until, at least, the national elections in October 2022.
Brazil’s COVID policies are soooo bad that they’ve done something we have long thought impossible: they have made Russia’s health policies look good.
It is…difficult…to know where to start.
During the post-Soviet Russian collapse in the 1990s, the Russian health system was arguably the sector that degraded the most. Soviet-era central planning treated most maladies with industrial-strength antibiotics. When the health system collapsed, doctors left the country en masse, and state medical guidance evaporated – but the antibiotics remained commercially available (no prescription needed). Russians took antibiotics for pretty much every malady, regardless if they were the correct drug or not, and then stopped taking the drugs as soon as they felt better. The result? Russia became a breeding ground for countless drug-resistant pathogens.
Security collapses played a near-matching role in the misery. Following the Soviet withdrawal from Afghanistan, the Afghan warlords turned to growing opium to earn cash. Opium – and heroin – smuggling routes spiderwebbed out from the war-torn country, sowing addiction and crime as they went. One passed through Iran, another through Pakistan, but most ultimately transited Russian territory. Consequence? Russian health professionals and demographers speak of an entire generation lost to heroin abuse. Factor in cultural norms that demand smoking like chimneys, drinking like fish, a national diet that seems entirely made of saturated fats, and the national health picture is downright zombie-esque.
With the restoration of central rule in the 2000s under then-and-still-President Vladimir Putin, harsh authoritarianism – complete with violent censorship – entered the mix. Are satirical TV programs using puppets insufficiently slavish to government policy? Force the program off the air and round up the scriptwriters. Are HIV statistics causing national embarrassment? Stop testing for HIV altogether. Are doctors complaining about insufficient supplies to battle COVID? A few doctors “commit suicide” by jumping out of hospital windows.
Officially, Russian COVID caseloads have plateaued, but keep a couple of things in mind.
First, Russia only has even a basic health care system in Moscow and St. Petersburg. Testing within Russia’s two largest cities is thin. Beyond them, it is nearly nonexistent. It isn’t that the Russian government knows what is happening but is lying this time around, but instead that the Russian government has chosen not to find out what is actually happening.
Second, Russia is extremely sparsely populated. Most Russian cities are further apart than even American cities west of the Appalachians. Russia has no national road network; the first paved road linking European Russia to the Pacific Coast was only completed in the 2000s. What Russia does have is a pretty great rail network connecting every population center, excluding the cities clinging to Siberia’s Arctic coast. This would suggest the Russian government would have a very easy time isolating local outbreaks. Stop rail traffic in and out of affected cities and BAM! Viral firebreak.
How many Russian rail interruptions have we seen since COVID started? Zero.
The situation in India isn’t much better.
Prime Minister Narendra Modi’s government initially denied the virus existed in India, and then obliquely supported radical Hindus who claimed drinking cow urine would grant immunity. Government responses were slow and misaligned. Even now, COVID testing in India is criminally rare. The data above represent the results of a testing system, which is the world’s lowest in per capita terms. We can’t even attempt a projection using deaths data since roughly one-quarter of all deaths in India aren’t even recorded. If we had to guess, we’d surmise that India’s actual infection rate is roughly ten times the official figures, but that’s little more than a blind stab. What government action that has occurred broadly falls into the category of “too little, too late.”
One exception: the central government executed a clever scheme of stamping new arrivals in prominent locations with indelible ink, encouraging voluntary two-week self-quarantine. Low cost. High impact. Creative. We like it.
Anywho, India’s “normal” operations generate massive health challenges – challenges COVID has undoubtedly taken full advantage of: densely populated cities with crowded food markets, cities closely proximate to one another, extensive city slums, and massive population movements between the cities and the countryside.
And that’s “just” the demographic and economic geography. Raw economics doesn’t help either. India’s per capita GDP is less than one-fifth of Russia, and Russia’s is less than one-fifth of the United States’. It requires rather haughty expectations to assert India should be able to manage COVID as “well” as the United States.
Please don’t read our criticism of India as a condemnation similar to what Brazil and Russia both deserve. It is not. It is more…fatalism. Brazil and Russia boasted geographic factors arguing for significant viral containment, but both countries chose not to act. In contrast, the deck was always stacked against India, both economically and geographically. Once the virus was seeded within the population, a virus as contagious as COVID was always going to put down roots nationwide, regardless of what the government did. In our view, the Indian government’s relative inaction is less a catastrophe, and more a recognition as to how few tools the government had to face such a massive challenge.
In contrast to Brazil, Russia, and India, the government of South Africa has not been asleep at the wheel. But that hardly frees the country from an intense epidemic. The South Africans have been ground zero for the HIV/AIDS pandemic for approximately thirty years. While there are many things the South African government did wrong in dealing with that virus, one of the things it got right (belatedly) was an advanced public treatment system that included aggressive contact tracing. The South African government applied that skill set to coronavirus. Unfortunately, contact tracing for a high-communicability respiratory virus is a whole different ballgame compared to listing out ones past sexual partners.
Doubly so once one considers the living conditions of South Africa’s Black population. Most Blacks live in ghettoized conditions known as “townships,” and most of the townships have communal toilets and water sources. Somewhat unsurprisingly, the South Africans have yet to devise a functional plan for limiting COVID spread when sheltering at home doesn’t allow for social distancing.
Our biggest concern for South Africa is that here, COVID is likely to have one of the highest lethality rates in the world. One of the darkest chapters of the AIDS pandemic is that the Human Immunodeficiency Virus does precisely what it says. It triggers deficiencies in the immune system, which make sufferers far more vulnerable to other pathogens. One of the darkest chapters of the tuberculosis crisis is the TB bacillus often remains dormant until another infection is in play. HIV and TB often play off one another, making co-infections far more deadly than either would have been alone. The South Africans have become bitter experts on the topic. One-fifth of South African adults carry the HIV virus. About four-fifths carry TB bacillus. Now COVID has arrived.
The only bright spot in the South African epidemic is that unlike the Brazilian, Russian, or Indian governments, the South African authorities are at least attempting to maintain an accurate internal picture of the virus’ march. Testing is as robust as can be hoped for, considering the country’s myriad health challenges. Out of these four countries, we only find South Africa’s data reasonably accurate (probably more accurate than the United States’), and it raises the hope that once a treatment or vaccine becomes available, the South Africans will at least know where to start.
I’m sure you’ve noticed that we have not dealt with China in this newsletter. In part, it is because the birthplace of COVID is a special case that doesn’t fit well with any other narrative. (We have a bit on that in our East Asian epidemic update.)
To that end, we plan to deal with China in exhaustive detail in our upcoming videoconference on June 29th.
Our next webinar, scheduled for June 29th, will be on China.
If you enjoy our free newsletters, the team at Zeihan on Geopolitics asks you to consider donating to Feeding America.
The economic lockdowns in the wake of COVID-19 left many without jobs and additional tens of millions of people, including children, without reliable food. Feeding America works with food manufacturers and suppliers to provide meals for those in need and provides direct support to America’s food banks.
Food pantries are facing declining donations from grocery stores with stretched supply chains. At the same time, they are doing what they can to quickly scale their operations to meet demand. But they need donations – they need cash – to do so now.
Feeding America is a great way to help in difficult times.
The team at Zeihan on Geopolitics thanks you and hopes you continue to enjoy our work.
There is no such thing as “Europe.” Yes, there’s this political-economic grouping called the EU, but two of Europe’s most important countries are not members. Yes, there’s this political-military grouping called NATO, but it is functionally run from a different hemisphere. Recent developments might – emphasis on might – change this, but the Europeans aren’t there yet.
With over 30 different political and decision-making systems, there is plenty of room to find fault with any broad assessment. But as regards the ongoing coronavirus pandemic, the fact remains that overall, Europe has been moving in the direction of fewer and fewer cases.
(Many, many thanks to the Financial Times for providing the data interface that makes this graphic possible. You can visualize your own data pulls here.)
The early phases of the epidemic were harsh in many places. In large part, it was because the Europeans had, at best incomplete information from which to base their policies. For the Italians and Spanish who suffered through coronavirus’ initial assault, they were simply caught off-guard. The result? Much of Europe enacted lockdowns whose intensity and airtight nature was only surpassed by the 1984-style lockdowns in Wuhan. (In Paris, you had to apply for a government permit to leave your home to shop for food. The permit only lasted for one hour.)
There’s also the issue of vectors. The suspected patient zero in Italy was initially misdiagnosed and so went from the hospital almost directly to a massive soccer game, becoming Europe’s first superspreader. Most people came to and left the game via bus, enabling the virus to spread liberally. A few of those buses went to Spain, which is why Spain became the second hardest-hit country in Europe.
In contrast, Austria and Germany’s superspreaders were a bunch of 20-somethings at ski parties in the Alps. The Austrians and Germans not only had a bit more warning than the Italians and Spaniards, but their epidemics were also among young millennials – a group that COVID doesn’t impact that harshly. The Austrians and Germans locked down their elderly populations, ran a rigorous testing and tracing program, and more or less nipped the problem in the bud.
Of course, despite caseloads moving in the right direction overall, this is not over. The variation of Europe’s COVID policies to date will also define the epidemic’s future:
Germany is playing it safe and has retained its de facto ban on all extra-European travelers until at least August 31st. Considering caseloads in the Western Hemisphere and the Middle East show no signs of dropping, expect this date to get pushed back.
In contrast, consider Portugal. Portugal is one of the many European countries suffering from a terminal demography; its birth rate crashed back in the late 1970s, never recovering, and the Portuguese economy is now a moribund mess. Since Portugal lacks the industrial base of a country like Germany, Portugal’s only growth sector is tourism. COVID killed tourism. Portugal recently released all restrictions in a desperate attempt to forestall what threatens to be an unending economic depression…which means Portugal is one of only three EU countries where caseloads are increasing.
Nor did everyone in Europe follow even remotely similar lockdown protocols. As mentioned earlier, the Europeans were working with incomplete information as the pandemic started, and not everyone came to the same conclusions. The British and Swedes balked at the economic damage full lockdowns would cause, and reasonably believed any effective vaccine would not be available for years. Add in that coronavirus has the highest infection rate of any public health threat since measles and a fairly low mortality rate, and both governments felt containment was a fools’ errand. They opted for management. Both decided to pursue herd immunity in an attempt to build a firewall against the virus within their populations.
Britain ultimately blinked, largely due to the carnage being wrecked in Italy which suggested much higher death counts than initially suspected. The Brits belatedly followed a more traditional lockdown approach. The delay landed the Brits with one of Europe’s highest infection rates as well as a lengthy plateau. It was only in mid-May that the Brits finally got COVID cases bending downward. The Swedes, on the other hand, stuck with the plan. Sweden now faces infection rates among the world’s highest, recently surpassing even the United States.
The real tragedy in Sweden was that knowing what we all knew back in April, the herd immunity strategy wasn’t silly, but instead a calculated risk. The Swedes assumed a functional vaccine would remain unavailable for years, and so concluded that building immunity within the population was the only sustainable route forward. Now it appears a functional vaccine will be available before the end of 2020, with mass distribution beginning (although not being completed) in 2021. The facts as we understand them have changed. Sweden’s sacrifice may have been for nothing.
If you enjoy our free newsletters, the team at Zeihan on Geopolitics asks you to consider donating to Feeding America.
The economic lockdowns in the wake of COVID-19 left many without jobs and additional tens of millions of people, including children, without reliable food. Feeding America works with food manufacturers and suppliers to provide meals for those in need and provides direct support to America’s food banks.
Food pantries are facing declining donations from grocery stores with stretched supply chains. At the same time, they are doing what they can to quickly scale their operations to meet demand. But they need donations – they need cash – to do so now.
Feeding America is a great way to help in difficult times.
The team at Zeihan on Geopolitics thanks you and hopes you continue to enjoy our work.
Melissa Taylor (ZoG’s Director of Research) has been tracking the coronavirus epidemic – particularly in East Asia, which was COVID ground zero – with her usual precision and attention to detail. She’s brought us some (mostly) good news! In much of East Asia, the numbers have moved firmly in the right direction. Australia, Malaysia, Taiwan, and New Zealand all look great. Even Asia’s more heavily populated states look impressive.
The news isn’t all sparkling, of course, but the fact remains that on a region-by-region basis, East Asia is firmly in the best position globally.
(We continue to be huge fans of the Financial Times for providing the data interface that makes this graphic possible. You can visualize your own data pulls here.)
Now for the details.
Singapore is not a normal place. Roughly five million people are crammed into a single city. It would seem to be the perfect sort of place for the virus to spread. But these are five million highly educated people who appreciate their government’s wildly competent track record for good governance. When the government outlined how to crush the coronavirus, everyone did what they were told.
The government did not blindly make its policies. The Singaporean government understands the central position Singapore holds in global finance, manufactures, and energy trade. Part of that understanding is an acknowledgment that every major power spies on Singapore incessantly. As such, the government maintains a track-and-trace program for foreigners as a matter of course. Retooling the country’s standard counterintelligence programs for coronavirus monitoring was an easy switch that generated outsized results.
For a while.
As mentioned previously, the Singaporean population is highly skilled. But not everybody’s job requires a master’s degree. The country maintains over one million migrant laborers. Sure, some are stockbrokers, but most handle the nuts and bolts of daily urban life: cleaners, drivers, construction workers, and so on. They live in cramped dorms, not corner penthouses.
Singapore’s government is very effective, but effective is not the same as perfect. Simply put, the migrants slipped the government’s collective mind. Nearly three months after Singapore thought it had beat coronavirus, the city-state is suffering the world’s worst secondary epidemic as the virus rages through the country’s support workers.
For a country that borders the pandemic’s ground zero, Vietnam has suffered shockingly little from coronavirus. The country has two things going for it:
First, Vietnam’s fractured geography provides a couple of natural viral firebreaks. The country is shaped like a barbell: Ho Chi Minh is in the far south, Hanoi is in the far north, with a very thin strip of lightly infrastructured land connecting the two. Travel between the two “bells” is thin, so containing any outbreaks within a specific part of the country would be relatively simple.
Second, the Vietnamese government does not mess around. Vietnam is not a democracy. It benefits (suffers?) from extensive monitoring of civilians, but unlike the Singaporean techno-state, Vietnam’s system is more akin to an authoritarian neighborhood watch. This system of internal monitoring literally lets state agents go door-to-door demanding answers to invasive questions.
A bit…fascist? Definitely. But this sort of near-total political command enables the government to stop outbreaks in their tracks, enabling rapid re-openings. Vietnam’s (disturbingly) aggressive tactics stopped COVID in its tracks. Now the country is aggressively seeking gaps in the manufacturing supply chains of other, harder-hit countries for Vietnam to fill.
South Korea earned plaudits early on for their deep, early tracing and quarantine systems, which enabled the country to beat virus cases down to nearly zero without a system-wide lockdown. But the Koreans aren’t perfect.
A singular early case was missed. A woman who went to church triggered a megacluster that took over a month to get under control. While South Korea has mostly reopened, individuals continue to slip through the country’s mesh of testing and tracing. Recently, a bar-hopper triggered dozens of follow-up cases, thus raising concerns of a second wave.
For a wildly wealthy first-world country packed with retirees, Japan has generally received poor reviews for its COVID response. The consensus is that Tokyo downplayed all things coronavirus in an attempt to preserve its hosting of the 2020 Summer Olympics. Only when it became clear that no one was going to show up, and the Olympics were postponed, did the government begin basic anti-COVID measures. There has been no lockdown, and businesses like karaoke bars remained open. Testing was, and remains, thin.
And yet, Japan’s caseloads never rose to mirror those of other late responders. As always, much in Japan remains a mystery, but we know that three things helped:
First, family sizes in Japan are tiny. Most parents have only one child, if that. The interfamily transmission that so characterized outbreaks in Iran and China wasn’t an issue in Japan. Second, while the country normally lives on mass transit, there are small grocery stores in almost every residential building, and everyone has lightspeed internet connections. Self-isolation in Japan is easy, and as regards quarantining, effective.
Third, the Japanese are absolutely, positively, the world’s most intense health freaks. Even before the outbreak, there was a culture of wearing face masks in Japan. All it took was a whiff that there might be a virus scare, and everyone immediately put one on. Everyone. They haven’t taken them off yet. They probably won’t until there’s a vaccine.
We include Indonesia, not because they have a documented case explosion, but because they don’t. We know cases in the capital and largest city of Jakarta have only been going up, but the city is now officially reopening without any meaningful tracing or testing efforts. Much has been (accurately) made of the United States’ insufficient testing; in per capita terms, Indonesia’s testings are less than one-fifteenth what the Americans are doing.
Add in a likely case surge due to Ramadan, and a national government response that can best be described as “in denial.” It’d be a welcome surprise if Indonesia’s infection rate is less than one-tenth of what is officially reported.
It might seem a little weird for a COVID update on East Asia to not include data on China. After all, the coronavirus pandemic began in the country’s Hubei province, in the city of Wuhan. However, we are not including too much analysis of China in this piece for three reasons.
First, Chinese data is at best unreliable, and often wholly fabricated in an attempt to make China look good. Second, the coronavirus outbreak in China is, undeniably, under control.
Yes, we can say the data is unreliable, and also say that China’s outbreak is no longer a big deal. The reason is simple. The Chinese Communist Party now equates COVID cases as being a threat to the CCP’s political power. China treats them with the same panicked fury that they treat the Falun Gong, Hong Kong protestors, or anyone with the audacity to suggest that Taiwan is a country. Reliable data reporting is not part of that fury; anti-viral efforts are. For example, when the Chinese discovered over a hundred cases in a wholesale food market in Beijing this week, they locked down most of the capital metro. Twenty-two million people live there.
So, do we trust China’s data? No, and we’re not bothering to publish it here. But, do we trust the Chinese government to act swiftly to suppress the virus? Totally.
Which brings us to the third reason we don’t have much China in this newsletter: We’re saving it up.
If you enjoy our free newsletters, the team at Zeihan on Geopolitics asks you to consider donating to Feeding America.
The economic lockdowns in the wake of COVID-19 left many without jobs and an additional tens of millions of people, including children, without reliable food. Feeding America works with food manufacturers and suppliers to provide meals for those in need and provides direct support to America’s food banks.
Food pantries are facing declining donations from grocery stores with stretched supply chains. At the same time, they are doing what they can to quickly scale their operations to meet demand. But they need donations – they need cash – to do so now.
Feeding America is a great way to help in difficult times.
The team at Zeihan on Geopolitics thanks you and hopes you continue to enjoy our work.
Outside of China, Iran was the world’s first significant coronavirus epicenter, and it is pretty obvious that tight geopolitical and economic relations among the two – reinforced by American sanctions – served as a vector for COVID’s transmission from Wuhan to Tehran. China has been stingy with accurate COVID data with the entire world, Iran included. Because of this, Iran was not able to properly prepare for the virus. As one might expect, this meant Iranian support of all things Chinese plummeted.
Iran is also the first country to show the limitations of quarantine efforts. As a developing country, there is only so much social distancing that a country like Iran can engage in. The Iranian economy cannot provide its workers with extensive, open-ended work from home; grocery delivery is not an option for a society still largely dependent on government-subsidized goods; Iran’s cultural and religious tradition is centered around communal gathering (like in many other countries, religious centers like Qom have been ground zero for super spreader events). Yes, the country’s anti-COVID efforts had an impact, but the surprise and speed with which coronavirus struck the country means the Iranians have no hope of being COVID-free until there is a mass vaccination program. The situation is going to get (much) worse before it gets better.
And that’s the good news for the region. For on the other side of the Persian Gulf, the situation is far, far, far worse.
As we noted in early April, the question wasn’t so much if the Arab Persian Gulf states would have a coronavirus crisis, but when. Two months later, the region’s epidemic is by far the worst in the world on a per capita basis.
(Many, many thanks to the Financial Times for providing the data interface that makes this graphic possible. You can visualize your own data pulls here.)
There are several structural factors at play here:
The Arabs of the Persian Gulf aren’t “typical” populations. For the most part, they are maintained and sustained by oil income. Their governments provide hefty subsidies for all aspects of their lives, which means many citizens don’t work. Since the local climate is the part of the world that most resembles the surface of the sun, air conditioning is a must-have. The result? Nearly everyone lives in densely populated cities that boast extensive high-rises, housing blocks, multi-generational homes, and omnipresent indoor social interaction options. Think of these as less cities, and more ginormous cruise ships that just happen to not move.
Of course, just because the locals don’t work doesn’t mean that there isn’t work that needs to be done. The entire region depends upon a large, poorly documented pool of foreign workers who are often confined to dormitory-style housing. Think of how workers in American meatpacking plants are brought in from Central America and boarded in bunkhouses. Think of how that makes coronavirus transmission inevitable. Now apply that model to all workers in all industries. Honestly, it is a not-so-small miracle this region’s epidemic isn’t worse.
Two other factors are worthy of note:
First, the Islamic world recently exited Ramadan. Among the many characteristics of the Muslim holy month are communal prayer, family reconnecting and feasting after sunset. Think Easter, Thanksgiving, and Christmas combined, but lasting for a month. As it typically takes three to five weeks for significant exposure events to impact COVID testing data, and that Ramadan ended May 23, expect regional caseloads to seriously explode in July.
Second, and perhaps most problematic, when the state pays you to stay indoors and eat, you don’t get much exercise. The region’s per capita rates of obesity, diabetes, heart, and pulmonary diseases are among the world’s highest (if not for high per capital health spending, they probably would be the highest). These are exactly the sort of pre-existing conditions that make COVID more likely to kill you.
Newsletters from Zeihan on Geopolitics have always been and always will be free of charge. However, if you enjoy them or find them useful, please consider showing your appreciation via a donation to Feeding America.
One of the biggest problems the United States faces at present is food dislocation: pre-COVID, nearly 40% of all foods were not consumed at home. Instead, they were destined for places like restaurants and college dorms. Shifting the supply chain to grocery stores takes time and money, but people need food now. Some 23 million students used to be on school lunches, for example. That servicing has evaporated. Feeding America helps bridge the gap between America’s food supply (which remains robust) and its demand (which coronavirus has shifted faster than the supply chains can keep up).
A little goes a very long way. For a single dollar, FA can feed one person for three days.
Let’s rile everyone up with an uncomfortable statement: Mexico should be a failed state. The issue isn’t cultural, political, or policy-driven, but rather, geographical. Most powers of significance share two geographic features:
First, they’re in the temperate climate zones, therefore boasting reliable rainfall, warm seasons for growing crops, cold seasons for deterring pests, recharging the soil, and avoiding extreme heat and cold that wrecks health and infrastructure.
Second, they’re pretty flat. Flatness simplifies the construction and maintenance of infrastructure. It means their cities can spread out, and keep land prices low. It means agriculture and industry alike can establish mass scaled economies, keeping food, power, and manufactured goods’ prices within reach. This not only boosts national power, but it also provides a backstop to help keep economic inequality-related issues under control.
Mexico has none of that.
Its north is a barren desert. That means agriculture is only possible by diverting the region’s few rivers. Its south is a rugged jungle, which reduces the general population to subsistence living. Plus, multiple mountain chains crisscross the country, with the two largest (the Sierra Madres Occidental and Oriental) prominently jutting up from the coast, complicating interior access to the one feature Mexico has going for it: its extensive coastline. All those mountains shatter Mexico’s people into multiple, often competing, zones.
Any of these features would be severely problematic, all sufficient enough to keep Mexico out of the ranks as one of the major powers. But all of them? Together? Across a territory as big as Spain, France, Germany, and Poland combined? With all these points, Mexico, arguably, has the world’s worst geography from an economic-development point of view. Mexico shouldn’t just be a failed state, it should exist in a degree of organizational chaos rivaling Afghanistan.
Yet not only is Mexico not a failed state, rather it’s the world’s 15th richest country, and among the most industrialized states of the developing world. Does this mean geographical lessons don’t apply to Mexico and its people? Hardly. But it indicates we need to add more layers of information.
First, Mexicans can read maps and thermometers. They know their country is in the tropics. Rather than staying in the tropics, the majority moved up their omnipresent mountains until they, literally, rose above the oppressive heat and humidity. Over half the Mexican population resides in a series of highland valleys and plateaus in the country’s midsection, with most living above 7000 feet. In doing so, Mexicans, at least in part, addressed some of their issues with agriculture and economies of scale and health. Other Latin American countries have followed similar paths, but none of them have proven as successful as Mexico.
Which brings us to the second layer of information: Mexico shares a 2000-mile-long border with the United States. There are plenty of historical chapters the two countries share that are, shall we say, less than cooperative. The United States defeated Mexico on the battlefield, and in the aftermath, drew the border to their own liking. As such, the United States owns the demographic and especially economic heft of the borderland. Still, the normal economic rules apply:
By imposing American security levels on the northern borderland’s bulk, northern Mexico has found itself somewhat freed of multiple “normal” stresses that plague borderlands in general (mountainous terrains specifically). And since Mexican labor is less expensive than American labor, the propensity for trade and economic integration among the two lobes of the borderland is amongst the strongest globally.
The American cities of San Diego, Los Angeles, Phoenix, Tucson, Albuquerque, El Paso, San Antonio, Austin, Corpus Christi, and Houston all sit less than 300 miles from the border – a border they are linked to by excellent infrastructure. The cities on the southern side of the borderland – the Mexican metro regions of Tijuana, Juarez, Hermosillo, Chihuahua, and Monterrey – might be culturally Mexican, but economically, they function as satellite cities of the United States.
And because Mexican-American relations have been stable and fruitful these past thirty years, those Mexican cities have painstakingly developed and increased their local educational standards to the American norm. This isn’t simply a relationship that simply works, it works well. Mexico figured out its geography, and northern Mexico in particular decided to get in-bed with its northern neighbor.
The third layer to Mexican success is more institutional: In the 1980s, Mexico was transitioning from single-party rule to democratic norms, a touchy, fraught process for any country – triply so for a country with as riven geography as Mexico has. Under George HW Bush and Bill Clinton’s leadership, both to expand the American economic footprints and provide Mexican democracy with a more stable footing, the United States negotiated a free trade deal with Mexico City (and invited the Canadians along for the ride). And so, NAFTA was born.
Access to American capital and consumer markets provided Mexico with the opportunity to shift away from a resource-export-driven system into something more value-added. The results are almost unprecedented. Most developing Latin American countries are relatively closed, with most export income coming from things like crude oil, coal, coffee, fish. In the early 1980s, Mexico was no different. But now, Mexico is the most trade intensive Latin American country by a factor of three, and over 80% of its exports are manufactured goods, with nearly all its products flowing north. Hiccups and exceptions abound, but Mexico has taken maximum advantage of the formation of North America’s trade space.
Fourth and finally, Mexico got lucky. This one takes a bit of exposition:
Normally, trucks are the dumbest way to move things from points A to B. Dragging stuff around via semi truck-towed container costs approximately twelve times more than floating them via container ship. Courtesy of the Mississippi, Missouri, Arkansas, Red, Tennessee, Ohio, Sacramento, Colombia, Alabama, Tombigbee, and Hudson Rivers (plus about five dozen of their smaller lesser-known brethren) the United States doesn’t just boast an internal, naturally navigable water-network larger than anyone else’s, but instead, a system larger than everyone else’s.
The United States’ rivers proved a key feature in empowering America’s breakneck growth to world power in the 19th century. Not to mention, the United States’ subsequent maritime acumen proved key to the Americans’ rapid and thorough defeat of the Mexicans in the Mexican-American War of 1846-1848. (Cliff-notes version: American forces baited the Mexican army into a multiweek march across Mexico’s northern deserts, while the Americans simply sailed the Marines to the Mexican port of Veracruz and marched directly onto Mexico City.)
Mexico lacks a single navigable river, and in moving the bulk of the Mexican population upmountain, most Mexican ports have become wildly underutilized relative to the size of the Mexican economy. In an industrialized and globalized world dominated by massed waterborne shipments, this is a kiss of death. All imports or exports must first deal with a mountain chain. Any goods part of an integrated multi-step manufacturing supply chain where goods come and go via Mexico’s ports would need to navigate such chains at least twice. One of the many reasons East Asia does so well in electronics manufacturing is because the bulk of East Asian cities are either on the Pacific Coast or, at worst, only separated from the coast by a relatively short stretch of (relatively) flat land. Mexico should not be able to play.
But it can, because the United States continues to do something monumentally stupid.
Back in 1920, the United States adopted the Jones Act (aka the Interstate Commerce Act) which among other things, forces any cargo being transported between any two American ports to use American built, owned, captained and crewed ships – a restriction the United States declined to place on any internal transport method. The result was a century of massive investment in rail and truck infrastructure that dramatically reduced the cost of internal overland shipments and an atrophying of the American waterway system.
The Americans deliberately muffled their sublime geography’s most glorious benefits.
Within a few years of Jones’ adoption, the Americans lost their coveted spot as having the world’s lowest internal transport costs. Today, instead of internal American shipments using waterways, Americans primarily use trucks to shuttle about over two-thirds of their internal commerce.
If the Americans utilized their waterways like other countries, Mexico simply couldn’t compete in the American market. But if the Americans insist on doing everything the hard way, and limiting themselves to trucks…well, on that field of competition, the Mexicans are in their element.
And it shows.
Mexico became America’s largest trade partner in 2019, a position they will not give up in our lifetimes. So to best understand what’s going on south of the border, as well as with American-Mexican economic and diplomatic relations, sign up for our videoconference on June 16 below.
Newsletters from Zeihan on Geopolitics have always been and always will be free of charge. However, if you enjoy them or find them useful, please consider showing your appreciation via a donation to Feeding America. One of the biggest problems the United States faces at present is food dislocation: pre-COVID, nearly 40% of all foods were not consumed at home. Instead they were destined for places like restaurants and college dorms. Shifting the supply chain to grocery stores takes time and money, but people need food now. Some 23 million students used to be on school lunches, for example. That servicing has evaporated. Feeding America helps bridge the gap between America’s food supply (which remains robust) and its demand (which coronavirus has shifted faster than the supply chains can keep up).
A little goes a very long way. For a single dollar, FA can feed one person for three days.
This is the second in a series of newsletters addressing the state of the COVID-19 pandemic around the world. Other articles in the series cover Latin America, the Persian Gulf, East Asia, Europe, and the BRICS.
Let me bottom-line it: In the United States, the COVID epidemic is now the second-worst in the developed world and among the dozen worst globally. The epidemic will get considerably more intense in just the next few weeks. Red states and Blue states will experience almost identical epidemics. The situation will not noticeably improve until such time as we have a widely distributed vaccine program.
Now for the longer version:
In a country as geographically and demographically large as the United States, it should come as no surprise America’s coronavirus epidemic wasn’t the same everywhere. Functionally, the United States has experienced two epidemics.
The first was in the Northeast Corridor, America’s most densely populated footprint stretching from Washington DC in the south to Boston in the north. The epidemic hit hardest in the greater New York City region (aka the tri-state region). NYC is the United States’ densest population center, the region with the best inter- and intra-city transport infrastructure, as well as its heaviest international travel and transit locations – all factors which encouraged rampant COVID spread.
America’s second epidemic was…everywhere else. Outside of the Northeast Corridor, American cities are far apart and not well connected with transport infrastructure. When travelling around the country, most Americans use personal cars or passenger jets. When COVID started, airline use dropped by over 95% year-on-year and people largely stopped intra-city travel. As such the virus still spread, but at a slow smolder rather than a hot burn.
The difference explains much of the divergence among Americans as to how they view the virus. The Northeast Corridor got hit hard, and that heavily-urbanized corridor is among America’s most politically liberal regions. So the “Left” takes the virus pretty seriously.
In contrast, most of America’s wide-open spaces and smaller cities lean more politically conservative, with the less populous parts of the country tending in a decidedly populist direction. So many on the “Right” – and especially the populist right – wonder what’s the big deal?
(This is of course a generalization. There are spots of deep-Red rural Alabama the virus has absolutely devastated, while there are some urban centers – even in the Northeast – which have done pretty well. But overall, the generalization holds.)
Anywho, while policy responses are all over the map, America’s political split as regards COVID perceptions is not ideological. To a large degree, America’s Left and Right have experienced different epidemics. It is perfectly natural that their perceptions reflect that. Yet moving forward, we expect those perceptions to align.
America’s lockdowns were not nearly as all-inclusive as the rest of the world’s. In China, government-mandated fever-checkers were omnipresent; If you had a fever you were ripped away from your family until such time as you tested negative for the coronavirus — even if that took over a month. In contrast, consider Denver where I live: marijuana dispensaries were branded “essential businesses”. Pretty much all epidemiologists were very, very vocal about how if the goal was COVID eradication, we had to implement the lockdowns and build capacity to contain the outbreaks correctly the first time.
We didn’t.
The result? Outside of the Northeast Corridor, the United States never saw its caseloads drop. In most places a lengthy plateau was as good as it got. Only in the Northeast Corridor where America experienced its major outbreak – and so where quarantine procedures were taken more seriously – did cases decline substantially. Statistically speaking, the rapid caseload drops in the Northeast Corridor broadly cancelled out the slow-but-steady increases in the rest of the country. As a whole, America experienced a caseload plateau.
Now, in mid-June, the United States has reached an equalization point: caseloads per unit of population in the Corridor (which have been dropping) now roughly match the case levels in the rest of the country (which have been rising). With the exception of the very lightly populated states of the Rockies, the states now have very similar caseloads as a percentage of the population – regardless of their political leanings.
(Many, many thanks to the Financial Times for providing the data interface that makes this graphic possible. You can visualize your own data pulls here.)
Moving forward, both groups of states are about to experience similar caseload increases, largely due to an unrelated pair of epidemiological disasters.
The first such epidemiological disaster was Memorial Day. After the country was cooped up for two months, people wanted out, and the three-day Memorial Day weekend enabled folks to cut loose. Mass parties was the unsurprising result. (Maybe we all should have seen this coming?) The biggest parties with the least social distancing occurred in those states where caseloads weren’t huge – primarily in America’s politically conservative regions. Missourians were particularly aggressive at drowning their frustrations in drinks.
The second epidemiological disaster is the ongoing series of protests against police brutality and racial inequality. Regardless of what one thinks of the righteousness or lack thereof of the Black Lives Matter movement in general or the individual protestors in specific, the simple fact remains that large groups of people in limited spaces are excellent for the transmission of a respiratory virus. And that’s before considering issues like mass arrests that cram people into paddy wagons and jail cells, much less the use of tear gas and pepper spray which makes people cough and gasp and therefore be more likely to expel and inhale viruses. The larger, denser protests have been in America’s major cities, most of which tilt decidedly Left.
Take a look at this excellent graphic from Count Love. They’ve collected thousands of local media reports and made this map highlighting the major protest sites. Anywhere there’s a circle – especially a larger circle – we should except to see surges in coronavirus cases.
That just leaves two questions: how soon will we see the surges, and how big will they be?
We know from case studies around the country and around the world that from the point in time of mass spreading events, we can expect to see significant surges in caseloads in three to five weeks. Memorial Day was May 25. The protests have occupied the first two weeks of June. We should expect to detect mass outbreaks across the country in both Red and Blue states in late-June and especially in July.
As to size, consider the case of Austin, Texas – home of our headquarters. Just two weeks after Memorial Day, Austin has already seen caseloads double. That’s before the protests have had a chance to add their own fuel to the fire.
America’s quarantine efforts were insufficient to root out coronavirus, likely making it endemic to the population. That was before the Memorial Day parties and protest movements. Purging the virus is now not only an impossibility, the United States is now on track to experience the worst documented infection rates in the world (many countries have worse testing regimes, so labeling the US #1 without a caveat is a bit disingenuous). About the only silver lining is that vaccine development efforts continue to outperform. We are highly likely to have a functional vaccine this year. That still leaves questions of mass manufacturing and distribution, but even in the worst-case scenario, that process will likely require under a year.
In the meantime, regardless of differences in race and socioeconomic status and ideology and geography, Americans are about to find themselves in the same boat. It isn’t the sort of unifying experience we at ZoG tend to hope for, but it is a unifying experience nonetheless.
The United States is hardly the only place that has gotten its COVID response wrong. Mexico — the United States’ top economic, cultural, political and security partner — unfortunately falls into the same bucket. That’s part of why our next video conference — this coming Tuesday, June 16 – will address all things Mexican, from the status of the drug war to the coronavirus impact to American-Mexican relations. Scheduling and sign up information can be found here.
Newsletters from Zeihan on Geopolitics have always been and always will be free of charge. However, if you enjoy them or find them useful, please consider showing your appreciation via a donation to Feeding America. One of the biggest problems the United States faces at present is food dislocation: pre-COVID, nearly 40% of all foods were not consumed at home. Instead they were destined for places like restaurants and college dorms. Shifting the supply chain to grocery stores takes time and money, but people need food now. Some 23 million students used to be on school lunches, for example. That servicing has evaporated. Feeding America helps bridge the gap between America’s food supply (which remains robust) and its demand (which coronavirus has shifted faster than the supply chains can keep up).
A little goes a very long way. For a single dollar, FA can feed one person for three days.
This is the first in a series of newsletters addressing the state of the COVID-19 pandemic around the world. Other articles in the series coverthe United States, the Persian Gulf, East Asia, Europe, and the BRICS.
For the next few days, the team here at Zeihan on Geopolitics will be sharing a few snapshots of the pandemic from around the world. This is less a holistic assessment and instead us taking the temperature of some major countries so that readers have an idea of the pandemic’s future trajectory.
As with all things coronavirus, the first question is where to start. Most COVID-related data is, in a word, unreliable.
New hospitalizations data are wildly misreported. Useful new deaths data assume patients were tested for COVID at all, and comparing death rates from COVID across countries assumes a common quality of care. Any hospital-related or death-related data assumes that the health system wasn’t overwhelmed (and so suffered no breakdowns in data collection) as well as being very well funded and staffed (and so had the luxury of being able to test everyone). Considering how infectious COVID is and how many health personnel have died of it, those can be tall bars in places where the epidemic rages hot.
So for this exercise we are using the dataset that is most cross-comparable: new cases as a percentage of the overall population.
It isn’t a perfect measure. Many, many countries – the United States included – have wildly insufficient testing regimes. Different countries (and different states, and different cities, and different hospitals) use different criteria when determining who to test. Nor is there a best-practices policy for how to report. Just as importantly, upwards of half of all COVID cases are asymptomatic, and even those who develop symptoms are typically presymptomatic for two to five days before symptoms set in. Everyone should assume that all new case data underreports the reality.
Perhaps most importantly, national data like this tends to mute local outbreaks such as what struck New York City, dissolving the intense local data within a national whole that is far less dramatic. So don’t use this series of newsletters as justification for actions either cautious or rash. It is nothing more than this: our best understanding of countries’ broad trajectories.
The raw data comes from the COVID Tracking Project and the European Centre for Disease Prevention and Control. The Financial Times runs the data through their graphics creator. In our opinion, access to the FT’s COVID interface all by itself more than justifies the FT’s full subscription price (and yet its free!).
We’re going to begin with Latin America.
Geography shapes all countries and populations, and a deep study of map sets can help you know what to look for. Latin America’s tell has to do with the balance of tropics and elevation. Life in the tropics is rough: lack of winter insect kills enables diseases to run rampant, most grain-based crops cannot ripen in the high humidity, simply getting concrete or asphalt to set is an aggravating exercise. As a result, most of Latin America’s largest cities are not on the coast, but instead upland to escape the heat and humidity.
A few fun points of reference: The United States only has one post office above 10,000 feet. The bulk of Bolivia’s population lives in the Altiplano, a region whose low point is at 12,000 feet. America’s highest elevation metro, Denver, famously sits one mile up; over half the Mexican population lives on a plateau over 2000 feet higher. Colombia’s major cities perch on the flanks of mountains too high to live atop.
Since infrastructure connections are few and crowded and expensive to build and maintain, living up high is expensive. But there can be perks (beyond the view): When infrastructure is a limiting factor, populations must concentrate where the roads go. One result? Dense population footprints. That somewhat simplifies the process of providing government services, services such as health care. While that services concentration certainly hasn’t prevented COVID outbreaks in Latin America, we feel it has provided the region as a whole with (slightly) more reliable testing data than the developing world writ large. Unlike India or Indonesia or Nigeria whose COVID numbers are hilariously low (more on all three in future newsletters), we feel Latin America’s data only understates the number of cases by a factor of five or less.
But what is most obvious is that no Latin American country has the epidemic under control. Throughout the region case loads are only building, and with vanishingly few exceptions (fingers crossed for Costa Rica) the virus is now likely endemic and we do not expect to see meaningful drops in case numbers until such time as a vaccine is widely available.
For Americans, the country that matters most is of course Mexico. The two neighbors have a great deal in common.
Both are federal systems with relatively weak central governments. Most policy decisions which impact day-to-day life – like say, anti-COVID efforts – are made at the state and local level. For both countries this is both good and bad. Good in that both countries are sprawling laboratories for best health practices. Bad in that the lack of national action on coronavirus has enabled the bug to become established everywhere.
The two countries also share a certain demographic geography, characterized by cities which freckle huge swathes of lightly populated territory. That means that as the COVID pandemic stretches on, both have the opportunity to isolate localized outbreaks without needing to shut down either country as a whole. Americans and Mexicans went into the outbreak together, they are dealing with the outbreak in more or less the same way, and they will come out of it together. That hardly makes everything firelight and marshmallows, but it befits a pair of countries who are now each other’s greatest and most reliable political, cultural, economic and security partners.
To that end, our next webinar – scheduled for June 16 – will be on the status of the Mexican system, ranging from manufacturing supply chains to the local COVID epidemic to debt markets to economic and diplomatic relations with the United States. Sign up information can be found here:
Newsletters from Zeihan on Geopolitics have always been and always will be free of charge. However, if you enjoy them or find them useful, please consider showing your appreciation via a donation to Feeding America. One of the biggest problems the United States faces at present is food dislocation: pre-COVID, nearly 40% of all foods were not consumed at home. Instead they were destined for places like restaurants and college dorms. Shifting the supply chain to grocery stores takes time and money, but people need food now. Some 23 million students used to be on school lunches, for example. That servicing has evaporated. Feeding America helps bridge the gap between America’s food supply (which remains robust) and its demand (which coronavirus has shifted faster than the supply chains can keep up).
A little goes a very long way. For a single dollar, FA can feed one person for three days.
The past few several weeks have been busy for the Europeans, easily generating more events of consequence than at any time since at least the 2007 financial crisis. There is no specific trigger event here that makes much sense without absorbing the context first, so I’m just going to do what I do and start at the beginning.
Germans aren’t normal.
I don’t mean that as a condemnation of their weather or dourness or food or their linguistic tendency to link a dozen or more words together into typographical nightmares, but instead that Germany’s peculiar geography has made the Germans somewhat…peculiar.
Germany’s geography is the best and worst of all worlds. Best in that it boasts four major and a dozen minor rivers as well as ample stretches of flat land to both ease internal transport and make for cheap development. Worst in that Germany’s most rugged terrain is in the country’s interior while its flattest lands are on its borders, making it easier (historically speaking) for most Germans to integrate with their (non-German) neighbors rather than their own co-ethnics.
Historically, this has made German lands among the most bloodsoaked in Europe, with the whole area being preyed upon over and over and over. The first “Germany” was Charlemagne’s, and it only lasted so long as the great monarch was alive. The Holy Roman Empire was a primarily German entity (occasionally referred to as the First Reich), but it wasn’t even remotely united, comprised as it was by sometimes over 1000 (often mutually warring) statelets.
It was only with the onset of industrialization in the 1800s that Germans were able to use rail and electricity to overcome their internal geographic complexity and achieve unity. But unity doesn’t automatically translate into happy-fun-play-time. The second and third Reichs were Germany’s Imperial and Nazi incarnations. Those governments’ attempts to impose writs on the wider European neighborhood resulted in the most catastrophic wars humanity has ever experienced. For the following 45 years, Germany was the very definition of not united – split into two pieces to serve as mutually-opposing frontline states in the Cold War.
In the years since the Berlin Wall fell, the newly-united Germany – or Fourth Reich if you prefer – has been taking a wonderous vacation from history. It doesn’t need to fight to remain unified; America’s imposition of a global Order makes that unnecessary. It doesn’t need to protect its borders; American-dominated NATO takes care of security issues. It doesn’t need to fight for access to either raw materials or consumer markets. The Americans’ global structure has enabled the rise of the European Union within Europe, and has allowed German firms access to a worldful of consumption. All Germany needs to do to be Germany today is…be. And so the Germany of today is united, free and at peace…without the Germans needing to do a damn thing.
For those of you who would like Germany to exercise more decisionmaking power and take security matters into its own hands, I refer you to literally any book on European history between 1848 and 1945 to highlight why that might not be the fabulous idea you assume it to be.
Anywho, there are now three intersecting problems that all independently threaten Germany’s blissful existence.
First, the Americans are done holding up the collective civilizational ceiling of the world. The United States created the global Order to fight the Cold War, and that war ended when the Berlin Wall fell. The Americans have been edging away from, well, everything, ever since. The day of final abandonment was always going to come, it is now here, and everyone who used to shelter under the American security umbrella or benefit from a globalized economy must figure out a new way forward. That applies to Germany as much as everyone else.
Second, the German economic model of mass exports is running out of road. Mass exports requires a large, highly-skilled workforce heavy with people in their late-40s through early-60s. Germany has had that for the past 15 years, but those skilled workers collectively are crossing the retirement threshold this decade. With no replacement generation coming up through the ranks, Germany can neither consume what it produces today, nor maintain its current production for much longer. That eliminates both the basis of the German economy and the German tax base. Something new, something radical, something that utilizes resources beyond Germany, is required.
Third, the EU – the only meaningful piece of the Order the Americans do not directly control and so the only possible anchor the Germans have keeping them in a safe, peaceful, united Europe – is in mortal danger. In part it is because much of Europe faces the same security and export dependence upon the Americans as the Germans do. But there’s another problem.
Geography.
Northern Europe is flat and well-rivered and so countries there can achieve efficiencies and economies of scale. Southern Europe is rugged and lacks rivers and so cannot. Exceptions abound in a continent as varied as Europe, but the bottom line is that Southern Europe will never be able to compete with Northern Europe economically, just as Northern Europe cannot hope to compete with Southern Europe when it comes to sun, fun, food and flair. (France has a foot in both worlds which is part of what makes the French…well…French.) Anywho, the bottom line is that there is no European Union without both parts of Europe, so the question becomes how to keep it all stitched together without either the American-led Order or the ability to access markets from far beyond Europe?
There is no good answer. Even more problematic, what might prove a good answer for Ireland would be hilariously inappropriate for Croatia. What most everyone can agree on, however, is that Europe as a combined entity will be better able to get what it needs than the EU’s constituent members acting independently. And so Europe has been limping along since the 2007-2009 financial crisis, economically suppressed, strategically adrift, politically riven…but with no one (save the Brits) willing to pull the plug on the whole project.
In my new book, Disunited Nations, I’ve got a whole chapter on called “Superpower, Backfired” on the hows and whys Germany ended up in this situation and where it is likely to lead.
And then there’s the coronavirus.
Just as there are differences in European financial and economic structures on a country-by-country basis, so has the virus impacted EU members differently.
It comes down to vectors and weather. Most of the cases in Germany originated at a series of Alpine ski parties for 20-somethings. When the virus started to spread, it spread among the population most able to survive it. In addition, late-winter and early-spring in Germany isn’t exactly tourist season, so most elderly stayed locked up at home. Germany was able to address the virus outbreak relatively quickly and move on.
Not so in Italy. Patient zero went to a massive outdoor soccer game and became one of the first COVID superspreaders. Elderly Italians are also more likely to live in a multi-generational household than elderly Germans because…well… sun, fun, food and flair. It wasn’t long before the Italian health care system was overwhelmed.
Finances matter too of course. Germany has been whittling away at its national debt for twenty years, and so had plenty of dry powder to apply to the crisis without needing to ask anyone for help. Italy…hasn’t. When the crisis exploded upon the Italians they almost instantly ran out of cash and had to turn to the EU hat-in-hand for help.
The response was underwhelming. The Germans – backed up by the European Central Bank (ECB) chief – told the Italians that saving Italy wasn’t their job. As a point of comparison, across the Pond the Americans slapped together humanity’s largest-ever stimulus program in a matter of days.
It didn’t take long for German Chancellor Angela Merkel to realize that the situation was untenable. It wasn’t so much that Italy and others were facing fiscal collapse because of COVID (although they were), it was that Merkel knows full well that the road the EU is on means that Italy and others would inevitably face fiscal collapse. COVID just brought the end forward by a few years. The question Europe has been struggling with since 2007 – now that we are certain this is unsustainable, what do we do? – had moved from the hazy future to the here-and-now. And Merkel simply didn’t have an answer. If she had, she would have produced it. Years ago. And so the demurring and dithering continued.
Ironically, it took events within Germany itself to force the issue. On May 5 the German Constitutional Court ruled that methods the ECB were using to keep some of Europe’s weaker states on life support were unconstitutional. Specifically, the ECB can only purchase government debt if it does so proportionally to the size of all eurozone economies. Since the Germans have been paying their debt down, there wasn’t much German debt left to buy. And since the Italians were in a COVID pickle, the Italians needed to issue more debt. The ECB did the logical thing and put its resources where they were needed. The German court ruled that the ECB’s logic violated European law in general and the German constitution in specific, and that the German government must cease all cooperation on the issue within 90 days.
Running the European Central Bank without the participation of Europe’s largest economy would open up a hilariously huge barrel of worm-ridden monkeys, taking us down paths so convoluted and impractical as to be positively Venezuelan. But those monkeys and paths all take us to the same place: no European bond market, no European currency, and – very likely – no EU.
A world without America. A Europe without the EU. Germany left to look after its economic and security issues on its own, likely in competition with its current EU partners. That is nothing less than Merkel’s worst-case scenario, and so she did the only thing she felt she could:
On May 20 in a joint presser with French President Emmanuel Macron, Merkel proposed the EU’s first mutualized debt. For those of you not in finance, that’s a fancy way of saying that not only will Germany co-sign for some Italian borrowing, but that Berlin will agree up front to use the EU’s common budget to pay for some Italian spending. Simply put, Merkel committed Germany to paying for the ongoing existence of the EU in general and the EU’s weaker members in specific in the hopes of buying more time to find a better solution.
Many many details remain.
How big of a fund are we talking about? At present the combined floats of the Germans, French and the EU Commission total something around 1.5 trillion euro. (Right now that’s about $1.65 trillion US, so, you know, real money.) That’s roughly ten times the current total EU budget. That would probably cover the EU’s current needs this year, but only this year. And all the proposals to date are nothing more than one-offs designed to counter COVID impacts. This doesn’t actually help the EU survive in the long-run. For this to work and for the EU to function as a true superstate, the EU needs a full transfer union of at least these volumes annually.
Who would get the funds, and who would pay the funds back and how? At present the idea is to funnel everything through the European Commission, with funds being dispersed into (suddenly engorged) EU programs, while payback would come from the various member states who fund the Commission directly. Needless to say, that would be wildly inefficient and cumbersome, although it would wildly strengthen the EU’s administrative core and take Europe a few big steps down the road to full federalization on the American model.
Can this – institutionally – happen? It doesn’t look great. Big things like this normally require a treaty, and the EU has rarely managed negotiating and ratifying a treaty on anything less than a decade timescale. Moving forward without a treaty would still require unanimity, and several EU states have already voiced their vociferous opposite to the plan.
But, again, let me be clear here. Between the Americans’ withdrawal and Europe’s demographic implosion, the very existence of the European Union is at stake. This was always true. This was always inevitable. But COVID and the German court ruling makes the crisis imminent. In a Europe without either America or the EU, Germany must reorganize into a form that enables it to protect and further its own interests without outside support. This isn’t “simply” an existential crisis for the Germans. It is an existential crisis for all Europeans.
And historical annihilation tends to focus the mind.
So let’s take a brief look at the four hard-nos in this debate: Austria, the Netherlands, Denmark and Sweden.
The bulk of Austria’s population lives on the southern watershed of the Danube. The entirety of the Netherlands lies atop the delta of the Rhine. Those two rivers are core Germany population, industrial and transport zones. The Austrians and Dutch have zero geographic insulation from Germany.
Neither country may like the financial implications of where the debt-mutualization path leads, but both are deeply, painfully aware of precisely where European collapse leads: a Germany forced or induced to seek out German national interests to the detriment of its neighbors. Historically speaking, once the Germans get rolling, maintaining an independent Austria or Netherlands is pretty much impossible. The Austrians and the Dutch know this. Both can be armtwisted into accepting Merkel’s (costly) logic.
And that assumes Merkel doesn’t do her traditional thing. Unlike most leaders, Merkel tries to shun the spotlight and instead lead from behind. She allows her opponents to stake out bold positions, and then unobtrusively steps back from the shouting and quietly cobbles together a majority position that doesn’t include the troublemakers, leaving them with the option of joining the crowd or screaming into the void. She’s done this (repeatedly) to consolidate control of her political party in Germany. She’s done this (repeatedly) to defang troublesome governing coalition partners. She’s done this (repeatedly) to guide Europe through the financial crisis. It is highly likely that the Austrians and Dutch will be Merkel’s next void-screamers.
Denmark and Sweden are a different sort of challenge. Sweden doesn’t border Germany, while the bulk of the Danish population lives not in peninsular Denmark, but instead on the island of Zealand. Culturally, economically, and above all strategically both only have one foot in Continental Europe. In particular, both have historically been closer to the United Kingdom (and dare I say, the United States) on defense issues than to Germany. As such neither are even members of the eurozone. That makes the pair less likely to be cajoled into participation, but it also means there is another potential path.
Rather than run the funds and the debt through the EU budget, the funds could be kept aside as a purely eurozone project which could exempt any EU state that didn’t also use the European currency. (In addition to Denmark and Sweden, this list also includes a variety of Central European states such as Poland, Hungary and Romania.) It’d be messy organizationally, and arguably unnecessarily so, but the EU does tend to excel at spawning unnecessarily messy organizational structures.
Anywho, lots of details to work out. What Merkel and Macron are attempting on the fly is the first real step towards federalizing the European Union. Europe has a common currency (which not everyone is a part of) and a common foreign policy (which requires unanimity) and a common market (regulated by national governments), but until it has a common budget it is most certainly not a superstate and it is most certainly not pooling its national resources into a more powerful, more cohesive whole.
That more powerful, more cohesive whole is the only thing that matters if the EU is to persist through contorting geopolitical and demographic circumstances. There is no guarantee the current plan will be adopted, much less work, much less expand into something that would make the EU a true, durable power. But the fact remains that for the first time in years I have a faint glimmer of hope that this thing we call the European Union might, just might, survive.
On June 3 Melissa Taylor and Peter Zeihan will be hosting a video-conference on Manufacturing in a New Era. We’ll address the future of automotive, automation, reshoring, COVID’s shattering of supply chains, consumption shifts, as well as get you an update on the deepening trade war.
For those of you who don’t want to pop for the fee, we’ve recently completed a video on our projected shape of the COVID epidemic to come. You can watch it for free here.
Our June 3 manufacturing video-conference is only the first of a series which will include events focusing on Mexico, China, Energy and Agriculture. Scheduling and sign up information can be found here.
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