The Highs and Lows of Burgum’s Energy Strategy

Photo of a pumping station at sunset

Trump’s Secretary of the Interior, Doug Burgum, has shifted his energy strategy to focus on oil and gas. He’s doing this because renewables are no longer financially viable in most of the US, but there are some holes in his plan.

Between interest rates and tariffs, solar and wind projects are making less and less sense in fewer and fewer places. So, a fossil fuels-based strategy makes sense; however, using federal lands isn’t going to be the magic solution Burgum makes it out to be.

Given the lack of infrastructure, slow permitting cycles, and limited financial incentives…development will be slow and pricey. We’re talking a decade+ before anything meaningful comes out of it. Burgum’s geopolitical angle is what really interests me, though. He hopes to use US oil to undercut Russia, which doesn’t quite align with the rest of Trump’s inner circle.

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Transcript

Hey all Peter Zeihan here. Coming to you from Colorado. Today we’re taking a question from the Patreon page, specifically about Doug Burgum, who is the new Secretary of the interior under the second Trump administration. And the question is basically, Burgum seems to have devolved from an all of the above approach to energy to just fossil fuels, just oil and gas. Why is that? And should we care? I think that’s broadly an accurate assessment, but he’s not doing it for ideological reasons, despite the fact that he’s in the Trump administration’s, Burgum basically is saying that oil and gas is more reliable for the environment that we’re in right now, and we need to unlock the federal lands to get as much of it out as possible. 

So let me talk about why he’s probably right and then why he’s probably wrong. So first the correct. We’ve seen the cost of financing go up by a factor of roughly five, in the last six years. And that means if you are looking to borrow capital, everything just costs more. So, for example, take mortgage. I’ve owned my house since before the transition, so my mortgage rate is 2.5%. 

You know, eat your heart out, Millennials. Today the mortgage rate are above seven, and they’re probably only going to be rising for the remainder of the decade and well into the next one. 

So let’s say just to pick numbers that your mortgage today is 8% compared to my 2.5%. That means your monthly payment on a 30 year mortgage is a little over twice what I pay. 

So whatever the house is you are looking at, suddenly you’re looking at having to pay twice as much and that entire increase is all extra interest. Well, most green tech projects, whether it’s solar or wind or biomass or whatever else, don’t have very high fuel costs. Everything is the upfront, construction, the land siting, the physical construction, the labor for that. 

And that tends to be roughly two thirds of the cost of the entire project. If you compare that to a conventional natural gas or coal system, a thermal system, most of the cost, roughly two thirds is fuel, and only about one fifth of the cost is that upfront construction. Well, the upfront construction is something you have to finance. 

So you’re talking about a project that already had a much higher financing, burden. And now you’re roughly doubling, if not more, the cost of the project over its life. Now, I have solar panels on my roof. They paid for themselves in four years. But part of that is because of where I live. I live at 7500ft. And that means I live above an elevation where 99.5% of other Americans live. 

So there’s very little air, much less moisture, much less cloud between me and the sun. In addition, ambient humidity in my neck of the woods is about 15% versus the national average of over 60. About 90% of Americans live in a place that’s more humid, so I’m closer to the sun. I have less obstacles, the humidity doesn’t get in the way, and so I was able to pay for my panels in four years because the amount of electricity we generate, you drop down to where I lived in Austin, where the humidity is much higher and I was only at about 1000ft. 

And the break even for those panels took closer to I think it was nine years. If you moved to say, New York out of the city, you’re talking about much higher humidity, much lower solar penetration, much lower altitude and your break even time if you’re lucky, is going to be in the 11 to 14 year range. 

That was when interest rates were cheap. Now you need to double that, maybe even triple that. So there really aren’t a lot of places in the country that have a decent economic payback for wind and solar in the current environment. I live in one of them, but like I said, 99.5% of Americans live below me and 90% of Americans live in a place with lower humidity. 

So I am not the norm here. Still works here, still works in Colorado, still works in North Dakota. Burgum should know North Dakota isn’t just a leading oil and gas state. It’s a leading wind state. But you change the rules of finance like we have and that doesn’t help very much. And so most projects in most of the country just aren’t economically viable in today’s capital cost environment. 

And that’s before you consider that the vast, vast, vast majority of the solar panels we use in the United States are imported from China. And so now there’s a tariff, tacked on top of that, that at the moment is 55%. But by the time we see this, I’m sure that number is going to change. Oh, okay. So that’s where it becomes probably right. 

Solar and wind, at least for now, are offline unless there’s a significant change in the environment, whether because of the technology, the manufacturing base or the cost of financing, it’s really not going to be a big part of the picture in the United States for the rest of the decade, and probably throughout the next one where he’s wrong. 

Federal lands. Okay, federal lands by almost default, have very little infrastructure on them. You’re talking natural forests are, for the most part, in addition, because they’re federal lands, they have not been exploited for economic purposes aside from logging here and there. And there’s very, very, very little oil and gas development on them at all except in the offshore, which is a special case, maybe a topic for another time. 

One of the things that we’ve learned about the shale revolution is that the states control most subsoil rights. They can be privately held, but the states control the regulation on federal lands. The subsoil rights are all federally held. They are not controlled by private interest. So step one, there is no one who would get involved in the project who has a personal financial reason to push it. 

If you want to go on to federal land, you have to get a lease that costs money. So already you’ve got that layer of cost built in that does not exist in, say, the Permian in West Texas or the Bakken in North Dakota. Problem number two is infrastructure. One of the reasons that the Permian in the Bakken had been such successful oil plays in the shale revolution is because a lot of the infrastructure was already there from previous oil booms, and for the first roughly decade, they were just putting new oil into old pipes. 

It’s only in the last decade that they’ve actually had to build more physical infrastructure. For takeaway capacity. You want to produce oil or gas in federal lands. You have to build that infrastructure from scratch. And most of these places not only don’t have pipes, they don’t have roads. Third problem information, because the Permian in the back end were preexisting fields, there had been preexisting geological surveys of them. 

There was some place for the shale guys to start. You want to do this in federal lands, you have to start from scratch. Fourth regulation Texas, North Dakota A handful of other states have a relatively encouraging investment climate for oil and gas because they have decades of experience. The federal government doesn’t have that on most federal lands, and so they’re gonna have to make it up as they go. 

Now, could this Trump plan for massive deregulation make a difference? Sure. But consider the scale on the time in Texas. If you want to drill from the point you submit your permit, 99% of permits are approved or denied one way or the other within 48 hours. In the United States, on federal lands, it generally takes 230 days. Now, when Trump won, they got that down to 220 days. 

But the bonfire of regulation that would required would first require the Trump administration staffing up the senior staff of the various departments in order to figure out which regulations to keep and lose. And that process has not yet begun, and we are already in July at five. Oh my God, it’s only been five months. Holy crap. Anyway, if all of these pieces were to magically fall into place today, you build your roads, you start your seismic surveys, you start building the pipeline infrastructure with money you have not yet earned. 

Then you start drilling. You would expect to see first meaningful output of oil and gas from the federal lands. Assuming that the surveys show that there was oil and gas there. Let’s call it 2040. Texas wasn’t made in a day. It took a century to build Texas’s oil platforms and what it is now, you’re not going to wave a magic wand to make it all happen overnight. 

So wind and solar, most places. Yeah, that’s for the past. That’s for the far future. When? When gas on federal lands. I wouldn’t hold my breath on that one, but I don’t think we really need it. The United States already produces more oil and gas in any country in history. In fact, we export an extra 5 million barrels per day of refined product. 

We export more finished product, gasoline, jet fuel, and the rest than any three countries in world history have ever produced. Raw crude. That’s already the best in human history. I really don’t overly feel the need that we need to do more, unless you want to do it for geopolitical reasons. And this is where Bergmann gets kind of interesting from my point of view. 

He has emerged as a voice in the foreign policy establishment on the topic of energy dominance. Now, that is for the most part, just a bunch of bunk that Trump likes to say from time to time that has never actually been put into any meaningful policy. But Bergen’s idea is to deliberately drive specific oil producers and exporters out of the market, and then displace them with American crude. 

And the country that he is most interested in doing that, too, is Russia. He wants to crack down on the Russian shadow fleet, which is using under or uninsured old leaky tankers to send roughly 3 million barrels of crude a day around the world. He wants to break any pipeline connections. The Russians have to the outside world, and then he wants to steadily ratchet up sanctions so that they can’t keep the existing oil fields that they had going. 

That’s really interesting. That could take us a lot of fun places. And since in an American shale context, it only takes 6 to 12 weeks to bring in a new oil well online, it could be done with a relatively limited impact on international markets, all else being equal, which of course, they never are. But it has put him at a crossroads with most of the people that Trump listens to on foreign policy. 

Basically right now, the inner circle doesn’t include the secretary of state, Rubio, who’s basically been banished after Foggy Bottom and isn’t allowed into the meetings. You’ve got some of Trump’s buddies from New York real estate. And we’ve basically been wrapped around the little finger of Vladimir Putin. 

You’ve got the director of National Intelligence, Tulsi Gabbard, who, if she’s not working for Putin, is probably a clone of him. And now we have Laura Loomer, who has basically taken over as de facto national security advisor. Laura Loomer is basically a, a far less competent version of Hillary Clinton. So she’s mean. She wants to kill people, but she doesn’t actually know anything about what she’s talking about. So, you know, you put that together and all of a sudden you’ve got this former governor of North Carolina who walks in like numbers and facts and history and economics matter. It’s an interesting room.

Elon Musk’s America Party

Portrait of Elon Musk from Wikimedia Commons

I know what everyone is thinking. US politics are just too clean and boring, we could really use something to spice ’em up. Well, Elon Musk has the perfect thing for you! Introducing the America Party.

As a direct challenge to Trump, MAGA, and the GOP, Musk is proposing a new party. However, going down this path is a lot messier than it may seem. Musk is hoping to capture the drifting factions, as the traditional Democratic and Republican parties are in flux. But this can only play out two ways. The America Party replaces one of the other major parties or it splits an existing party and weakens it permanently.

Musk will face massive barriers to achieving this. Not only the monetary side of things (which could be the nail in the coffin for Tesla), but also the technical side of getting on ballots and finding candidates. And the most likely outcome would still be a splitting of votes with the GOP and handing the Democrats a victory.

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Transcript

Hey all Peter Zeihan here. Coming to you from breezy Colorado. And today we’re gonna talk about third parties in the American political system, because none other than Elon Musk has now declared war on Trump. MAGA and the Republican Party and says he is going to launch his own party, the America Party that is intended to run in the next federal elections In the year 2028, Okay. 

Leaving aside the specific chances of a musk led party deal with that later, let’s talk about how this usually works in the United States framework. So every generation or two, the United States political system goes through a seismic upheaval when the party coalitions of the past generation or two no longer fit for the day. 

So if you go back to the last time we had a reorganization in the aftermath of the Great Depression in World War Two, we saw a lot of political factions jump sides. So, for example, big business used to all be Democrats. They became Republicans. African-Americans used to all be Republicans. Part of that was loyalty to Abraham Lincoln’s party. 

They all became Democrats. Lots of things moved around until we got into the form that were more or less into today, which is, you know, in on the right business conservatives, national security, conservative social conservatives, law and order voters, albeit under kind of the same block, whereas the Democratic bloc has urban educated elites, organized labor and a variety of minorities. 

Those two broad coalitions is where we’ve been for the last several decades. Well, that’s all in flux now. That’s all changing. The Hispanics are very much in play. The Catholics are switching into conservative voters instead of being swing voters. The business community and the national security community have been actively kicked out of the Republican coalition. And organized labor is very much in play. 

We don’t know where this is going to settle. Enter Elon Musk. The idea is if you make a new big tent party, you can attract a lot of these factions that are currently in flux and maybe, maybe temporarily. A third pull in politics, according to Musk. He says it’ll be tech driven, centrist, business friendly that’s nowhere near a big enough coalition to generate a majority party. 

But it’s more than enough to break the chances of a different party. You see, when we go through these transitions and these big tents break, you can really go one of two directions. Number one is you get a viable third party that gets enough of the vote that it eventually drives one of the other two major parties out of existence, or doesn’t do well enough to win, but it draws enough votes away that one of the two major parties then kind of absorbs it in order to get those voting blocs. 

We’ve seen that happen twice in American history. In fact, that is exactly where today’s Republican Party came from. Back in like 1854, the Whig Party was the one that was on the ropes. Then the new Republican Party rose up and basically sucked out all the support of the Whigs, and the Whigs went away. I mean, you don’t really think about the Whigs very much today, do we? 

20 years from now? Probably not going to think of the Republicans and the Democrats the same way either. That’s option number one. Option number two is you get a party that, for whatever reason, becomes bloated and maybe has too many factions for the environment. And it splits down the middle. And that is where today’s Democratic Party came from back in the 1820s, I want to say 1828, but I’m not sure about that. 

Anyway, it’s split from the Democratic Republicans into the Democrats, and the Democrats were the surviving chunk. So both of these are viable options. And what Musk is doing is perfectly capable of triggering either of them. Now, there are still a great many obstacles to come through that have to be dealt with before the America Party becomes a viable political force. 

Until very recently in the United States and actually still elected morally, we don’t have a national Republican Party and a national Democratic Party. We have 50 state parties for each group. So you got your Iowa Republicans and your Ohio Democrats and so on. It’s only under Donald Trump where he’s basically ejected most of the regional party leaders and most of the business voters and national security voters that the Republican Party has coalesced into America’s first true national party. 

But it’s a party under one dude with no line of succession and no one who at the moment seems to have the charisma, the power, or the reach to pick up the baton for when he dies. And keep in mind that Trump is older now than Biden was when Biden became president. We all remember how that ended. Trump has basically become the Castro of American politics. 

When he goes down, he probably is going to take his entire political infrastructure with him. However that happens now. Let’s see, what else do I need to cover in this madness of American politics? 

Right mosque America party. He has to start at one party. He has to start 50 parties. He has to get on local ballots and local elections. He needs to get electors. He needs to get candidates. He needs thousands of candidates. The bare minimum amount of cash that is necessary to do that on a national basis, to have any chance of national power is $100 million. 

Honestly, $1 billion would make more sense now. Musk has already given that much and more to Trump, and he has a lot more to lose if he has a falling out with Trump. So trying to shift the political balance at a national level again makes a lot of sense for him personally. The question is how much of his wealth can survive until the next political cycle? 

We’re going to take this inside. 

Where was I before? Lightning interrupted us. All right. Musk’s money. 

Tesla is the core of Musk’s corporate empire, and it is arguably the most subsidized American company in history as a percentage of its sales revenue. And now all those incentives have gone away. Tesla’s either sold enough cars that it doesn’t qualify for a lot of the startup subsidies and the Trump administration and the most recent legislation that the big beautiful bill, if you will, has basically removed any incentive for anyone to participate in things like carbon trading. 

So some of the economic assets that Tesla has built up over the last half decade are basically worthless now. And the entire Tesla corporate empire is backstopped by loans and stock in Tesla itself. So as Tesla basically goes away because there really is no future for the company in a world where there’s a trade spat with the Chinese, which is where all the batteries come from, the rest of the empire basically falls into a degree of debt that, Musk bailed out. 

And the idea of a government bailout now is probably beyond a possibility. And so we’re looking at things like SpaceX that’s probably being nationalized. Starlink is kind of above in the air, and the rest of it really isn’t worth anything. Once you take the effect that the government will no longer be subsidizing it. So Musk is going to have to draw income and equity out of Tesla before that happens. 

And the question is, in that sort of environment, does he kill his company to start a new political movement, or does he just let the company die and then he’s left with nothing? Nobody can answer that question but Musk. But all of Musk’s investors know that that is the question. I mean, is this guy going to take what capital he can out of his company and destroy it for a political play when they want him to be working full time, trying to save the companies? 

There is no winning position here if you’re an investor in anything that Tesla has touched. And whether or not this is the guy, somebody who has a tendency to be perfectly blunt ly constantly is going to be the kernel of a new political movement is kind of a stretch until you consider that that’s already happened in the last ten years. 

  

So I can’t tell you that the American party has a future. I can’t tell you that it doesn’t. I can just say that it comes with consequences of a very real and personal sort for Elon Musk and of course, for the current form of the Republican Party, because if all of the populists on the right have a choice between two different banners, then you’re looking at the Republican Party splitting and the America Party probably not getting enough support to actually get into office anywhere. 

And the Democrats, no matter how disorganized they happen to be, sweep the field. We’re at a moment where everything is in play, and it’s whoever screws up worst loses. And when I look at today’s political map, how many screw ups?

Tariff Day Is Here, Again!

Scrabble pieces showing the words USA and Tarrifs

Tariff Day is almost here and it’s looking like it might be another series of recycled tariff rates layered with vague threats.

This ongoing series of tariffs has stalled the economy, putting business investment and construction in limbo. And since there is no one to negotiate with on the American side, I’m not sure when or if any real deals/negotiations will take place. The only movement we’ve seen on this front is with the UK, and calling that a trade deal is still a bit of a stretch. Allies like Japan are starting to feel a bit betrayed by this endless cycle of tariffs.

All there is to do now is wait and see if any meaningful strategy appears from this Tariff Day.

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Transcript

Peter Zeihan here. Coming to you from Colorado. Today is the 8th of July. We’re going to send this out today and again tomorrow for people who missed it. We’re coming up on another tariff day where Trump says he’s going to reset tariffs for pretty much every country in the world. So far today, he has released about a dozen letters that are basically read exactly the same, except for the header and one number where he’s basically told people what their tariff rates are going to be moving forward. 

Several things from this. First, the spread of countries that are in this first list go from Tunisia and Bosnia on the low end to Korea and Japan on the high end. So countries that are just nothing to countries that are firm allies, all of them got the same letter. There’s no sign of meaningful negotiations with any of them. 

Trump just picked the same number he’d had before. Maybe round it a little bit, put it in there again. Nothing has really changed. And he’s now telling them that they have until August 1st to renegotiate, which means, number two, we are still in this hell limbo. We’ve had over 150 tariff policy since the 20th of January. We now have the threat of a couple hundred. 

And no one really knows what to do. New business, construction spending. The United States has basically gone flat. Nobody wants to start a new project because nobody knows what the rules of the game are, and based by many versions of the tariffs that are in place right now, it actually penalizes people to invest in the North American supply chain system. 

It’s actually cheaper to say, build your entire manufacturing base outside of the United States and just pay the tariff once on its way in. If you want to have an integrated supply chain where countries do what they’re better at. That actually you’re penalized. Okay. What’s number three? Japan. Japan is the country to watch most closely here it is one of the countries that has now gotten the letter. 

It is a country that entered into good faith negotiations and is now a country that it’s kind of talking shit about Trump a little bit. If you remember back to Trump one, there was, about a half a dozen major trade deals that were negotiated or renegotiated, which included NAFTA, which included a trade deal with the Koreans and included a trade deal with Japan. 

And the Japanese came to the conclusion that Trump represented the future of American economic nationalism. And so they needed to figure out a way to get in on Trump’s good side, on my good side, so they could be part of the American future moving forward. And so they made quite a few concessions that had never been made in trade deals before in order to get that agreement. 

And then we get to April 2nd and Trump tears it off, and we get to July 9th and he tears it up again. And so the Japanese are left wondering, like, you know, even if you go out of your way to seek a deal with Donald Trump, even if you offer him everything he has demanded, it still means nothing. 

And that has really colored the other trade negotiations, because if Japan, the country that has bent over backwards to try to make this work by Trump’s own terms can’t get a deal, why should anyone else try? And there’s the fourth thing no one can try. Trump still hasn’t staffed up the Commerce Department or his own office, or much less the U.S. Trade Representative, which is normally responsible for negotiating trade deals. 

So if you are a country out there trying to negotiate with Trump, there’s no one to speak to because the only two people who are handling the talks are Trump himself and the Commerce secretary. And those are both full time jobs that normally are not led by trade talks. We have only ever once gotten a trade deal with anything less than ten months of negotiating. 

And so far from the rhetoric that we saw back in April that people were lining up to talk, maybe they were, maybe they weren’t. There was no one to speak with. And so no meaningful negotiations have really happened. And the only trade deal we actually have right now is with the Brits, who basically just agreed to buy a bunch of planes in order to get a lower number. 

And that was the talks. I mean, there’s a lot of real irritants in the relationship with the UK, and none of them were addressed at all. So that just leaves what the rest of us think about this. Obviously business investment is down sharply. We’re actually seeing new builds drop down to levels we haven’t seen since Covid, which is really bad. 

But the final thing to keep in mind is that this is not the end. Trump has already made it very clear that his new August 1st deadline is very loosey goosey. So August 1st is the new, July 9th is the new April 2nd. And there’s a reason why Wall Street is just kind of ignoring this. I’m sure you’ve heard of the taco trade. 

Trump always chickens out. Well, they’re now calling it Taco Tuesday, which is actually kind of funny and clever. Anyway, but until this is resolved one way or another, until you know what the numbers are. No one knows what they need to do to prepare for what’s next. And so everybody’s stopped.

Can Retaliatory Tariffs on Brazil Save Bolsonaro? + Live Q&A

A photo of the Brazilian Flag

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Over the past 6 months, we’ve seen Trump use tariffs for everything under the sun. But the Brazilians just got hit with a 50% tariff for an unorthodox reason…because their former president is being prosecuted.

Jair Bolsonaro is facing legal charges for attempting a coup after losing an election. Trump happens to be fond of Bolsonaro, so he’s attempting to use tariffs to get him off scot-free. And no, there’s not a significant trade deficit or high-value imports that can used to justify this away with.

This is a flat out rule of law issue that will come back to haunt the United States for decades to come.

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Transcript

Hey all Peter Zeihan here, coming from Colorado. Hiking season! The world won’t leave me alone. Of course. I need to go someplace with less coverage. Anyway. I want to talk about today is we have another, another, another, another 50% tariff going into place, this one against Brazil. Now, Brazil is one of those countries that kind of site and released back on April 2nd when those big game board sheets came out, when Trump announced what the tariff levels were going to be for everybody. 

We don’t have the goods deficit that’s we’re talking about with Brazil. So Brazil qualified for the low 10% on everybody tariff. And that’s where it was left. But, last week Donald Trump decided, nope. He is starting to expand his idea that tariffs are good to punish countries that are doing things he doesn’t want, even if they have nothing to do with economic issues. 

It is beyond questionable whether this is legal under American law. But until Congress steps up and acts which I don’t anticipate anytime soon, it is what it is. Trump’s reason for putting this 50% tariff on Brazil. We’re going to stop upheld that idea. Trump’s reason for doing a 50% tariff on Brazil, is that the Brazilians are in the process. 

Brazilian government is in the process of prosecuting a guy by the name of Bolsonaro, who’s a former president who attempted a coup after he lost an election. Sound familiar? Anyway, Trump is saying that unless the prosecution stops and Bolsonaro is allowed back into the political system, that this tariff will go into place. Now, we do buy a bunch of things from Brazil, but it’s mostly relatively low value added commodities, some really crappy beef, some agricultural products, things like iron ore. 

Brazil is a very low value added economy. And Trump, on ideological grounds for a mix of reasons, finds himself allied with Bolsonaro and opposed to, Lula, who is the current president who hails from the left side of the political spectrum, whereas Bolsonaro is from the right. It’s, it’s a messy comparison. Brazilian politics are significantly different from the United States, so don’t over, over under those two hoods. 

Anyway, I for a long time have not been a fan of Lula, but not because of rule of law issues. He’s anti-American to the point that’s borderline pathological and is willing to even sell his own country down the river in order to achieve a degree of independence from the United States. Which is just dumb, in my opinion. 

So, for example, when he was president the first time around, he basically invited the Chinese in to form joint ventures with everything that the Brazilians were doing. And throughout the 70s, 80s and 90s, the Brazilians actually made a lot of progress in moving up the value added scale. 

Their oil company, Petrobras, is one of the world’s best, especially a deepwater. They had a construction company that was world class, and they had a really dense concentration of midsized companies that were really pushing the technological envelope in all of their products, and they were globally competitive. Well, the Chinese formed joint ventures with all of these companies, stole all the technology, took it back home, subsidized the crap out of building an alternative industrial plant, and then drove all the Brazilian producers out of business. 

Strategically stupid, economically stupid. But what’s going on with Bolsonaro is something different. This is a rule of law issue. When Trump did his little attempted push back in 2020. Yeah. 2020, he eventually got away with it. And he eventually returned to power and pardoned everyone who was basically a coconspirator. Bolsonaro hasn’t had that kind of advance. 

He was both smarter and dumber, smarter. And that he learned from Trump’s failure back in 2020 and went for a much more direct assault on the Brazilian Congress, trying to basically take it out of the equation. And then when that didn’t work, he fled the country, came coming to Florida, ironically, which was like much better attempt and much better demonstration of actual guilt. 

So no one in Brazil really thinks that this case is going to go anywhere except for with Bolsonaro in jail, unless he’s pardoned in order to say he’ll the political spectrum. Anyway, for Trump, this gets a little bit too close to home. And so he’s now threatening Brazil, with economic retribution for their rule of law commitment. 

Now, for those of you who don’t follow Latin American politics all that much, Latin America overall is new to democracy and is new to rule of law. Most of the countries back in the 60s, 70s and 80s, were military dictatorships. And when those dictatorships fell and in many cases, like in Brazil, actually actively turned over power to the civilian system, it went fairly smooth. 

The problem has been maintaining the center of the state so that law enforcement can work, because when you go from a system that’s pretty corrupt with a bunch of colonels and generals basically calling all the shots and getting whatever they want to a system that’s much more free form, it takes a while for law enforcement to kind of step in the gap when the military steps back and to reassert a degree of security. 

And Brazil in particular, has had a problem with that. And so it has some of the highest crime rates in the world. So most American foreign policy since that transition, which happened in the late 80s and into the 90s, has been focusing on encouraging rule of law across Latin America. Whenever can happen. And you can find a lot of faults in American foreign policy in any region, specifically Latin America. 

But I would argue that it’s been broadly successful on at least this one point. And so to have the American president now trying to go ramshackle the opposite direction and ripping up rule of law, is a horrible idea. Because if your goals are to get Latin American countries to assist with enforcement of U.S. immigration preferences and to assist with limiting the amount of narcotics can can come from Latin America to the United States, you need a relatively strong state and knocking over the rule of law at the top is arguably the dumbest thing that you could do. 

And yet, here we are.

Stop Worrying About the BRICS Alliance

Photo of BRICs summit from earlier years

The BRICS alliance is like a clown at a five-year-old’s birthday party…terrifying when your five, but just kind of weird and sad for all the adults. And if you’re still scared of the BRICS alliance, I hate to break it to you, but you might be the five-year-old in this analogy.

BRICS began as a financial concept of grouping large emerging markets, but it’s evolved into a dull talk shop for the members rather than a real alliance. But of course, lumped right in with the other scared kindergartners, is President Trump. He’s threatened a 10% tariff on all countries that join BRICS. Once again showing his affinity for tariffs, regardless of what the situation is.

Should his power to impose tariffs be limited by the courts or Congress, his entire international strategy could unravel. And the threat on BRICS would be the least of our worries.

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Transcript

Hey, all Peter Zeihan here. Coming to you from Colorado, it is the 7th of July. You will be seeing this on July 8th. And the issue is BRICS, the, organization that was supposedly founded to cause a new world order shift away from the Unites States, whatever you want to call it. Anyway, Donald Trump today said that anyone who joins BRICS and forms part of this anti-American axis will be facing an additional 10% tariff on everything that’s done. 

This is both really interesting and kind of hilarious. So, quick Backdrop BRICS was formed. Well, the original idea of BRICS had nothing to do with geopolitics. It was just some guy up in finance in New York who said, hey, here are a bunch of largest emerging markets that have a lot of bonds. We can trade them as a group. 

And so that was Brazil, Russia, India and China. South Africa joined later. It was only in the year since then that BRICs has taken on any sort of a geopolitical hint, but really it’s been really minor. They do have a bank, but it’s run by China for Chinese interests, and nobody else puts money into it in any meaningful way. 

And this last summit that is occurring right now, the Chinese didn’t even show up. In fact, the Russians didn’t show up because there’s an international arrest warrant for the war crimes in, Ukraine. And the Brazilians are a signatory to the war crimes treaty. So they would have felt obliged to, you know, arrest the guy. Anyway, in the last couple of years, BRICs has started to admit new members India, Pakistan, the United Arab Emirates, Iran, Saudi Arabia. 

And that’s how you know, the BRICs means nothing because a lot of these countries are at each other’s throats in any meaningful way. So getting agreement on anything is next to impossible. And that’s certainly how it played out with this most recent issue, because issues between India and China and Saudi Arabia, Iran and Russia and everyone had basically led them to just kind of have this generic statement that doesn’t say anything about anyone or any topic. 

It really is a non organization. And if you go back a couple of years to the Johannesburg summit, in their opening statements, the finance ministers of China and India and South Africa all said we have no interest in forming a a BRICs currency. We have no interest in a non US denominated dollar system. And will people please stop asking us about it? 

So it’s a talk shop or maybe a way to caucus with the Chinese because they’re a bigger economy than everyone else put together. But it’s nothing more than that. It’s never been anything more than that. But it continues to live on in American circles as some sort of big thing. Enter Donald Trump’s threat that if you join BRICs or become part of this axis, that you’re going to be looking at supplementary tariffs. 

So two things here. Number one, it shows that, among the MAGA, right, the idea that BRICs is something really has resonated, an almost allergenic response to anything that is not led with USA, which is obviously coloring policy at the top on any number of levels. But number two, and perhaps more importantly, it’s a direct link of the tariff question to something that has nothing to do with economics whatsoever. 

Tariffs are clearly Donald Trump’s favorite policy tool. And if you go back for everything that he has done internationally since day one, there’s not a single example that I’ve been able to see, except for maybe the bombing of Iran. That is not inextricably woven together with tariff policy. So if for whatever reason, the White House’s ability to enact tariffs is impinged in any way, and keep in mind the Constitution makes it very clear that tariffs are congressional prerogative, not an administrative one. 

Then everything that the Trump administration has done with foreign policy just kind of goes up in smoke overnight. So, the focus is interesting, the vulnerability is interesting, the expansions, new vistas is interesting. There’s no part of this that I’m not paying attention to. It’s going to be really interesting to see I’m using that word too much is gonna be really interesting to see how it evolves in the weeks to come.

Here’s Why Inflation Isn’t a Solution

Photo of dollars behind American flag

Would inflation be good for the US? Sure, it could erode some of the federal debt, but if that’s the best we can come up with…yikes.

Technically inflation does reduce the relative burden of government debt, but only if economic growth and income outpace inflation. While the debt is shrinking, we’d also see all assets be devalued – including stocks, homes, bonds, and real estate. Basically, anywhere American have stored their wealth.

So, while it sounds appealing to reduce the $34 trillion of federal debt, everything else gets steamrolled in the process.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. And today we are taking a question from the Patreon page and it’s specifically on finance. The person who’s been hearing that, some government decision makers and some folks, especially in the MAGA world, are talking about how inflation could actually be a good thing because it will inflate away the debt and make the overall level of payments of the US federal government has to make, relatively less compared to what they borrowed in the first place. 

And there is something to that. If you have a high inflationary period, then the relative value of the debt compared to what you actually got when you borrowed it does go down. And it does become easier to pay if, if, if, if growth keeps up. And so that income growth exceeds the level of the inflation. 

So problem number one let’s say that we get 10% inflation for four years. That comes out to a total of about a price increase. If income does not grow faster than that, you’ve actually dug yourself into a little bit of a hole. Some, careful how what you wish for here, because there aren’t a lot of people out there. 

Certainly countries that expand their income by more than 50% in four years. So the problem one, problem two, inflation doesn’t just whittle away at the federal debt, it whittles away at the relative value of everything. So think of a stock market that’s worth 50 trillion. Do you want to reduce that by half. Because that’s more than the US government owns in debt. 

Think about your house. Do you want that to be reduced? You know, that’s another $35 trillion for private single family homes, another 11 trillion for the bond market, not counting federal debt, of course. And another what is it, 15? 15 yeah, 15 trillion for say, commercial real estate, another 5 trillion for farm real estate. 

The point is that inflation doesn’t just hit one thing. So it raises the cost of living. And then if your income doesn’t keep up, life kind of sucks. So hurting all of these asset classes that pretty much all Americans have all of their savings in in order to whittle down the one debt class because, we can’t seem to get anyone in government who can do basic math. 

I would vote against this solution.

“Made in China” Becomes “Made in Vietnam”

A made in China tag crossed out. Photo by Envato Elements and licensed

Vietnam has been clawing its way up the American import leaderboard. With Trump’s July 9 tariff decision-day quickly approaching, let’s look at why Vietnam is next in line to China.

Vietnam is geographically close to China. It has a highly skilled and large workforce. And it has the industrial ambition that matches US needs. But if we already have Mexico, why do we need Vietnam? They scratch different itches. Think of Vietnam as V2 of China – made up of integrated industrial clusters like Ho Chi Minh City. Mexico has geographically isolated centers that focus on whole products, rather than sharing production across cities. Each valuable, but perhaps Mexico is better suited for a deglobalized world.

Vietnam will still have to navigate the tariff situation, which might be a cluster-f*** given the lack of personnel and systems in place. However, that doesn’t make Vietnam any less crucial, it just means there will be some hurdles to jump.

China’s Central Military Commission (CMC) has the combined power of that of the US Joint Chiefs, Secretary of Defense, and President. The Chinese military is run by party loyalists, rather than experienced strategists; this, along with the constant purging of leadership, shows just how deep the instability runs.

I’m not saying that the US should just ignore the Chinese, but maybe we should take their military capabilities with a grain of salt.

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Transcript

Hey, all Peter Zeihan here. Coming from Colorado today, we’re gonna talk about Vietnam. We are approaching July 9th, which is the self-imposed deadline for the Trump administration’s for setting tariff levels for the whole world. So if you remember back to April 2nd, tariff day, that kind of kicked all this off and set the world into trade chaos. 

He has paused that process, but it restarts on July 9th, so we’re going to have a show. But Vietnam is a country that has been discussed a lot in the last few days, and I think it’s worth underlining why and why this is one of the countries that really matters. Arguably more so than almost any other country that’s outside of NAFTA. 

So background, back before Covid, everything was trying to try to try to try to try to try to try to trying to China. And with Covid, when the Chinese obviously prioritize their own system for supply chains, everyone started to adopt something that was called a China plus one strategy, where we admit that we still have a lot of exposure and a lot of commitment to our investments in the Chinese system, and that we’re dependent upon the Chinese for everything. 

But we really do need at least a partial backup since then that is involved into what they call an anything but China ABC. And for whether it’s the China Plus one or the anything but China. Vietnam has always been at the top of the list for everyone. And so in the time from 2019 until 2025, the American trade relationship with Vietnam has exploded, in percentage terms, far more than anyone else. 

And the reason is pretty straightforward. Number one, it’s proximate to China. So whether the Chinese are investing in Vietnam or the Americans are investing in Vietnam, Vietnam is a logical place to move things either from China or through Vietnam, from China, or to simply replace the production capacity, from China. It’s just right there. Number two, the Vietnamese have been working very hard at making themselves very attractive. 

Roughly 40% of college graduates, from Vietnam are Stem graduates. So if you want to build something, especially if it’s talking about technical work, Vietnam is a logical choice. In addition, this is a country with a very large workforce, roughly on par to what we have in Mexico. So it’s been a good match for a lot of industries. 

And then third, the Vietnamese are very ambitious. They’ve invested a huge amount into their educational system, as opposed to the Chinese system where they’re trying to go more white color and design, the Vietnamese are going into more technical work, and they’re basically trying to leapfrog China from a technological point of view. And they’re doing a really good job of it. 

They’re not teaching rote memorization and intellectual property theft, of the Chinese style. They’re actually getting their people just in to do more of high value out of manufacturing. So it’s been a solid choice. It’s worth spending a minute talking about the difference between Vietnam and Mexico. However, because these are two very different economies that approach manufacturing in a very different way. 

And while to a degree they are competitors, really, it’s a more complementary system. So in China you’ve got your major population centers. And for the most part they are surrounded by a line of secondary manufacturing centers. It’s a very similar system to how we were set up in the United States before NAFTA. 

So for example, you have Detroit, which is obviously a hub for automotive, but Detroit draws upon other communities in the area going out to say, say, Milwaukee. In order to add value, add it reaches across the border to, to Ontario as well. And so you have your central node and a lot of secondary manufacturing that contributes to that primary node. 

That is similar to the system that we have in China that is similar to the system that we have in Vietnam. So you really can, with the right amount of capital, pick up the industrial plant in China and then go and drop it in Vietnam. And we have seen that happen at a significant scale. That’s not how things work in Mexico. 

All of the Mexican cities that are integrated with the United States through NAFTA are desert cities. So when you get to the edge of town, there’s nothing, with the possible exception of Monterrey, where you have a little bit more rainfall. And so there are secondary centers, you basically have places like Chihuahua City or to what do you want to that are unique to themselves and there’s nothing near them. 

So these places, instead of having a multi-step manufacturing system where product, intermediate product goes back and forth among the various cities on the cluster, you simply have a city with a bunch of industrial parks, and most of the steps have to be carried out locally. That generates a different sort of industrial profile, because when you’re around Ho Chi Minh City or Hanoi or Shanghai or Detroit or Houston, you have all these other places that specialize in specific things. 

And so you basically have a cluster of specialization that comes together to make a product. In Mexico, it’s different in Mexico, they focus on one product per urban center. And then that product start to finish is done. There and that product is shipped out. So an example, if you’re in Detroit and you’re making a car, you’re probably going to be drawing spark plugs from across the border. 

You’ll probably make the transmissions yourself. You’re probably bringing the engine blocks from somewhere else. But if you’re in Mexico, you do the whole seat assembly for an airline share. For example, whether it’s the seat belts, the fabric, the molding, the metal framing, whatever it happens to be, it’s all done in Chihuahua City. And then that semi-finished product is shipped somewhere else for inclusion. 

Same thing for engines, same things for engine blocks. It’s not that one is better than the other, it’s that they function differently because of the economic geography they have to deal with. So when you look at Vietnam and you look at Mexico, it’s not that they’re competitors in the traditional sense. They build things differently. And as we’re moving into a world with fewer connections where we have to do more locally, the Mexican strategy by default almost works better because they’re not as dependent upon inputs of various types from somewhere else. 

They’re not as integrated into a broader supply chain system as we are normally used to. Thinking of. That doesn’t mean that the system isn’t going to work. As China degrades with or without a trade war, we are going to need more places like China in order to keep product flowing. And Vietnam is a very solid contender for that role. 

But it doesn’t take anything away from American integration with Mexico. We’re moving from a situation where we have something like 2 to 3 billion workers linked up through free trade to something significantly smaller. We need different approaches, and these are two that work pretty well. 

One more thing about Vietnam that is different. There are charges, legitimate ones, that the Vietnamese are not simply engaging in normal manufacturing in a way that the United States can process, that they are also serving as a translocation point. So Chinese product is finished, it’s shipped to Vietnam, it’s stamped Made in Vietnam, or maybe had some very light value, had done. 

And the ship to the United States, that is happening. And that’s part of the reason why the trade, between the United States and Vietnam has expanded so much over the last several years. Most of it is legitimate. Some of it is this, pass through trade. So one of the things that the Trump administration seems to be doing, which I think is a good idea, is finding a way to tariff those things differently. 

Now, I am of the belief that tariffs to Vietnam overall aren’t the greatest plan, because it’s just the wrong tool for the job. But if your goal is to break down, Chinese trans shipment trade in order to break the link between the United States and China, which I think is a good idea, using tariffs and a two tiered system makes a certain degree of sense. 

So the numbers that are being thrown around today are 20% from Vietnam, which I think is ridiculous, and 40% for the trans trade, which I think is reasonable. The danger here, as always, with tariffs, is going to be administration because someone will have to look at every product that comes in from Vietnam and assign a category. 

So it then has a tariff level. Considering that the Trump administration still hasn’t staffed out over 80% of the positions at cleared out in its first month, it is unclear who is going to do this, because it would require a significant expansion of customs officials in order to handle what is basically tens of billions of dollars of trade. 

Now, if, if, if a way can be found to handle that, then we’re in a different game. But at the moment the administration has not developed the technology, the personnel, the procedures that is necessary to do that at the scale required. So A for effort, D for approach.

Why Do the Democrats Keep Losing Ground?

Symbol of Democratic party cut out of paper

The future of the Democratic Party in the US isn’t looking too bright. When strategy and targeting don’t change for over half a century, I suppose that’s what they get.

The Dems traditional coalition was made up of organized labor, ethnic minorities, and coastal elites…which accounts for nearly 70% of the population. On the numbers alone, they should be crushing it. Yet the Democrats continue to lose ground in elections. There are several things at play here.

The educated urban liberals aren’t as unified as assumed, so the issues they champion often fail to resonate with the working class. Minorities that the democrats once turned to for numbers, like the Hispanic demographic, are now gaining wealth and leaning conservative. And many immigrants come from religious and socially conservative countries, which contributes to the drift of previously reliable Democratic voters over toward the GOP.

Democrats are realizing that their coalition is too fractured to win. Demographics won’t cut it. And counting on enough people hating Trump clearly isn’t a viable strategy either. Something big needs to change if the Democrats want a future in American politics.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. Today. We’re taking a question from the Patreon page. And it’s about US politics. So we, specifically the question is, is there a future for the Democratic Party in the United States? And the short version is probably not. Just to review the Democratic Party is not what it used to be. 

It has been through several iterations since it was formed back in the 1800s. But in its most recent iteration, one that dates roughly back to, the post-World War two environment, the party basically formed around three big pillars of voters. The first is organized labor, with capital being on the Republican side of the equation. The second are ethnic minorities, with most white people edging towards the Republicans again. 

And then the third group is coastal elites, specifically of the White Tower crowd, people who live in cities and have a very different way of looking at the world than, say, rural voters who are more likely to be Republicans. Those three categories are the bulk of the system. And if you look at it just on the numbers, if you add up all racial minorities in the United States with all organized labor or blue collar workers, with everyone who’s living in the cities, it’s a super majority of the population. 

It’s pushing 70% of the total. It should, by the numbers, not only be the dominant party, but it should be the only party in the United States. And yet and yet and yet they keep losing elections by ever more impressive margins. Why? Well, a couple things to keep in mind. Number one, politics evolve. Remember, this isn’t the first form the Democrats have been in. 

I believe this is the fourth. And to think that it is static for all times is silly. Second, politics evolve in terms of the issues. Technology pushes people on different sides of the win loss ledger. Economic transformation can make some states or urban centers rise while others fall. Changes in technology change how we interact with the world. And all of these things have happened at scale in the last 35 years. 

I mean, just think about what we’ve been through since 1985. We had the nuclear scare of the Cold War than the collapse of the Cold War, than the rise of China. We’ve had the baby boomers being the predominant factor in American politics as they were entering their adult years, and now they’re all retiring, changing the financial and the budgetary shape of the entire country. 

We’ve had the onset of the digital revolution and the rise of social media, changing how we all interact with one another. Of course, we’re going to manage our politics differently, but for the Democrats, this has not been a gift. Three basic things have combined to make it nonfunctional in its current form. First, those liberal, coastal educated urban living elites are not nearly as united as you might think. 

And more importantly, they have a hard time resonating their ideas with the rank and file of the United States. Most Americans do not own six figures. Most Americans have not graduated from graduate programs. And so the sort of tunnel vision that you can get if you’re a part of this coastal elite, just doesn’t really carry out to others. 

And when you see people starting to protest for trans rights, that just doesn’t resonate for most of the country. The second issue is racial. One thing that defines your average American is race white, black, Caucasian, Hispanic, Asian, and Native American Islander mix however you want to call it. And it has been an important aspect of American identity. But it’s not the only one, and it often finds itself clashing with other aspects of identity. 

Your education level, your region, where you’re from, how you define your sense of self, whether you’re gay or straight. All of these things are muddled together along with economic issues to give us all our sense of self. And one of the huge mistakes the Democratic Party has made over the last 30 years is to simply bet that because birth rates were higher under Hispanics than they were under whites, the country was going to become more and more and more leftist, more and more democratic. 

And that’s simply one measure. Instead, we saw two things happening with specifically the Hispanic population. Number one, they became steadily and steadily more wealthy, which tends to put them over into the Republican camp. And second, Hispanics, especially first and second generation Mexican Americans, are very strong in blue collar work, specifically the trades like electricity and welding and similar items. 

Construction. Think, well, the United States is going through an industrial renaissance where those skill sets are massively in demand. And so if you want to look at politics through the lens of the economic haves and have nots, the Hispanics have become more and more in the category of the have moving forward. So for them, tax rates have become as important, if not more for most then things like racial equality. 

And so more and more of these people have shifted over in the general direction of Trump style Republicans. And the third issue is cultural. If you’re a first or second generation Mexican-American, a first or second generation, immigrant from any background. Odds are that where you came from is less organized than the United States and less wealthy. 

You came to pursue the American Dream, which means you have some first hand experience in your family. Of what? A system with weak rule of law looks like. One of the great things that we have forgotten in this country is that most migrants have a deeper degree of religious RCD than most Americans. And so when you get a Mexican immigrant or Nigerian immigrant and they come to the United States, they are far more likely to be socially conservative than, say, the social liberals of the coasts. 

So we have all of these things happening at the same time, changing our idea of identity. And the net result is a lot of factions that used to be core to the Democratic coalition are now Tossups. Hispanics were as likely to vote for Trump as they were likely to vote for Harris. Same for people under age 30. The youth are now in play as well. 

You pull this all together and at the moment it is absolutely impossible for the Democrats to win any big election unless there’s something else very big in play. Does this mean that the Democrats are dead forever? Not quite what I’m saying. What I’m saying is they can no longer count on winning by the numbers. There has to be another issue out there that motivates. 

And the general unpopularity of Donald Trump is something that the Democrats today are counting on. But as we learned in our last federal elections, that is not enough.

Xi Purges Chinese Military of Corruption…Kinda

Photo of Chinese military marching

Xi Jinping’s ongoing anti-corruption campaign has just found and purged its eighth CMC member, General Miao. And while the Chinese military is quite corrupt, this effort is more about consolidating political control than anything else.

China’s Central Military Commission (CMC) has the combined power of that of the US Joint Chiefs, Secretary of Defense, and President. The Chinese military is run by party loyalists, rather than experienced strategists; this, along with the constant purging of leadership, shows just how deep the instability runs.

I’m not saying that the US should just ignore the Chinese, but maybe we should take their military capabilities with a grain of salt.

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Transcript

Hey all, Peter Zeihan here. Coming from Colorado. Today we’re gonna talk about something that went down in China on the 27th. That was last Friday. We have had a arrest of General Miao. Am IA0, I think that’s pronounced Miao. Anyway, you know, he was one of the leaders on China, US Central Military Commission, which is kind of a combination of the Joint Chiefs of Staff, but also throw in the defense secretary and the American president. 

If you were put them all in one body, that’s the CMC. It’s a six person body. Yao is the eighth person that has been, arrested and fired, for nominally corrupt. And now the Chinese leader, XI Jinping, has been operating what he calls an anti-corruption purge now ever since he became premier back in 2012. Most of it isn’t actually about corruption. 

Most of it is about political control. Basically going through the system, getting anyone, who might theoretically stand against him. He started with political rivals and then just went into anyone who might eventually show the potential. And now that the CMC has basically been gutted over and over and over and over again, I think it’s worth pointing out two things. 

Number one, in the Chinese military, the anti-corruption angle might actually be a little bit more legitimate than it is with all of his other political purges. China’s military is one of the most corrupt parts of the society, and he actually waited until just 2 or 3 years ago to really start going after it. That doesn’t mean there isn’t a political angle. 

Of course, there’s a political angle. The CMC is not an independent state body. It is part of the Communist Party. The party runs the military, which brings us to the second point. It’s like you can imagine how effective I think the Chinese military is. I mean, number one, when all of the decisions are made by party ideologues as opposed to people with military experience. 

You know, there’s your first hint, second, when the ruling body of six people, which includes the chairman, has had eight people purged from it, it tells you what you need to know about the quality of the leadership. So I’m never going to tell the U.S. military to not take the Chinese threat seriously. 

All I want to do is kind of underline that when the leadership is this bad and rotates this much and is purged of this thoroughly, this often the idea that the Chinese order of battle actually matches what the Chinese state is capable of is kind of a stretch.

Rebuilding the American Industrial Base, Rare Earths Edition

Photo of rare earth minerals: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium. Photo by Wikimedia: https://en.wikipedia.org/wiki/Rare-earth_element#/media/File:Rareearthoxides.jpg

American reindustrialization was always going to be painful process, but there were several ways to soften that blow; the biggest of which was our trade relationship with China. At least, it was.

The tariff situation that began in April soured our relationship with the Chinese. Since then, they’ve halted exports of rare earth magnets, a crucial component in…well, basically everything important. A quick disclaimer/history lesson: rare earths aren’t all that rare, they’re just difficult and time-consuming to extract. The Chinese subsidized the sector beginning back in the 80s and made it illogical for anyone else to try and compete. Hence China’s dominance in this field.

Now, the Chinese are dangling that rare earth carrot in front of Trump. Unfortunately, the American industrial base must be rebuilt for a whole lot more than just rare earths. Something that a little strategic foresight would have helped with.

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Transcript

Peter Zeihan here, coming to you from Colorado. Today we’re going to talk about the status of the US-China trade talks and where the United States is with its re industrialization. And the short version is things going really badly. If you remember back to the first week of April, the Trump administration put a 55% tariff on everything coming from China. 

And then we got into a shouting match with the Chinese, and that number went up and up and up and up until I think we had 185%. And then a couple of months later, we had a bit of a truce and the numbers went back down to 55%. What’s the best way to go through this? So the issue at the moment, right now is that China is refusing to export rare earth products, most notably magnets, to the United States. 

And these magnets are used in any number of electronics, aerospace, and especially automotive parts. Rare earths are a group of materials that are relatively difficult to source not because they’re rare, but because they’re not present and particularly high concentrations. So if anyone says that there’s a rare earth mine coming online, that’s a good indication that you should just completely ignore that person because there is no such thing rare earths are produced as a byproduct of other metals purification and refining. 

So you have a silver mine, you extract the silver, you then use the tailings and go through and extract the rare earths. And the same thing for copper and gold and bauxite and all kinds of other things. There’s like a dozen rare earths anyway, extracting them and purifying them is not particularly difficult. It’s just that the concentrations are low. 

So it requires several steps, several hundred steps. And the rare earth materials themselves share a lot of chemical properties. So you have to basically separate them from one another as well, which is where most of the time takes. So you take these tailings, you grind them down, you add some chemicals to dissolve everything, and then you basically boil the whole thing in acid. 

And that separates a little bit out. And then you take that and you put it into the next batch of acid, and you do it again, and then up and again and again. And you do that a few hundred times. And at the end of the day, after usually 6 to 8 months of separation and acid treatments and starting with several tons of material, you get a couple of ounces of rare earth metals and a little goes a long way, for most uses, these things are really just doped rather than the core production level. 

So, you know, all the rare earths that are used by the entire world could probably sit in a garage, every year. Anyway. It’s expensive, from a minerals processing point of view. And it’s dirty because of all the material that is used because of all the acid and because the radioactivity that naturally comes from a lot of mining activity. 

So what happened was back in the 1980s, most of this stuff was done in the United States or in Europe. But the Chinese, who were early in their economic development, had decided that anything that you could throw cash at and anything where they could ignore environmental regulations, they would have an advantage in. So they threw a lot of money at this industry in order to dominate production. 

And in doing so, because of the subsidies, they ended up producing the rare earths for significantly lower price point than anyone else could. And because of that, we were able to use rare earths and things like rare earth magnets in order to make what we call computers today, specifically solid state drives. For those of you who are older and you remember the old spinning hard drives. 

Yeah, they didn’t use many rare earths, but the solid state drives did so the whole point was, now that we have this available, we’re going to move to a type of technology that uses much less electricity generated by far less heat, and sets the stage for the processing and computing revolution that we’ve known throughout the 90s and the 2000. 

For example, smartphones wouldn’t have happened without this. So the Chinese have honestly done this a solid. However, over the 2000s and especially into the 20 tens, the Chinese got into rare earth material manufacturing, which is a significantly more sophisticated step, and simply purifying the rare earths. And that’s where the magnet stuff comes into play. And over the last 15 years, they’ve basically dominated that space and they’re refusing to export the metals to everybody else so that they can do the manufacturing. 

And now they’ve dominated the manufacturing and they’re refusing to export the manufactured product. So this is a very real crimp, in the trading system and a very real point of leverage for the Chinese. Now, nothing that I have just told you is a mystery in the sector, whether that is computing or automotive or mining or metals purification. 

But it is all news to the Trump administration. Remember that normally when a president comes in, he brings somewhere between 1300 and 3000 people in with him to stock the senior government. Trump’s brought no one. He just fired all the people who were there before, because he really doesn’t like anyone to remind him, even indirectly, that he might not be the smartest person in the room on every single topic. 

So if anything that I just told you was news, that’s because you’re not an expert in metals refining a computer manufacturer. Neither am I, but I talk to a lot of people I know what I don’t know, and I seek out that information. And Trump is not a person like that. So what happened with the trade talks is Trump on April 2nd made these big announcements with those big game show boards and then just assumed that everything would magically happen the way he had dictated, regardless of what the situation on the ground was or the interests of other parties. 

It was very Obama asked. Honestly, the two of them are very similar from their management style. Anyway. What this means is that even though the United States holds probably 90% of the cards in any meaningful trade talk, the Trump team is so small and is so siloed in what they do now. And then, of course, is hobbled by their boss that they can’t develop the staff. 

It’s necessary to keep them informed on things like this. And so the Chinese system, even though they hold very few cards, they know where those cards are and they’ve played them very effectively against the Trump administration and basically brought American auto manufacturers to the brink of collapse by metering out this one little product, which is a point of leverage that they have. 

The smart play is if you’re going to pick a trade fight, the first thing you do is start building up the alternative infrastructure that you need. When stuff on the other side goes away. And so in this case, luckily some of that work has already been done. So about 15 years ago now, the Chinese tried a similar trick with restricting rare earth exports to Japan when they were having a spat over something, and the Japanese figured out over the course of the next nine months how to use three quarters fewer rare earths. 

Because, you know, for the last 20 years, the Chinese have been dumping it on the market below cost. So everyone just kind of gorged on it and no one really worried about using less. While the Chinese figured out ways to use less, they did the same thing with the Russians when it came to Palladium anyway. 

Well, the Japanese were doing that. Everyone else realized that there could be a supply shock here. And so they built out a lot of the physical infrastructure that was necessary to process rare earths. We did it here in the United States. The Australians did it, the Malaysians did it, the French did it. And what’s happening now is some of that infrastructure is spinning back up because this is now an issue of the day. 

Again, we didn’t operate it until now, because the Chinese were subsidizing it. So there was no point now that it’s a national security issue, that the math has changed and people are turning all that old infrastructure on. But the next step is going to take a little bit more work. Turning the finished material into manufactured intermediate products like the magnets. 

That will probably be a little bit more involved than simply turning on some metals refining. I can’t give you a timeframe for how long that will take, because this is not something that has been done in the United States in a while. And unlike the, metals refining, where it’s an issue of no more than a year, we don’t know what the time horizon will be for bringing it on online, but this is one of probably 3 or 4 dozen things where the Chinese have done some version of this that needs to be rectified. 

If the United States is going to prepare for whatever is next. If you’re one of those people who would like to think that the trade situation is going to revert to how we were 15 years ago, I mean, I think you’re wrong, but we would need this in order to prevent any sort of regression or long term fights with any partner, most notably China. 

And if you’re like me, you’re pretty sure that the globalized system is never coming back. Then we need to do this regardless if we’re going to have stuff like, I don’t know, cars or we need to invent technology to get along without the rare earths one of the two. Anyway, this is all stuff that should have been done before we picked a trade fight and before the Trump administration demonstrated that they really don’t have a good grip on the core issues that are necessary to invent the next world, whatever that happens to look like.