What’s Wrong with the EU-India Trade Deal?

Made in India. Cardboard boxes with text made in India and indian flag on the roller conveyor. Licensed by Envato Elements: https://elements.envato.com/made-in-india-cardboard-boxes-with-text-made-in-in-8X3N3JR

The EU and India have struck a trade deal, but it’s not the breakthrough it’s being made out to be. Just because you sign a trade deal doesn’t mean that integration magically appears.

Both sides of this deal are highly protectionist and have no interest in introducing new competition to their markets. This deal is fairly modest; some tariffs get lowered, but there are enough barriers in place for either side to block trade wherever they see fit.

One of the problems with global trade deals is that it only works if the oceans are free and the global rule of law is intact. The EU would be better off spending its time strengthening relations among regional nations, rather than looking far and wide.

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Transcript

Hey all, Peter Zeihan here. Coming to you from the Caribbean. A little breezy today, so apologies about the sound quality. I remember well, shielded spine. I could anyway, today we are talking about the new trade deal that was just signed between India and the European Union. People are talking about, oh, it’s one third of world trade and it’s a big deal. 

It’s all about the Trump administration, blah, blah, blah, blah. Let’s not get ahead of ourselves. A couple things to keep in mind. First, on size one third world trade, considering that one quarter of world trade is the European Union, and you’re just attaching India to that, keep your numbers straight. Second, there’s a bigger problem here among the first world economies. 

The European Union is by far the most protectionist. It does things to basically encourage mass industrial production. And because they don’t have the demographics to consume what they produce, a lot of that has to be exported. And in terms of agriculture, their agricultural lobbies are incredibly powerful. So the single largest line item in the budget of the European Union going back decades has been to subsidize farmers and producers. 

And at times that’s been half the entire budget. And that really hasn’t changed. So whenever the European Union tries to sign a treaty with anyone, they want to shove manufactured agricultural products down the throat of whoever it is, and it makes it very hard for the European Union to do that in a meaningful way, unless the country in question has no interest in agricultural products or no interest in manufactured products, of which there are a few. 

So the European Union has a real hard time signing deals, because if anyone wants agricultural or industrial access to the European space, they immediately come up against a series of entrenched interests. So, for example, the America’s order deal that’s been in the news recently, they started negotiations on that in the 90s, and they finally got the final ratification. 

The European Parliament is like, nah, let’s shove this off to the court to see if it’s actually legal. So we’re pushing 30 years since they started talks there, and it still hasn’t happened because on the other side, Murphy’s Law is very protective of their industries. So if this deal were to go through the Mercosur, one, the South American countries, most notably Brazil and Argentina, would be able to shove agricultural products into the EU, which is something that is wildly unpopular. 

And the Europeans would be able to shove industrial products into South America, which would be wildly unpopular locally. So this doesn’t happen. India, if anything, is even more protectionist. Almost every industrial sector that they have is wildly subsidizing every farmer, basically riots, every year when they try to liberalize their agricultural system. So the nature of the deal that has been negotiated is actually very, very calm. 

There’s not a lot involved in it. And while it does reduce tariff levels, it does nothing to address non-tariff barriers. So for example, if in the European Union, that decide that the trade coming in from India market the sorting, they can easily put up a non-tariff barriers that doesn’t require approval of the member States or their regions, which is one of the things that the Canadian free trade deal with the Europeans. 

A few years ago. Secondly, that same applies on the Indian side. There they have a cart blocked, national security exemption that they can use for any reason that they want. So yes, everyone is looking for a non-American alternative for trade. No, it’s not something that’s easy to do because there are so many entrenched interests and systems across anyone who wants to do anything meaningful. 

The fact that the European Union internally is a trade union has taken 60 years to build, and those are countries that are so close together that a degree of integration is almost unavoidable. You start talking about places on the other side of the planet. It gets almost insurmountable. Finally, and this is the issue that everyone ignores when they’re talking about free trade. 

There is no free trade on a transcontinental or trans oceanic basis, unless there’s freedom of the seas and global rule of law, and the only country that has ever been able to impose that is the United States. Now, I would argue decisions that we made back in the 80s, in the 1990s have changed the nature of the US Navy to the point that can no longer patrol globally at all. 

And all of the countries of the world combined, if they put all of the navies into a single force and agreed on every single deployment decision, all of that combined is still nowhere near as powerful as the US Navy. So we’re leaving the World war deals like this. Conversations like this among the EU and the Indians or the EU and the South Americans mean anything because there’s no capacity to enforce safety. 

And even if that could somehow exist, I have no doubt that French farmers or Belgian fascists or Indian manufacturers would get in the way of all of the details that would matter. So it’s a nice talk, but ultimately what countries need to do is something like what the European Union has done and develop an internal, a regional structure that can support as much of that trade as possible. 

And you only deal with countries beyond your region when you have absolutely no other choice.

Purging China’s Central Military Commission

Chinese soldier outside of a building

Xi Jinping has removed yet another senior official from China’s Central Military Commission (CMC). After 14 years of eliminating officials, prioritizing loyalty over competence, China’s institutions are hollow.

The seven-member CMC only has two people left, Xi and a loyalist (neither of which have any military experience). This leaves China’s armed forces leaderless and unable to operate effectively. Sure, Xi Jinping may have achieved personal control, but he’s destroyed China’s institutional capacity.

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Transcript

Hey all, Peter Zeihan here, coming to you from the Denver airport. Today’s news is the Chinese premier, XI Jinping, has just dismissed a member of the Central Military Commission by the name of Zang, Russia. Very, very, very short version. The Chinese premier has been launching the most intense purge in human history. Something that really even dwarfs Mao or Hitler. 

And it’s basically spent the last 14 years removing anyone competent from any position so that all that is left is personal loyalty to himself. For those of you who really like Trump, take note. It’s gotten to the point that China has become functionally ungovernable if your goal is to actually achieve meaningful change. And now, in the case of the military, that the CMC is functionally like the American Joint Chiefs of Staff. 

But now of the seven man commission, you’ve got G. You’ve got a political crony who is basically an inquisitor, and everyone else has been suspended or is under investigation and is no longer sitting. So the entire military leadership of China is now two people, neither of which had any meaningful military experience. So I’m not going to tell the U.S. military not prepare for a fight, but we now have a completely decapitated structure in China that is completely incapable of instituting reforms or making strategy that is worth a damn. 

So political purges might make you feel better about yourself, but they are guaranteed to absolutely collapse the institutions that you’re trying to reform. If your goal is really just political control. And that’s what we’re dealing with here. So, if you’re anyone but China, this is amazing news because it means that today, functionally, their military doesn’t work. That’s kind of fun.

The End of the Shadow Fleet? – French Edition

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France has seized a shadow fleet tanker suspected of carrying sanctioned oil under a false flag and has taken it to Marseille. Should this ship be formally impounded, the entirety of the shadow fleet would fall.

If a precedent is set here, everyone could begin detaining similar vessels. And it wouldn’t be hard to rapidly clear the waters of these vessels via major maritime choke points. A maritime services firm has kindly offered to legally take possession of seized shadow fleet ships and dismantle them (most of these floating rust-buckets should have been scrapped years ago, but instead were used to evade sanctions).

So, the shadow fleet could fall within months, but that creates a new series of problems. That’s 5 million barrels per day of crude going offline very quickly, making global energy markets quite volatile.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Colorado. Today we’re looking at the Russian shadow fleet, specifically non-U.S. countries going after the fleet. What was really interesting from my point of view is, on the 22nd of January. So last Thursday, the French grabbed a ship called The Grinch, for suspicion of flying an inaccurate flag and carrying sanctioned oil which would define every ship that the Russians, the Iranians, and until recently, the Venezuelans have been using to transport their oil. 

The reason why this really matters is, with the exception of the Venezuelan enforcement actions that the U.S. is engaged in, right now, no country has pulled over any shadow fleet vessel for those reasons. Maybe they think that there’s a drone launch system on board and they see it as a security issue. Maybe the ship is having engine trouble. 

They need to tow it to port. Those things have happened, but never one has ever tried to use military force to enforce the sanctions on Russia, or to try to break the shadow fleet. This would be the very first instance of that. And the French have grabbed the shift and towed it to Marseilles for investigation. And obviously it’s false flags and obviously it doesn’t have an insurance policy. 

And obviously it’s part of the shuttle fleet. So we are watching this very closely because if this actually results in the ship being impounded and its cargo seized and distributed, however the French decide to handle it. We will then see every NATO country and probably quite a few non-NATO countries basically going through and gobbling up the entire shadow fleet in a matter of weeks, because it is very easy to do so now. 

The French are a competent naval power. They grab the ship in the Mediterranean, but, you know, most of them is not going to be that complicated because you’ve got places like the English Channel or the Sky around, or the Turkish Straits, where the ships have to pass through a narrow choke point in an area where local labor powers are more than capable of grabbing civilian traffic that isn’t supposed to be there. 

The second piece is that a company called GM’s Global Maritime Services has applied for permission to o. Fact, that’s the Office of Foreign Assets, or works with Treasury in the U.S. departments to basically manage foreign assets. Has basically said, hey, we are here. We are ready to take possession of these shuttle fleets, will bid on it, will pay for them, and then we’ll break them down and remove them from service completely. 

None of these ships are new. Most of them are just floating rusted buckets. They’re accidents waiting to happen. And if it hadn’t been for the existence of, the Russians needing to create the shadow fleet, the Iranians needed to create the Shadow Fleet. All of these ships would have been decommissioned years ago. So let us do our job and help you do your job. 

And we can easily take more than 100 of these things in the next six months. There’s probably about a thousand shadow vessels out there anyway. GM’s is the largest company that has expressed an interest in playing a role in this. They’ve applied directly to the U.S. government. And so we’re seeing the institutions now starting to move to grab the shuttle fleet, remove it from contention, and then permanently dismantle it so that it can never be rebuilt. 

If this goes the direction it seems to be going, this next six months is going to be wild in energy markets, because these tankers are collectively carrying something like 5 million barrels of crude a day. Removing all of that in a short period of time is going to cause a lot of pain in a lot of places, but nowhere more than the countries that will no longer be able to sell their crude. 

Most notably Iran and the Russian Federation. So you’re is off to a rolling start and here we go.

U.S. Trade Talks with the UK

US and UK flags with a selective focus on diplomats shaking hands. Licensed by Envato Elements

We haven’t seen any real negotiations over the past year because the Trade Representative’s office wasn’t staffed. All that’s been discussed are tariff levels, not full agreements, and nothing has been ratified. However, the Mother Country is the main exception to this lack of trade talks.

Since Brexit, the UK has been on the hunt for a major export market. With the US as the only viable option, the Americans aren’t afraid to demand regulatory alignment and force the UK out of the European trade orbit. AKA – the UK might not have to switch to the imperial system, but they would have to accept just about everything else.

The UK doesn’t have much leverage either, as going it alone isn’t viable. So, the Brits will have to bunk up with Brussels or Washington, and it’s a painful path forward regardless.

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Transcript

Hey, everybody. Peter Zeihan here, coming from a snowy Colorado. Today we’re talking about trade talks. Most of what has been going on this last year is not what I would consider to be an actual trade discussion. If you remember back to April of 2025, Donald Trump announced tariffs on really everybody and then said he was starting trade talks with all of them, 200 different countries at the same time. 

But at the same time, the US Trade Representative’s office, which is the office that handles trade talks, was never staffed out. So from the point of view of how we negotiated every trade deal to this point, no real talks had begun. Trump did not personally oversee any of them. He subbed them out to say the Treasury secretary, the Commerce Secretary, who were usually not involved in trade talks. 

And so basically all it was was a negotiation about that specific number that was announced back in April of what the overarching tariff would be, and a couple of side things patched on to it. And at this point, none of those deals have been ratified by anyone. So we really haven’t really started. There is one exception, and that’s the United Kingdom now, the United Kingdom, ever since Brexit, which is almost a decade ago, has been desperate to get some sort of trade relationship with the United States that is more formalized. 

The reason is pretty simple. The demographics are aged. They’re losing consumption based. They need an export market. And they used to have the European Union, but they don’t have it anymore. The question then, is if it’s going to be the United States, because it’s really the only large economy that’s close enough to matter. What does the United States want from the United Kingdom in order to get that? 

And as the Brexiteers have discovered, the United States takes a very hard line in meaningful trade talks, especially if you’re like the United Kingdom and you really don’t have any other options. So the news that has come out in just the last few days is something that the Brits are really cheesed off about, and that the United States is striking an uncompromising position under Donald Trump on regulation. 

And this isn’t new. The Trump administration did this the first time around. The Biden administration held at that position the idea is that if you have regular regulatory unity, you basically achieve market capture, because all of a sudden your country is now measuring everything and regulating everything in the same way as the country you’re trying to partner with. 

And that makes it harder for other countries to have trade deals with you. So this is about pulling the United Kingdom out of the European Alliance of Trading Countries and locking them into the NAFTA system. The Brits are resisting this, particularly around things like food safety, because they realize that once you go down that path, you’re pretty much locked in. 

And the Brits would prefer to keep their options open. But at the end of the day, the Brits are a mid-sized economy trapped between two major blocs, one of which has long range consumption options because it’s the younger population in Mexico and the United States, and one of which doesn’t because the European Union is much further along in the aging process demographically. 

So if there is going to be a meaningful US UK trade deal or a NAFTA UK trade deal, this is part of it. Now there are other things the United States is going to insist on. For example, in aerospace, the United Kingdom is going to have to leave the Airbus family and join Boeing on agriculture. They’re going to have to accept US agricultural exports in volume, which will probably drive most farmers and producers in the United Kingdom out of business. 

On automotive, they’re going to have to go with American emission standards instead of European and so on and on and on and on. And then, of course, on finance. London, just goes away and New York absorbs it all with maybe a little bit for Toronto. So there’s a lot to swallow here. But the United Kingdom has come to this negotiating table with very little on offer. 

I mean, yes, it’s a market of 60 million people. Yes, that is significant. But at the end of the day, the Brits are going to have to bend to either Brussels or Washington and it’s not going to be comfortable. But their alternative is to try to go it alone. And that is something that is just not going to fly.

France Hits the Demographic Point of No Return

A French flag ribbon with an axe on a chopping block

The Americans and Kiwis are the last of the developed countries still holding onto growing populations. France is the most recent victim to have fallen into demographic decline, so let’s see what the future has in store.

France has a sizeable working-age population to help ward off any serious economic strain for two to four decades. Germany, on the other hand, has been in decline for 50 years and is running out of workers, meaning the Germans must reinvent their economic model.

The US isn’t far behind France, though. And China is a whole other topic. The broader issue is that as more and more countries reach the demographic point of no return, the world still hasn’t found a sustainable economic path forward.

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Transcript

Hey, all Peter Zeihan here coming to you from a snowy Colorado. Got a fresh inch overnight. Today we’re talking about, demographics, specifically in France. French statistics were released in the last couple of days, indicating that France is the latest country in the world to now have more deaths than births. France has long been the country Europe with the highest birth rate, with the most prone policies. 

And now they have slipped into, population decline as well. This means that every country in the first world, with the exception of the United States and New Zealand, are now in this position where they are in demographic decline. The Germans are among those that are furthest along. They actually hit this point back in 1972 or 1973. 

So short version. This isn’t the end for France, but it is the beginning of the end. Germany’s great example. They’ve been in this situation for about 50 years now, but from the point that you have more deaths than births, you then have to wait for everybody to kind of leak through the system. That literally takes an entire human lifetime. 

In the case of Germany, what this means is for the last 30 years, they really haven’t had many people under age 20. And so most of the economic growth comes from high productivity, workforce and exports. You can only have a consumption led economy if you have a lot of people aged 20 to 50. Those are the people who do most of the spending. 

France still has a lot of those. It’ll be another 20 years before those numbers start to decline. So France, in whatever the world evolves into next, still has at least two, three, four decades. But in the case of the Germans, this next ten year period is when they simply run out of working aged adults they have to invent a new, economic model, for the United States. We’re going to hit that point, where France is today in about five years, is the estimate. We’ve seen smaller and smaller generations for the last, 30 years. And now with the Trump administration turning so gung ho against migration, which is the one thing that can buy you time, we’re looking at probably the United States being a net zero growth population last calendar year. Full statistics aren’t in yet, but, we will hit that more deaths than births, by natural causes, by 2030. And then we will start that decline till now, as again with the German example. That doesn’t mean it the end is nigh. But something to keep in mind is. Whereas the Germans aged out during a time that there was a lot of young people on a global basis, and there was someone to export to the United States, and France will be aging out in a period where that is no longer true, because we already have a large number of developing countries, ranging from Chile to Colombia to oh, Thailand, that have already crossed this Rubicon. And so you can’t export to the world if the world is not young enough and rich enough to buy from you. So while we still do literally have decades left, it’s going to be a more compressed experience. And what happened in, say, Italy or Germany or Korea or Japan? One other note. 

China officially, according to their own statistics, hit this point about five years ago, the statistics aren’t very good. They probably hit it more like 15 years ago. Also, the, Chinese birthrate, just this last calendar year dropped by 17% in one year in a time where there wasn’t an economic crisis. So just because you have more deaths than births doesn’t mean that you’re gone already. 

But it also means that countries age at different paces and the Chinese don’t have nearly as much time. So we really are looking at an economic dissolution in the German situation within a decade, because they’ve been moving this way for a half century, and also with from the Chinese system in this decade, because they are aging so much more quickly. 

All right. That’s it for this one. Talk to you guys later.

Canada’s China Option

Flags of Canada and China

Canada’s prime minister, Mark Carney, recently visited Beijing. This trip sparked rumors that Canada was ditching the US and buddying up with China instead. Let’s pump the brakes a bit.

On paper, all that came from this meeting was China lifting punitive tariffs on Canadian canola and Canada easing restrictions on Chinese EVs. Canada knows that it can’t replace the US with a distant partner like China, but it could be stacking chips for the upcoming NAFTA renegotiations.

With Trump signaling indifference to NAFTA’s future and possibly favoring bilateral deals instead, it’s smart for the Canadians to have some bargaining chips when the time comes. Especially with how messy these negotiations might be.

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Transcript

Hey all. Peter Zeihan here. Coming to you from Colorado. Today we’re talking about our northern neighbors, the Canadians. Prime Minister Kearney recently completed a trip to Beijing. And in the aftermath of the Trump administration, going off the rails a little bit when it comes to trade in the alliance and threatened to invade Greenland, which is a territory of an allied, nation. 

A lot of the talk out there is about Canada finding alternatives, and a lot of people are talking about Kearney’s trip to China. In that light, and they’re not completely off base. But we need to keep a sense of perspective here. While there were lots and lots and lots of documents and memorandums, signed, on everything from agriculture and manufacturing detect IP. 

Really, there are only two takeaways from the entire trip. The first one is that Beijing will stop charging exorbitant, punishing tariffs on Canadian canola exports. Canada is by far the world’s largest exporter of that sort of thing. China has always been the single largest consumer. And so in the past, when Canada has done things like help out the Americans with sanctions regimes or, say, arrest somebody who’s violating Iran sanctions, the Canadians have been punished by Beijing as an arm of the United States. 

So at least that one piece now is undone. Second, if you remember, back during the Biden administration, the entire world put massive tariffs on Chinese electric vehicles because the Chinese were subsidizing their production and then dumping up on the market with the intent of bankrupting everybody else’s, production. That has now been scaled back. The Canadians will allow, instead of having 100% tariff on all Chinese vehicles, will allow about 50,000 in, this coming year, at a much lower tariff rate, something like 6%, and then ramping that over five years to 70,000. 

Not a huge opening, but for the Chinese who have basically have oversupply across the market, getting every little bit out helps and that’s it. And you know, I hate to break it to you, if you’re looking for me to make a mountain out of a molehill here, but the future of Canadian canola and Chinese EVs, when they’re already banned in most countries isn’t what an alliance or an economic relationship is going to turn upon. 

But there is an angle of to this that is, of course, Trump, because we’ve now had a year of all Trump all the time. And it’s really pretty straight forward, this calendar year 2026, the Americans, the Mexicans and the Canadians renegotiate the NAFTA two treaty. If you remember, NAFTA started back in the late 80s, was ratified and implemented in the 90s under Clinton and then was renegotiated under Trump, won. 

Now it’s time for the five year review where everything’s up in the air again and nations are starting to lay out their opening positions. Overall, the NAFTA accords of all variations have been very, very good for the United States and most of the growth we’ve seen in manufacturing over the course of the last 30 years has been because of NAFTA. 

And it integrates Canada, Mexico and the United States into a single manufacturing space, especially for automotive. In fact, you would really not be able to make any vehicles in the United States right now without that integration. Basically, think of Canada as a partner to Michigan and Auto Alley, where parts are going back and forth across the border all the time. 

Anyway, the Trump administration. Let me rephrase that. Donald Trump personally has said that he doesn’t care about the future of NAFTA, although the Canadians, of course, want it. He might just want a bilateral deal with Mexico or a separate bilateral deal with Canada. That is a potential form that this could all take. But the bottom line is that countries are starting to get their chips in order for the talks. 

And you should look at Carney’s trip to China in that light. It’s not that Canada has really any other options for a big trading partner like the United States. There isn’t one all provinces, but two in Canada trade more with the United States than they do with one another. 

And the two exceptions. One of them is Prince Edwards Island, which is basically a retirement community that lives on government handouts from Ottawa and the other one is British Columbia, where its primary trade partner isn’t the rest of Canada. It’s the East Asian rim, and they serve as the import point for everything that flows into the rest of the country. 

So there isn’t an option here for Canada to go anywhere else. It’s the tyranny of geography writ large. But the same is true for the United States. Right now, the United States gets access to the workforce in Canada and the infrastructure in Canada without having to pay for any of it, which is about as good of a deal and a trade deal as you can get. 

I mean, it’s pretty awesome. They pay for all that weird socialism they have up there. We get all the manufacturing benefits. It’s great. But that doesn’t mean that is how the American administration sees it. So Carney is trying to find some things that he can trade away. And at the end of the day, with the Chinese facing demographic mortality, in a way that is historically unprecedented, combined with the general anti-Chinese position of Washington, it makes sense that you get some Chinese chips that you can trade away because you don’t care about them. 

And it’s a reasonable strategy whether it’ll work or not, of course. Depends upon how the negotiations actually go. On both sides of both borders. The big problem we’re going to have here in the United States is that the US Trade Representative Office still hasn’t been staffed out to carry out normal operations, much less the 200 plus trade agreements that the Trump administration is trying to simultaneously negotiate. 

Hopefully, NAFTA will rise to the very top of that to do list when the time comes. But at the moment there is a very real bandwidth problem. All right. That’s it for now. See you next time.

Rolling Back Regulations in the U.S.

A gavel and law book on a desk

Trump’s pledge to roll back regulations isn’t inherently bad, but the way he’s going about it is problematic in just about every way.

Trump’s second term has brought about a new level of bureaucratic hollowing, leaving no capacity to manage regulations already in place. So, we’re left with a backlog of outdated policies, with an admistration who has no intention of enforcing them. Imagine the nightmare this creates for anyone trying to operate under those circumstances.

What we need is a functioning government with experienced staff who can regulate these systems and give clear guidance to those who need it. The bar is low, but the current administration is still trying to play limbo.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. Taking a question from the Patreon page today, specifically about regulation in the United States. Donald Trump says that he’s going to strip out ten words of regulation for every word that gets put in. This is up from his first term when he said the ratio was going to be 5 to 1. 

And will this have a meaningful impact? The person was asking the question, was quite circumspect about this. And he realizes that some regulations are good. So it’s just a question of whether this is a pro or con at large. Overall it’s con, but probably not for the reasons that you’re thinking, the two most regulatory heavy administrations that we have had in modern history are the Biden administration and the Obama administration, and by far the most administrations we’ve ever had are Trump one and Trump two. 

But they’re very different beasts. The Obama administration stacked itself with people with no real world experience. There was only like five years total of people who’ve had a real job. Most of them came from academia and ideologues and think tanks and people who had never actually participated in the real economy. So a lot of their regulatory structures existed because the president hated to take meetings. 

And so he never went to Congress for anything. And so they made up what they thought the ideology would demand and try to force that on corporate America. And needless to say, it made a lot of mess. The Biden administration was kind of the opposite, and that most of the people who were in the administration had real world experience, either as mayors or governors or corporate titans. 

And so while there were still a lot of regulation that went in, it wasn’t nearly as crazy. 

Trump very different beast. In Trump one, the Trump administration, we’re all going to be right back that up. President Trump didn’t think he was going to win in his election with Hillary Clinton. And so when he became president, he tapped the Republican brain trust very heavily in order to build out his cabinet. 

And all the senior positions in the bureaucracy. And in doing so, a lot of people with corporate experience became bureaucrats. And in doing so, when they came across regulations that they knew from personal experience were stupid, they stripped them out or modified them to make it less onerous for the business community. And so, as a rule, the business community was broadly pro-Trump throughout the bulk of his first administration. 

That’s not where we are with Trump. Two, President Trump spent his time out of power during the Biden administration, purging the Republican Party of anyone who might ever come across as knowing anything, because he wanted to make sure that everybody knew he was the smartest person in the room. And the easiest way to do that was to dumb down the room. 

So he comes in to president the second time around. There’s no longer a brain trust and the Republican establishment, for him to tap. And then he goes into the bureaucracy and fire the top 1500 or so people, but doesn’t necessarily replace them. So what we have is this weird dichotomy. And yes, the regulatory frameworks, the the system that builds out new regulations that has been frozen in very, very, very, very, very few new regulations have gone into place under Trump. 

Two, however, these institutions are not staffed out, so they’re also not going through the old regulations and purging them or trimming them or amending them or getting rid of them or whatever it happened to be. So in some ways, we now have the worst both worlds. We have this massive regulatory hangover that dates back to the first Obama term, a lot of stuff that still hasn’t been cleared out. 

At the same time, we now have an administration that isn’t putting any brain power whatsoever into cleaning up that system. So yes, we’re not getting new regulations. And broadly speaking, for the business community, that’s a plus. But then we’ve got this massive overhang of stuff that is outdated or ill conceived, or never went through Congress or never went out for review. 

That is still on the books, and you’re legally required to still follow them. The Trump administration is telling people just don’t follow them then, which puts business in the worst of all positions. They’re legally liable if they violate the corporate codes. But this federal government is saying that they won’t enforce the corporate codes. So we get this rule of law problem. 

At the same time, we have an outdated and overburdened regulatory structure, and corporate America is left in the middle trying to decide which specific legal risk they want to deal with. Not a pretty situation to be in. The solution is for the government to be the government, but the government can’t be the government without people.

The Semiconductor Tariff Nightmare

A semiconductor chip

A poorly designed and destined to backfire tariff has just been announced; this time, the Trump administration has turned its focus to high-end semiconductors.

Putting tariffs on semiconductors is nearly impossible to do cleanly. There are thousands of types, production stages, and end uses. So, the Trump admin thought it would be a good idea to tariff them based on the end use, rather than where they’re made. The only problem is that most importers don’t even know the final use of the chips upon import, creating a legally and financially risky situation for everyone involved.

This tariff will likely freeze access to advanced semiconductors and choke the US tech and manufacturing sectors. There are a few ways around the tariffs, but those offer little relief to existing manufacturers. But hey, let’s just keep trying to jam this square peg into that round hole.rough strong alliances will struggle to survive. And the next generation of kids (however small that cohort might be) will be studying those countries in the history books.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Iowa. Today is the 15th of January, and the Trump administration has at long last announced the first wave of semiconductor tariffs, specifically targeting high end semiconductors. There was always going to be a question as to how this was done and whether it was going to be a disaster. 

It really matters because semiconductors are, for most intents and purposes, a commodity. They come in in thousands of forms and at thousands of different stages of production. There’s over 100,000 steps for high end semiconductor fabs creation. And they can come in as raw chips still attached to the disk. They can come in separated from those disk. 

They can be put into intermediate products like motherboards or charging stations. They can be included into intermediate products. They can be incorporated into final products. And so whatever type of tariff regime you’re going to put in there is obviously going to be full of flaws, even if it’s very, very, very well designed. And commerce was never set up to manage this sort of system, much less, Customs and Border Patrol. 

And that was before we had the personnel purges of last calendar year. So the questions were always, you know, how are you going to do this? Are you going to look like at a car? And the 1500 types of semiconductors that are installed within it have a different tariff rate for each one. Do you tariff the entire car tariff the chips independently? 

You do it based on the intermediate products. Based on where the value added happens. Basically, you could get more paperwork for one tariff on one vehicle than all of the rest of the 30,000 pieces in a car combined. What the Trump administration has done with this round is instead of going by sourcing, which would make a degree of national security sense, even, it would be, logistically almost impossible. 

They’ve decided to go on end use, which is, if anything, even more confusing, because now anyone who is importing these products has to decide what each individual chip is going to be used for. Declare that on the tariff form and the way that Customs and Border Protection enforces the tariff regime is to not check it on the front end, but to randomly check it on the back end and then really bring down a hammer in terms of fines and penalties. 

The problem is if if somebody is important to, say, 10,000 of a specific type of chip, they’re not the ones who are probably going to use the chip. The chip is going to go on and get put into computers or cell phones or pacemakers or whatever it happens to be. And so who is responsible for it? So the person who is doing the importing has to go and gets a customer affidavit and assign them to each individual box, each individual chip that Customs and Border Protection can then go into later a year from now, three years from now, and attempt enforcement. So what we’ve gotten is something that will freeze the use of semiconductors at the high end, because no one is going to know how to do the paperwork on the front end. It’s difficult to come up with something that is going to chill American manufacturing more, because now simply accessing the pieces in the first place is not going to happen cleanly. 

And you could open yourself up to legal liability simply from plugging a piece of typical technology into something that you’re working on, because you’re not the one who did the actual importing, but you’re probably legally liable. So we’re probably going to see a seizing up across not just the tech space, but the advanced manufacturing space in the United States, especially in places like heavy machinery, automotive and aviation, where these chips are used in the thousands in every single vehicle. 

It’s going to be very interesting to see how this goes. The Trump administration says it’s going to do a review after 90 days where if progress has not been made and expanding the supply chain within the United States, then, more tariffs will be coming. One of the many exceptions, because there are a bunch is that if you’re using these chips to expand the construction of a supply chain, you get a pass. 

But if you’re already have a supply chain, you do not. So this is a horribly designed tariff, absolutely the wrong tool for the job. And it’s going to become very obvious as this year rolls on, that it is actually going to poison most of what progress the US has made in its industrialization effort over the last decade.

Good Luck, Texas

Texas cattle in an ice storm

A major cold front is sweeping across America, and I’d like to point out that our neighbors to the North are the ones who sent it down. But some areas are going to feel this more than others.

Texas is exposed due to its isolated power grid. Cold weather strains the system and essentially shuts everything down. This is a shorter storm cycle than the 2021 freeze, and thankfully, Texas has winterized since then, so the fallout shouldn’t be as devastating.

Outages are still possible, but statewide blackouts are less likely than last time.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. As everybody knows, there’s a cold front that’s pushing down from Canada that’s affecting basically the entire Midwest down to Texas and over into the South and the eastern seaboard. 

For those of you who are in Texas, this is for you. You see, the power grid in the eastern part of the United States is interconnected. 

So if you’re east of the Rockies, everybody’s on the same grid, and people can pump power from one zone to another without a problem. Texas, however, is on its own. Texas does not like regulation at the federal level at all, in case you didn’t know. And, sometimes this works for them and sometimes it doesn’t. And this weekend we’re going to find out what it is. 

The issue is, kind of 2 or 3 fold. Number one, if you get ice, ice lands on the power lines. The power lines weigh more. Sometimes they snap. Number two, in times of extreme temperature variation, like a high cold front, people are going to be using a lot more energy than they would normally. 

So there’s a lot more stress on the system in general. And then third and freezing temperatures, natural gas production can be interrupted. A lot of natural gas fields bring up a little bit of water as a side effect and ends up in the pipes. And if the temperature drops enough, that will turn into ice, and eventually they’ll clog and freeze. 

So if you remember to a winter storm we had a few years ago, I think was 2021. The area around Dallas got so bad that the pipelines were frozen solid, and they basically had to deliberately ignore all safety regulations and go out there with blowtorches and heat up the ice so that the energy would flow. This cold front is both better and worse than that one. 

Better in that it is not going to last as long. We’re probably only going to have subfreezing temperatures in Texas for 2 or 3, maybe at most four days. Number two, Texas has made a lot of advances since then in making their system more stable, both at the grid level and at the production level. More pipelines are buried, for example, because if you just put your pipe under six inches of dirt, that insulation is probably going to be enough. 

Not a real crazy thing here. Almost everywhere in the United States that produces petroleum puts them underground. Texas was really unique because it just never really got cold enough for them to care. Now they do. Third, there are three different production regions in Texas, and it’s really going to depend upon what happens with the ice line here. the biggest one around the Dallas Fort Worth area is called the Barnett Shale. It’s almost exclusively natural gas. It is the primary source of energy for most of the region’s natural gas power plants. If we get ice in the Dallas area, but not lots of subfreezing temperatures along it, as long as it stays above, like 2025, we’ll be okay. 

That’ll probably be fine. Further south is Eagle Ford. Now, usually Eagle Ford, because it’s East of San Antonio stays warm enough that there. No, this is an issue. It’s unclear if that’s how it’s going to be this time. Probably they’ll get a lot of ice. Ice is not a big problem for pipelines, because it’s not cold enough to freeze the inside, and it just makes things very uncomfortable. So you could have high traffic incidents in San Antonio. While this is going on. Don’t drive in Texas if there’s ice because oh my God, they don’t know how to drive anything that’s not dry. 

Third one is the Permian that’s out west, Odessa, Midland, getting into New Mexico. That one’s probably going to be fine. 

A quirk of this particular storm is it’s blowing down from Alberta on the east side of the Rockies. And when you get down towards that part of Texas in New Mexico. Yes, you’re still to the east of the Rockies, but the Gulf Stream starts pushing everything further east. So it’s kind of like a hurricane in reverse, if you will. 

So while those areas are expected to be cold, they’re not as expected to get as cold or for as long, which would suggest that the largest oil natural gas producing basin in the country, the Permian Basin, is probably going to be able to maintain operations. So none of this is risk free. We’re probably going to have some sporadic power outages, but between the improvements and the dynamics of this specific storm, it looks like we’re not going to be looking at mass blackout events. 

And that’s a good day.

Lessons From Japan’s Demographic Collapse

A Japanese elderly couple at a crosswalk

Japan has been dealing with long-term population decline for decades, and the latest report on births per woman dropping to 1.15 confirms that. However, there are some lessons we could all learn from Japan.

Japan is no longer the fastest aging society, but it remains the world’s oldest. So, they’re putting in the legwork to buy themselves some time. They’ve shifted production toward allied countries with stronger demographics and built themselves a strong navy, enabling them to project power should the need arise.

But the Japanese aren’t the only people getting older. This is a global issue, and the timing couldn’t be worse. As the world deglobalizes, societies that are unable to adapt and secure trade access through strong alliances will struggle to survive. And the next generation of kids (however small that cohort might be) will be studying those countries in the history books.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from the basement I grew up in. That sounds odd. It makes. It sounds like I was chained to a radiator for 15 years. No, that is not what happened. I just happened to be visiting my parents in Iowa. And I’m coming from the basement because the wind chill outside is zero right now, and that is not going to happen. 

Okay. Today is the 14th of January. And the big news is that Japan has recently released its newest demographic assessment of its country. They do this every year, after the United States. Japan is generally considered to have some of the best statistical capacity for their government in the world. And so I tend to trust their data quite deeply. 

They’re now saying that births per woman is 1.15, and anything under 2.1 suggests that your population is actually falling. And Japan’s is it is the, oldest demographic in humanity right now. But it is no longer, the world’s fastest aging. They’ve made some advances in health care. They’ve extended the ability, of the working age, in order to keep the workforce kind of stable, although it’s only had a mixed results. 

Made a little bit easier for people to have children. But still terminal. Terminal, terminal. But, they have slowed the decline to the point that they are no longer the world’s fastest aging society, and they haven’t been for well over a decade. Countries that are aging significantly faster than Japan include and are not limited to Korea, Taiwan, Singapore, China, China, according to official statistics, has a birth rate that is now lower than Japan’s but unofficial statistics. 

It’s maybe half that, but that’s a different topic for another day. Also some developing countries, Chile and Colombia and Latin America, even though they’ve have a very large young population, the birth rate has fallen off a cliff in the last ten years. In Southeast Asia, places like Thailand are aging faster. And in Europe, Italy, also probably Poland’s pretty close, although it might be neck and neck. 

And Ukraine is near the bottom, mostly because of the war. Anyway, the bottom line is that you can buy a little bit of time, but it’s really hard to turn the ship around once you drop below 2.1 and really no country yet that is slipped below has ever gone back up. So what does this mean? Well, number one, Japan, because it is an archipelago island nation. 

They don’t need to spend the same style, in defense. Not in terms of cost, but in terms of manpower. So if you’re a land power, you need an army. And Japan probably couldn’t field an army right now if it needed to. But it can easily field a navy. So even that might cost a little bit more and certainly more power per soldier or sailor. 

It could they can still have a projection based military system. And in this case, Japan has the second most powerful navy in the world in projection terms, which is about right size to what they need. They might need to do a little bit more as trade breaks down, but they’ve already changed their economic structure to relocate industrial plant into allied countries that have better demographics, like, say, Mexico in the United States or Indonesia and Myanmar. 

That’s issue one. So even though that they’re aging, they’re not aging as fast as a lot of countries around them, and they’ve got some military options that no one else can consider. Second big issue is that the demographic bomb is not limited to the rich world at all. China, by most definitions, remains some version of a developing country. 

And they arguably have by far the lowest birth rate in the world. And that fact that we’re seeing some countries in Southeast Asia and even in Latin America now dropping below half of replacement level, gives you an idea of just how deep this is. In fact, the country in the world that has seen the largest drop in the birth rate in the last 35 years is none other than Yemen. 

They’re still above replacement, but barely. But they’ve gone from eight children to a woman to two children per woman, like 35 years. So this is something that is coming for everyone. The question now, from my point of view, is how this integrates with globalization in general. Because if you start breaking down international supply chains, then some of the things that allowed industrialization to kick in and large portions of the world suddenly become up for grabs. 

In the case of manufacturing, that means if you are participating in a multi-state manufacturing system, all of a sudden that is useless. And so you have an older population that doesn’t consume as much and maybe can’t adapt as quickly, suddenly have to change their industrial base in order to function. Second problem is, of course, agriculture. 

Pesticides come from one place, herbicides from another, farm equipment from another part for farm equipment, typically from yet another. And then there’s three types of fertilizer potassium, nitrogen and phosphorus. Oh, Anyway, oftentimes those come from different places as well. You break down supply chains, and all of a sudden the food supply is a problem. One of the things, one of the hallmarks of globalization is anything can be traded. 

And so you can take countries that pre 1945 couldn’t grow a lot of food and had a limited population or couldn’t access iron ore and so couldn’t industrialize it. Suddenly everyone could get everything. You break down those links, not all goes away. You do that on top of a demographic decay and you get combination of deindustrialization events, the population events, and maybe even civilizational events. 

So, shit’s getting real. We are getting very close to the edge. And not just because of the Trump administration, although the Trump policies are certainly moving things forward, but a country like Japan that has managed to slow the decline right size their military for the options they’re going to need, and that has wide access to the Pacific and can convoy their own trade if they need to. 

They’re going to be fine. So if you get along with Japan and the United States, you have the basis for starting whatever is next. I’m not saying everything is going to be hunky dory. But you’ll live in a security environment that is more favorable and you’ll have an economic access. That means that you’re not going to suffer the worst. And of course, if you don’t get along with those two countries and you happen to be in the Pacific Basin, then, well, students will study you 50 to 100 years from now as a great example of what to never do.