American and Indian Relations Sour

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 global rise of right-wing populist governments has complicated the relationships between many of the dominant countries and leaders. The latest is America and India.

That trade deal everyone was optimistic about hasn’t quite played out so smoothly. India is facing steeper tariffs due to its ongoing or persistent trade relationship with Russia. Trump and Modi both expected special treatment for…being themselves; obviously, that didn’t play out for either of them.

Whether India decides to lean into its ties with Russia, form a stronger relationship with the US, or remain independent, its decision will carry huge implications for the global order. As these populist leaders continue to reject the old ways of doing things and seek to build new ones, small disagreements are more likely to intensify.

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Transcript

Hey, all. Peter Zeihan, I’m here coming to you from Colorado. And today we’re going to talk about relations between India, the United States, which have apparently just dropped into the crapper in the last couple of weeks. If you go back a few weeks, you know, maybe two months, there were very positive signals coming out of both Washington, DC and New Delhi that a meaningful trade deal was imminent. 

And it’s all falling apart. And not only is there no deal, India is now paying some of the highest tariffs of any country selling the United States. Right now it’s about 50%. And Trump has said it’s probably going to go up based on how relations with the Russians degrade. The Indians are saying this isn’t fair because lots of countries trade with the Russians. 

And so why should India be the only countries paying a penalty? And I’m not saying that there’s nothing to that point, but it kind of misses the point of how this works and where it’s leading, the United States and India right now, as well as a number of other countries that include China and Turkey and Russia, have rightist populist governments that focus on what makes their country special versus everyone else. 

These are not the sort of governments that normally get along. Normally, these are the type of countries that find themselves duking it out on the battlefield with one another. The reason that hasn’t happened is because we’ve been in this weird moment in the post Cold War environment where the old consensus has basically prevented it from happening. 

One of the things that, right wing governments, right wing populist governments hate is the idea of a transnational group of liberals who impose some sort of policy on things. And, you know, maybe there is something to that. But keep in mind what that means. If you have a multiple of countries that include, but are not limited to Japan, Korea, Taiwan, the United States, Canada, Britain, Germany, France, Italy, Spain, and on and on and on that broadly agree on the rules of the game and things like individual liberty and things like international cooperation and things like economic integration. 

Then there’s no reason for them to have an antagonist military approach to one another. There’s too many other things in the system that stabilize the relationship. But if you have countries that don’t see things that way, that focus on what makes countries different and unique, as opposed to on the same side, then you don’t have those are resting factors and you can get more conflict, not necessarily of the military form, but of any kind of form. 

And those are exactly the types of governments where you have rising in the world today. In the United States, we have Trump, in India, we have Modi in Turkey, we have a guy by the name of Erdogan who’s been dragging the country this direction for 25 years. In Japan, we are seeing a cracking of the post-World War Two consensus around centrist politics in, China. 

We’ve got chairman G who is now basically a tinpot dictator of a second world country. In Canada, we’ve had a bit of a hiccup where we looked like the government was going to go a different way in the last elections, in polls right now in Britain and in Italy and in France and in Germany, the hard right is the more popular than has ever been before. 

And of course, the Russians have been run by nationalists for quite some time. What this means is that consensus around liberal international values is breaking down in a way that we have not seen since the days before World War Two. And if you go back and look at your history, especially for the first half of the century and the period before World War one and World War two, we had a lot of governments that kind of fit the mold that we’re moving towards right now. 

Now, does that mean that we are doomed to have another major international conflagration on the scale, the World War? No, no different world? A couple big things to keep in mind. Number one, there are no countries, with the exception of the United States right now, that could fight in more than one theater. But if you don’t have things like trade and integration tying countries together, then it is really easy for small flaps to turn into big ones. 

What happened with India in particular is both Trump and Modi assumed that because the United States and India were so special that any deal would be done their way, and that’s just not how it works. Also, India has never really had a free trade agreement with anyone, so anyone who thought that a deal was imminent really hadn’t been paying attention to modern Indian economic structure or history. 

Where does this take us right now? Oh, India has to figure a few things out. During the Cold War, they were neutral, but broadly pro-Soviet. In fact, they were pro-Soviet. Even when the Soviets went away. And India now is a country that has agency in capacity. There are major refinery center. They are major stop on the path of all merchandise trade and energy trade between the Middle East and East Asia and between East Asia and Europe. 

They have a military that is capable for their needs. It can easily interrupt those flows, and they have an economy that is increasingly wealthier and increasingly diversified, increasingly technologically capable. What they don’t have is projection power, either economically or strategically. Their military is designed for the problems that they have. It’s designed for Pakistan, it’s designed for Sri Lanka and Bangladesh. 

It can’t project to the Middle East. It can’t project to East Asia. It is a unit to itself that defines how the Indians see themselves. They don’t see themselves as part of any coalition. They see themselves as their own thing. And if you put someone from a populist right in charge of that, if you accentuate that mindset, then the potential for arguments with everyone become very, very real. 

So India is one of those countries that matters, but it matters which side it doesn’t fall on because it empowers whoever is opposite. In the environment that we’re in today. We’re in this weird little situation where the country that the Indians are most dependent upon is China, which obviously makes Indian politics a little colorful these days. The Indians were thinking that their moment had arrived, that they had become strategically special and could have a leg in the American coalition without actually having to do anything that was never going to fly. 

But the Indians also, wherever they do put their foot, are going to matter. One way or another. So the debate right now is whether or not they should buddy up with the Russians again. If they do, they’re bearing almost all the risk. The Russians would get almost all of the reward. But this is what happens when you have a rightist government that sees themselves as special in a way that maybe doesn’t necessarily jive with strategic reality. 

Modi is learning that, Trump is learning that. And in time, pretty much all of governments like this will learn it. And when that happens, decision making becomes a lot more hostile because no longer are they rebelling against the existing order, they’re looking to build their own. And when that happens, we start getting new strategic relationships and hostilities. And that can boil up into something a lot more substantial.

Russian Evolutions in the Ukraine War

A Ukrainian soldier in the trenches

We’re beginning to see a notable shift in the Russians war strategy in Ukraine. Those large-scale meat assaults are being swapped for small infantry advances and widespread air strikes via drones and missiles to overwhelm Ukrainian air defenses.

This pivot in the Russian war efforts has been brought on by increased Western military aid, expanded European defense production, and Russia reverting to a WWII-esque military production style of moving things deep into Russian territory. The Russians have also spun-up more domestic drone assembly, giving them more independence and resilience in their supply chains.

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Transcript

Hey everybody. Peter Zeihan here coming to you from a humid Colorado afternoon, which almost never happens. Anyway, today we’re going to talk about the Ukraine war and where we are at the moment. We’ve had a significant shift in the approach to the conflict by the Russians. Too soon to say it’s going to be successful, but it’s different enough that it is worth exploring. 

Instead of doing what they call mass meet assaults where you basically have to throw wave after wave after wave of humans into a mix, not really caring how many people get injured or killed trying to grab specific positions incrementally. We now have a position where the Russians are doing small scale infantry, and sometimes as few as two people at a time, just moving forward a few yards at a time. 

Parking for an hour and then continuing doing this all across the frontline while up above we have a change in the air war where the Russians will not launch just a bunch of drones, but dozens, maybe even a couple hundred at the same time, along with some missiles to saturate the air defense of an area and then strike local urban centers, specifically going for power systems. 

But really, any sort of logistics support? It’s a very different approach. It is generating results. Oil, very, very, very incremental. I don’t want to overplay it. But what is driven the change are a couple of things. Number one, the Trump administration is now starting to, at least in increments, provide more military assistance. The European defense industries have been spinning up for the last three years. 

They’re getting more artillery shells in the Ukrainian hands, which is preventing the meat assault from having any impact. But third, and most importantly, we’re seeing the Russians dust off an industrial strategy that we have not seen out of the Russians since the 1940s. 

For those of you who remember your World War Two history, you will remember that one of the turning points in the Second World War was when the Russians developed enough industrial plant out of reach of the Luftwaffe, the German strategic bombers, so they could build up all the industrial infrastructure and military capacity that they needed without having to worry about it getting blown up from the sky. 

This was called the Urals strategy. Basically, the Russians under Stalin built a series of industrial cities out east of the Urals, well out of range of German aircraft, and built their military capacity there and then shipped it into the front. There were obviously other things come into play. Lend-Lease. The, the invasion of Normandy, the invasion of Sicily, and ultimately mainland Italy. 

All of these combined to defeat the Nazis. But on the Russian front, it was the Russians getting the ability to build their own equipment that really made the difference. We’re seeing some version of that now, in the war to this point. Most of the drones that the Russians have used have either come from Iran or for China, largely already assembled. 

Maybe the Russians have plugged in a warhead in the front, but really, that was about it. the Russians were relying on industrial capacity on the other side of an international border to keep the flow coming. And so they were using primarily their old Soviet stockpile of equipment, of jeeps, of tanks, of ABC’s of artillery and so on. 

Well, three years on, the Russians are running out of their old Soviet largesse. All of the stuff that was easily deployed, things that were built in, say, the late 70s and the 80s were long ago destroyed. They never built enough of the more advanced things that have been built since 1992 to make a strategic difference, and most of that’s been destroyed. 

And then they started going back into their older stocks, weapon systems from, say, the 1940s, 1950s, early 1960s that were just wildly out of date, didn’t even have things like optics, but that meant that putting optics in them was relatively straightforward. So all of a sudden, we saw these 1950s air tanks coming out with like 1990s optics. 

All of that has been destroyed. That has left them with equipment that was built in the 70s and early 80s that had optics. But it’s crappy Soviet optics, and it all has to be ripped out and then replaced. That takes more time per tank, and the end result is just a trickle of equipment that comes in, and they’re now burning through that to basically 70 years of Soviet stockpile is almost gone. 

And now they’re reliant on equipment that is either come in from elsewhere, like say, artillery shells from North Korea or this new stuff. The new stuff is very different. The Russian military is an artillery force, and now that they’ve lost a lot of their artillery, they’re having to reinvent on the fly. And what they’re doing is taking that old girl strategy of building industrial plant behind the Urals and marrying it to the drone tech. 

So we now have multiple facilities in Russia proper that are manufactured in Iranian Shaheed drones. Now, Shaheed drones are pretty dumb. They’re basically dumb, slow moving, low warhead cruise missiles. And the original ones and the ones that make up even today, the bulk of the Russian effort don’t even have GPUs, they’re incapable of making decisions in any meaningful way. 

You basically just plug in where you want them to go. Maybe you give them the route to get there, and then off they go. Which incidentally, means that anytime they strike a school, it’s automatically a war crime because they had to program that in anyway. We’re now starting to see a second generation starting produced also get produced in Russia. 

That has some GPUs, Jetson chips from Nvidia specifically that probably run 6 to $900 a pop. So these are larger drones with bigger warheads, but they also have some primitive decision making capability. These like eight nanometer chips, far from cutting edge but order of magnitude better than what they’ve been using at this point. But the bottom line is these things are not being built in Iran and shipped into Russia for use. 

They’re being built in Russia. And That adds a step of complication to anyone who wants to interrupt the supply chain because it’s no longer foreign. The same thing is happening with Chinese equipment. It used to be that the Chinese would ship in more or less fully assembled drones, and then the Russians might make a couple modifications before deploying them. 

Now the Chinese are shipping in lots of components still, but the Russians are doing most of the assembly in Russia proper, again, outside of the reach of any sort of Ukrainian strike capability. And that means that the Russians are not simply getting more autonomy in their military industrial complex. They’re also getting a bigger feed through because they’re still buying the finished stuff from both China and Iran. 

So instead of using a few drones a day or a few dozen drones a day, there have been a number of attacks where they’re using a few hundred drones a day. And one of the things that they’ve gotten really good at is not even putting a warhead in some of these things and not putting any advanced chips in some of them. 

So maybe, maybe as many as two thirds of the drones that the Russians are firing at targets are actually just decoys that are very, very, very cheap. And so if Ukraine is using their limited air defense to try to clear the skies and they have to deal with literally hundreds of spoofed signals and false targets, more and more of the real things will get through. 

And the Russians are now starting to coordinate the timing of these drone assaults with their missile attacks. And the result has been a lot more damage to infrastructure, in Ukraine, including civilian infrastructure and urban zones. You can buy in these with things like, say, glide bombs with the Russians have no shortage of. And you’re talking about the Russians being able to completely obliterate what we would traditionally think of as a front 

line and just make this mess of shifting no man’s lands where those incremental one and two guys at a time can move 50ft at a time, and from time to time find a soft spot and get enough numbers forward that they can actually make a more traditional assault. It is way too soon to say that this is going to work. And of course, the Ukrainians will have to adapt to it by making their own changes. But we have seen a significant shift in the way that the Russians are prosecuting the war. And with the Technol involved changing day by day, week by week, month by month, that is absolutely worth noting.

The Alaska Summit: Putin and Trump Talk War

Putin and Trump shaking hands on the red carpet. Photo by Wikimedia Commons: http://www.kremlin.ru/events/president/news/77790/photos/82627

Putin and Trump are planning to meet in Alaska in the coming days. Trump’s plan is to emphasize Russia’s losses in Ukraine (economically, strategically, and militarily), in hopes that Putin will pull back from the war in Ukraine.

Unfortunately, Putin doesn’t view the Ukraine War through the same lens as Trump. Putin knows Russia is facing terminal collapse, and Ukraine is just the first step in securing a future for the Russians. If Trump points out all the losses, along with stating that the US will be aligning closer with Western Europe, I wouldn’t be surprised if Putin responds with an even harsher war effort.

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Transcript

Hey, all. Peter Zeihan here coming to you from Colorado. Yeah. Humid. Cloudy with. Anyway, today we are going to talk about the upcoming summit between the Russian President Vladimir Putin and the American president, Donald J. Trump. We’ve had a lot of evolution in the American White House through the Ukraine war. And now we see the Americans starting to come around to what I could best call to be the the Western European opinion of things. 

Everyone has their own view on how the war is going, why it’s going the where it the way it is. I’ve recently recorded a video. We’ll send some links out here for how this looks from the Russian point of view, and what people who are new to the topic should think about when they’re evaluating. Short version is the Russians see this war as part of an existential fight for survival. 

They know their borders over the long run are completely indefensible. They know their demographics are collapsing, and they know that if they don’t change the rules of their neighborhood now, they’re going to lose all hope of doing that in the future. So for them, it’s almost impossible to contemplate stopping the war, because that means paying all of the costs of a conflict without getting any of the benefits. 

And that is signing up Russia for midterm national dissolution. That’s something you try to avoid. What the Trump administration’s talking point seem to be, forming up or to try to convince the Russians to look at all of this from an economic and a structural point of view. So the the argument goes like this. Mr. Putin, here’s your problem. 

You’re not winning this war. You’re grabbing territory not by miles, but by inches. You’ve already lost at least a half a million men, some people say it’s closer to a million. And that’s before you consider the economic damage from sanctions or the economic transformation of going to a war economy. This has just been a huge cost. You’re not doing well. 

You’re not going to win. And from a strategic point of view, you’ve actually made your situation worse. If you look at the period from 1989 until 2022, when the war started, the Europeans were basically disarming, with a number of countries spending not just less than 2% of GDP on defense, but in many cases functionally less than 1%. 

You basically the entire continent was allowing itself to hollow itself, out strategically. Now, things have changed by launching this major war, by engaging in all of these atrocities, by bombing everything that you can. You have motivated the Europeans not simply to rearm, but to rearm to a level that could potentially exceed what they did in the Cold War. 

And Russia is many things, but it no matter what it is, it’s weaker than the Soviet Union was. In addition, while the Europeans may disrespect look down on loathe Donald Trump, they are now, from a strategic point of view, tighter to the United States than they’ve ever been. With bigger defense budgets. So you’re getting autonomous European decision making in defense, which is a nightmare for Russia. 

At the same time, the United States is threatening to re-up its military support for Ukraine directly. There’s no part of this where you appear to come out a winner. So let’s find a middle ground where you can back off and save some face and not just completely wreck your system. There’s nothing wrong with that line of approach. 

It is perfectly reasonable. It’s broadly accurate. But that’s not how the Russians see it. The Russians see this as an issue of demographics and borders. They know that they cannot defend the borders that they have with the men that they have. But they know if they expand by roughly 1,000,000mi², then instead of having wide open borders on the Ukrainian steppe, they actually reach things like the Carpathian. 

The Baltic Sea and their external lands shrink to something that they could manage. Right now they’ve got roughly 3 to 5000 miles, based on very where you draw the lines of open terrain. But if they expand to absorb Ukraine and a handful of other countries, all of a sudden they can concentrate their forces between geographic barriers and their external barriers shrink down to 500 miles. 

So the economic argument doesn’t make sense to the Russians because they’re looking at economics from a different point of view. In addition, the general idea that the West is starting to pull together more and even under the leadership of Trump, if anything confirms the Russians worst fears, dealing piecemeal with the Western countries, making sure that the Germans don’t support militarization, making sure the French are at Arms Lake, making sure that there’s a breach between the United States and the Europeans. 

These have all been the goals of the Kremlin. Going back to initial communist days in the 1920s and 1930s, and to have the American president say that this is basically what we’re looking at now. This confirms every concern that the Russians have ever had about the strategic nature of the western borders. And so if this is the Trump administration’s approach, basically the Western European approach, talking about numbers, this is something that isn’t simply going to fall on deaf ears. 

This is going to something that is going to ring every alarm bell that exists in the Russian system and do so very, very loudly and guarantee that the Russians are going to take a much harsher approach to the war in the future. 

A couple things from this. Number one, it’s interesting watching the Trump administration learn things that administrations in the United States have known for decades. 

The Trump administration basically fired anyone with any historical knowledge how negotiations with the Russians really work, and now they’re learning it bit by bit from the ground up, and seeing what is basically the French German position on the war now coming out of the white House is kind of colorful from my point of view. It’s better than it was, because if you go back just three months ago, the, the Trump administration’s position was basically the Russian position. 

So this is this is much improved. But that doesn’t mean that it’s any more realistic when it comes to evaluating what motivates the Russians. We’ll see what the next step will be. That brings us to number two, the next step. We know that Putin is going to flat out reject everything that Trump says if this is the approach. 

So the question is then what does Donald Trump do next? Because there are other views of what is actually going on here beyond France and Germany, for example, if you go with the Swedish view or the Polish view or the Romanian view, it’s an understanding that the Russians, this is who they are, this is how they see the world. 

And the only way you can stop that is forcefully, and proactively. And that means a much more American military involvement than we have seen under, say, the Biden administration. Is that the next step for Trump? I have no idea. He hasn’t figured that out yet, but he’s going to be presented with either a flat refusal or another bald faced lie from Putin at the Alaska summit. 

And then he will have to decide what his next step is. In the meantime, the military picture in Ukraine is evolving fairly substantially, but we’ll deal with that next time. 

Featured Photo by Wikimedia Commons

Trump Trade Talks: NAFTA Deals Stall

A USA-marked shipping container on a truck, illustrating American international trade from Envato Elements: https://elements.envato.com/a-usa-marked-shipping-container-on-a-truck-illustr-HMKHD83

To nobody’s surprise, trade talks with Mexico and Canada have stalled. Reminder that these are America’s top two trading partners and export markets, so securing a favorable deal isn’t just a nice-to-have, it’s a necessity.

With US manufacturing on the line (and severe economic damage), I suspect a deal isn’t far off. North American production is growing in importance as China declines. Mexico offers a nice growth opportunity and some potential for political wins as the fentanyl trade is disrupted. To the north, deal progress has been slowed by some unrelated speed bumps.

If there was ever a trade relationship that needed to get hammered out ASAP, it’s NAFTA. Since Trump has already stamped his name on NAFTA 2 during his first term, I’m hopeful we’ll see some progress here soon.

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Transcript

Hey all, Peter Zeihan here coming to you from Colorado. We’re going to continue with our open ended series on the nature of the trade relationship that the United States is building with the rest of the world under Donald Trump. And today we’re going to talk about trade deals that have not yet happened. And that’s Canada and Mexico. According to the Trump administration, both of these countries are going to require significant additional time to negotiate at least 90 days with Mexico and a kind of an indefinite hold on everything with Canada. 

These two matter more, I would argue, than all of the other deals put together. Mexico is our top trading partner. Canada is number two. Both of them, a few years ago surpassed China and are not looking back. Both are also our number one and our number two export markets. 

So unlike China or Europe where the trade imbalance is pretty significant here, while there is a trade imbalance, it’s not nearly as large because we send them lots of stuff. Basically these are integrated economic spaces. And if we sever our relations with either Mexico, Canada, it would be like severing our relationship with California or Texas. What that means in real terms is roughly 14 million jobs in the United States are directly, dependent upon trade with our immediate neighbors. 

That’s about 10% of the total labor force. So if we can’t get a deal that favors Canada, Mexico versus the rest of the world, we’re going to not just see a significant drop off in local economic exchange. We’re going to see a significant hit to U.S. employment in manufacturing in general, unlike products that come from Europe or East Asia, which are largely completed when they hit U.S stores, products that come from Canada and Mexico are part of an integrated manufacturing system, with different pieces of the end product being made in different parts. 

Of the three country union that is NAFTA. And if you cut that out, then the American manufacturing model fails from the inside. And all that’s left is to import things from further abroad. Now the smart money remains on a meaningful deal for a couple of reasons. Number one, the economic catastrophe that would hit the United States if there wasn’t a deal would be horrendous. 

And Trump will definitely go down in history as the worst negotiator we’ve ever had on trade. Number two, the Chinese are dying. And if we can’t build out manufacturing in North America, then we just won’t have product. So we really are on the clock here. And every day that passes that we don’t have clarity in the Mexican, Canadian and American tri relationship is a day that we fall a little bit further behind and basically set up China to succeed in the short run. 

But us to fail in the long run. The third issue, of course, is employment. We will build this very, very quickly. And the fourth is growth markets. Canada has a very similar economic and demographic to us where we’re steadily aging. And so consumption is probably approaching peak levels. Mexico is not in that category. It already has $1 trillion consumption market, and it has a population bulge for people aged roughly 5 to 35, which is exactly where you want it. 

If you want people buy in more and more and more and more. So of all of the consumption led economies in the world outside of the United States, Mexico is the one that has the strongest growth trajectory, not just for employment and stability, but for product consumption, which is something that in a world that is rapidly aging, is something you want to get Ahold of. 

Another big reason to think that this is probably going to go somewhere is when Trump made his 90 day delay on the Mexico announcement, he specifically mentioned that there’s a fentanyl tariff in place. Well, fentanyl imports into the United States have been dropping for the last couple of years. Thank God for a mix of reasons. It has very little to do with policy. 

But Trump has inadvertently adopted a tariff policy that’s actually going to speed that process along and give Trump the opportunity to call a win. And that has to do with something called the de minimis exception. So when you purchase something on line that is less than $800 and is sourced from another country, it comes into the country without basically customs declaration or taxes. 

That is now over under the Trump administration. We now have a really steep tax. So everything that used to get from China say, is basically over. And that is how most of the precursor materials that are used in fentanyl made it to North America. They’re shipped via de minimis to the United States, and they’re repackaged and trucks to Mexico be to be turned into fentanyl. 

Anything that interrupts that process, anything that puts friction in that process, is going to raise the relative cost of fentanyl. It’s still wildly profitable, but, you know, every little bit helps. There is one complication in all of this, and that is ironically, Gaza. Oh my God. So there are a number of countries that include France and Britain and Australia and Canada that are talking about imminent recognition of the Palestinian state. 

As a formal country. Now, there’s a number of reasons why I think this is silly. We have a video we did on that relatively recently in case you want to review. But Trump has singled out one of those countries as this being a problem for trade relations. And that’s Canada. So there’s supposedly a deal with the European Union. 

There’s supposedly a deal with the United Kingdom, a supposedly one with Australia is coming in. Trump doesn’t seem to care about any of those, but Trump really has a bee in his bonnet when it comes to Canada about pretty much everything. And so he’s chosen to make the Palestinian recognition issue a subject that falls now under trade talks. 

And that has basically put relations with Canada on hold again. It’s very arbitrary, which means it could be going away arbitrarily tomorrow. But for the moment, it’s another issue that Trump has picked up on that has stalled relations that in the past is something that U.S administrations wouldn’t even blink out because they really don’t matter anyway. 

That’s the bottom line here. The two relationships that we need most for now, for the future, for American growth, for North American stability to beat down the drug war, to ensure high levels of American employment, to prepare for a post China world, they are still in limbo. One other reason to think that it might work out NAFTA two was negotiated by the first Trump administration. 

So it really wouldn’t take much for Trump to say I’m putting my name on something because he already has.

Trump Wants a Second Opinion on Labor Statistics

Businessmen figurines standing and sitting on top of colorful plastic blocks forming a bar chart from Envato Elements: https://elements.envato.com/businessmen-figurines-standing-and-sitting-on-top--2YBGNE8

Imagine you go to a doctor and run some blood tests. A few days later you get the results and don’t like them. What do you next? Maybe you start eating more Cheerios to help with your cholesterol. Well, Trump would just dump that doctor and find a new one who would tell him he’s perfectly healthy…at least that’s what he did to the commissioner of the Bureau of Labor Statistics (BLS).

The US is known for having the world’s most respected, apolitical data systems. Trump’s undermining of this system could jeopardize US policymaking for decades and is eerily reminiscent of what Hugo Chávez did during his rule in Venezuela.

Getting rid of the BLS commissioner is scary enough on its own, but couple that with the echo chamber in the White House and you have a full-on horror movie brewing.

Rewatch the video on Economic Indicators here

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Transcript

Peter Zeihan here, coming to you from Colorado today. We’re talking about the U.S. economy from a numbers point of view. The issue is that a couple of weeks back, Donald Trump fired the commissioner of the Bureau of Labor Statistics, which is basically the institutional in the US government that generates a whole lot of the data that guides policymaking from a global point of view. 

U.S. government statistics are generally considered to be above world class. They’re by far the best on the planet because they’re differentiated, they’re apolitical, and the United States government collects touch points from local, state, and national policymakers in order to build a really good picture that businesses and government can use to help make decisions. Well, a number came out on new job creation that Trump hated, so he fired the head of the BLS within hours and says he’ll replace her with someone who can actually do the work, which is anyway, the idea are three things here. 

Number one, the idea that one person just decides what the day is going to be is beyond asinine. The only place that happens with any reliability is places like Russia, where they decide what the numbers are going to be before they publish them, and then just make them up. And they don’t even have a functional statistics section in the government anymore. 

The statistics are the end results of not just dozens of people, but thousands of people across the country. And the only way you can get a politicized justice stick is if you don’t just go after people at the head, but you go after the rank and file statisticians, which is something the Trump administration has already started, not just for jobs data, but GDP data. 

And that’s something that’s going to make it much harder for the US government to target policies for decades to come. It will take us a generation to rebuild that expertise. That’s problem one. Number two, if you’re going to get cheesed off about a statistic, this isn’t even the one you should be angry about. The jobs report is an estimate based on a series of estimates based on a series of surveys, which are in themselves estimates. 

It’s not a very realistic picture of the economy from my point of view. And it goes through phases of, revisions over three months. And so the idea that the number that Trump didn’t like is what it’s going to be like three months from now. I think it’s kind of silly in the first place. Anyway, if you’re looking for a more accurate statistic, you want to look for first time unemployment claims. 

So the jobs report indicates jobs that have been created, but based on estimates and estimates and estimates, the first time unemployment claims is based on people who have lost their jobs because they file for coverage. And that is a hard number. That’s a real number. So here’s the QR code. If that is a statistic you’re interested in. 

The fact that Trump doesn’t know this is concerning, because anyone who is working in, say, the Commerce Department is going to know which statistics are better than others, and the Commerce secretary is a guy by the name of Howard. Let make it will basically tell Trump anything he wants to hear. And so we have just gotten a very good example of the echo chamber that is developed in the Trump White House, where it’s not just that no one is speaking truth to power, it’s just the truth. 

Can’t even make it in the room in paper form. Okay, third thing, the president that is most similar to Donald Trump and going after the statisticians, isn’t g of China. Those people are dead. It isn’t Putin of Russia. Those people were let go 20 years ago. It’s Hugo Chavez, the deceased leader of Venezuela. When he became president in 1998. 

He basically went through the entire institutions of Venezuela, which at the time was generally considered to be the best well run of the Latin American states. High standard of living, good educational system, good infrastructure, pretty good policy. They basically had an oil largesse and they used it on the people. You’re crazy idea. And he basically went after the entire set of institutions that supported that system, root and branch, until the only information he got was the information he wanted to hear. 

It’s very similar to what we’re seeing right now. And if you look at some of the things that Donald Trump is doing with, say, energy policy, wanting to produce more crude, say, from public lands and only sell it to countries that he has a handshake deal with. This is very Hugo Chavez. Hugo Chavez would sell the crude at a discounted rate, only to markets that he was ideologically aligned with wherever they happen to be. Cuba, of course, with the top of that list, 

Donald Trump personally is basically setting up, trying to set up something similar where the crude is only sold to specific markets, where he feels he’s beaten them into aggressive submission with European Union. Be at the top of the list. That means less income by a significant amount and de facto subsidization of those countries for personal and political reasons. 

So this is not simply an issue of a few numbers. This is something that allows the US government to function, and allows it to function in a way that benefits the president. But until some people in the white House grow some spines and speak truth to power, which means I’ll probably be fired the next day, we’re probably not going to get a lot of that. 

The Revolution in Military Affairs: Artificial Intelligence

ChatGPT logo with a synthetic brain hovering above

AI is working its way into just about every aspect of modern life. I mean, who didn’t fall for that video of the bunnies jumping on the trampoline. But artificial intelligence might not be the game-changer in warfare that you think it is…at least not in the short term.

AI promises faster processing, targeting, and decision-making, which all sounds great, until you throw in the wrench of deglobalization. As the globalized world collapses, the semiconductor supply chain will fall apart. The most advanced chips will not be able to be created anymore. Between the bottlenecks of EUV lithography and the countless single points of failure, we’ll be stuck with what we currently have (or yesterday’s tech).

When you factor this into military applications, it means older systems like cruise missiles and smart bombs will be mainstays. Fully AI-enabled systems will be severely constrained and reserved for the really important stuff.

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Transcript

Hey, all. Peter Zeihan here come to you from Cassidy arch. And where am I? Capitol reef National park. Sorry, it’s been a busy week. Today we are going to close out the series on the revolution in military technology. As advances in automation and digitization in materials science and energy transfer come together to remake how we fight. 

And we’re going to close out with something that you probably don’t need to worry about. And that’s artificial intelligence in war. The whole idea of AI is it can process faster than we can’t make decisions faster than we can, and potentially target with lethality faster than we can. 

I don’t think it’s going to happen. The problem is that the semiconductor supply chain for the high end chips that are capable of doing AI, and as a rule here, the cutting edge is going to be three nanometers and smaller, simply isn’t going to be able to survive the globalization age. So any chips that are not made in the next relatively short period of time, no more than a single digit of years, are really all we’re going to have for a good long time. 

And that means that the machines that are going out and doing the fighting have to rely on something that is older, that is not capable of processing and has to be linked back to something back home, either via wire or telemetry or some sort of radio communication. And that makes for a very different sort of beast. 

There are roughly 30,000 manufacturing supply chain steps that go into semiconductors. The high end stuff. And there’s about 9000 companies involved, and about half of those companies only make one product for one end user. There’s literally thousands of single point failures, and it only takes a few of them to go offline for you to not be able to make the high end chips at all. 

But the place that I think it’s going to be most concentrated, the place where we’re all going to feel like the place where is going to be obvious is going to be with the lithography. Specifically, we are currently using something called extreme ultraviolet, which is done by a company called ASML out of the Netherlands. And they are the world leaders in all of this. 

There are other companies that do the fabs other than TSMC and Taiwan, but the lithography can really only be done by the Dutch. And it’s not like this is one company. This is a constellation of hundreds of companies, and every time one of them either has a generational change or goes public, ASML basically sweeps them under the rug, absorbs them completely, puts the staff in different areas and puts it all under referential lockdown so there is no way to duplicate what they have. 

And so if you take this gangly supply chain that wraps the whole world and any part of that breaks, we can’t do EUV at all. And that means functionally, no chips that are worse than or better than six or 7 or 8 nanometers based on where you draw the line, we can still do something called deep ultraviolet, but extreme ultraviolet. 

It just becomes impossible. And that means that the best chips that we will have ten years from now are going to be very similar to the best chips we had ten years ago. And that limits what we can do with any sort of technological innovation. For the purposes of the military, it becomes very, very truncated. Old weapons like smart bombs and cruise missiles actually don’t use very sophisticated chips. 

20 year old chips are just fine. It’s the high end, the thinking, the processing, anything that’s more than guidance and requires a degree of decision making, that is what’s going to be off the table. So while I applaud all of us for having these conversations about the implications of AI, what it means for the workforce, what it means for culture, what it means for morality and legality. 

These are great conversations. It’s very rare that we get ahead of the technology in discussing what it can and can’t do, and start thinking about the implications for us as people, but I think we have some extra time because once this breaks, it’s going to take us 15 to 20 years to rebuild it. And that was back before everything accelerated with the Chinese fall and the Trump administration. 

Now it’s probably going to take longer. So have these discussions. I think that’s great. But it’s really probably going to be a problem for the 2050s.

The Revolution in Military Affairs: What’s Ahead

Photo of a soldier pointing to a tech screen

Before we close out this series on military tech, let’s discuss what military advances are on the horizon (and our last episode will cover something we don’t need to worry about).

Many of the larger evolutions coming down the pike are related to drones. Whether it’s strikes, surveillance, detection, or deadly jobs…drones will likely be taking it on.

These technologies are just the beginning though. As battery science improves and more advances are made, the battlefields will be going through countless iterations.

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Transcript

Peter Zeihan here coming to you from a foggy Colorado today. We’re do another in our Military Revolution series how changes in Materials Science and Data Transfer and Energy storage are shifting, the way the military works, and some of the new things that will be seen in the not too distant future. Today we’re going to talk about some edge cases that are likely to move into the mainstream in just the next few years. 

And these kind of fall the two general categories. First, you’ve got the topics where humans just aren’t the best tool for the job. These are things where they’re either dangerous, or expensive, we have to train someone up to an extreme level to do a job that then has a high mortality rate. 

You know, things you don’t want people doing. And the first one of those is saving other people, search and rescue in a combat environment uses a huge amount of resources to cover a large amount of land to save 1 or 2 people. It doesn’t matter if it’s a fighter pilot, it’s been shot down or someone who’s been shot out of the field having drones do this not only builds up your combat awareness for the field in general, but also allows you to provide, say, targeted supplies and of course, guide the real force in to pull the person out of trouble. 

The general topic of recon, something that is starting to be called perch and stair. Basically, you have a recon drone, but rather than flying around at altitude, it finds a place at, say, a quarter of a building and just parks and stays there. Maybe it has solar panels on its back so it can extend its battery life and it just looks around. 

It’s a mobile sensor that, for the most part, isn’t mobile. You know, you might call this a spotter or a spy in another condition, but if you can automate that, and instead of having one guy in one place that might be able to move around, you can have hundreds if not thousands of mobile sensors that can extend their life to span by just not flying the whole time. 

And third is something called an underwater swarm. Submarines are among the most expensive things that most modern navies can float. And if you can throw a few dozen things into the water, not only do you get some excellent acoustic collection for purposes of locating them, you know, you put like a one kilogram charge on each one. It doesn’t take a lot of those to take a multimillion dollar sub completely out of action forever. 

So these are technologies that you apply them to. What we know we need. And all of a sudden they really are game changers in terms of efficiency. Now the second category are things that we used to do and maybe even used to do well, but we haven’t done it for a long time. Keep in mind that the US military has not been preparing to deal with another peer adversary until just a few years ago. 

And the immediate post-Soviet era. We thought of the Russians no longer as an enemy. And so we stopped preparing to fight a global conflict with them. We then spent 20 years in the war on terror, focusing on counterinsurgency. That means going against the Taliban. And that means you don’t really need air power. You really don’t need air defense. 

And so certain aspects of our military were allowed to atrophy just from lack of use. And the two biggest ones are air defense suppression and hunting mines, whether land mines or sea mines. The general idea was, you know, if there is no big force out there fielding things you need to shoot through, then why would you maintain an entire arm of your force doing things that are just going to sit around? 

So, for example, we really only have a couple of minesweepers left, but naval minesweepers that are drones are a great idea. In essence, you have a drone that’s hooked up to your ship as it’s puttering around at a relatively low speed doing a sonar capture. You locate the drones and you send out a suicide drone to take it out. 

They’re already doing this in, say, Romania in the western part of the Black Sea. You can use aerial drones with radar to triangulate metal signatures in the soil and locate landmines before anyone can step on them. 

And for air suppression. Back in Vietnam, we had this thing called a wild weasel. Basically, it was a bunch of suicidal maniacs on a plane who would fly into Vietnam ahead of the bombers to activate air defense. Well, do that with drones. Don’t do that with a manned plane. In fact, do that with drones backed up by other drones so that by the time the real bombers get in the air, defenses are already gone. 

Same basic concept holds for coastal patrol. Now, the United States has never really been good at coastal patrol because we have oceans between us and everybody else. But this is one of those technologies that everyone else is going to find really useful. Again, in the post-Cold War world, everyone slimmed down their military spending, with navies seen as just something you would never need again. 

History was over. It was a world of commerce. Why would anyone shoot at anyone’s commerce? Well, that’s gone, but the time it would take to build up a coastal fleet and coastal patrol capability is going to be measured not in years, but in decades. Or you can just have a fleet of drones. It basically flies patrols out on your coast and then, if necessary, a more robust naval vessel can go out to take care of whatever the issue happens to be.  

So these are all things we’re going to see in probably just the next five years, certainly the next ten. And this is just the leading edge. These are things that me as a nonmilitary guy can kind of just think of based on the gaps in the system right now as the military technologies continue to evolve. We’re going to see radical applications of all of these. 

And keep in mind that drones are really just the leading tip of this. We don’t know what our material science is going to be in the next five years. Maybe we’ll get a new battery chemistry that allows for longer loitering, that generates an entirely new field of military tech. We’re just at the beginning here.

The Revolution in Military Affairs: Water Wars

Water sloshing from a cup

Today, we move onto the backbone of civilizations, the lifeblood of (most) meaningful empires—water. Will future wars be fought over it?

The short answer is that it’s unlikely to happen. Water is a pain in the ass transfer, making it impractical for long-distance or military-scale operations. Water doesn’t make sense if you need to move it, you must settle, build, and expand with water in your backyard.

Of course there are some exceptions to the rule. The Nile will become a heavily disputed resource between Egypt, Ethiopia, and Sudan. Over in Central Asia, diversions of water from the Soviet-era have drained the Aral Sea and countries like Uzbekistan may have to invade neighbors to secure dwindling water supplies.

Water scarcity is real, especially in these hotspots, but water wars are not likely to become a global threat.

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Transcript

Hey, Peter Zeihan here. Coming to you from Colorado. Today we are taking a question from the Patreon page specifically about water wars. Do I expect the distribution of water to be the source of military conflict in the future? Short version is this is something I usually don’t worry about, for the simple reason that water is really hard to move and it’s pretty corrosive to any system that you’re going to use to move it. 

So, for example, if you just spill some water on your countertop and touch it, you’ll notice how it clings to your finger in that weird drop. That’s something called hydrogen bonding. It’s an atomic feature that a small molecule that has some very strong positive and negative aspects tends to link together without actually forming. See ice. That hydrogen bonding basically causes a cling between water and everything, including itself. 

So pumping water outside of a municipal environment is very, very difficult and very, very expensive. So if you are going to move large volumes of water from one place to another, you’re generally not going to do it by pipe. You’re going to use gravity. And that means basically digging some sort of canal and allowing the, the world to do the work for you. 

There are some exceptions, of course. Whenever you have a municipal situation, you obviously need water treatment and distribution. That is all done by pipe. But again, it’s very, very energy intensive. And you will always have some places like, say China who work going to let something little like physics or economic rationale get in the way of national unity. 

And so the Chinese are in the process of basically diverting several of their rivers in order to ship water from the south, where it’s more humid and more jungly to the north, which is more heavily populated and more arid. But this comes at a huge cost environmentally and economically. What that means is it’s really difficult to imagine a situation where people will go somewhere to get the water and bring it back. 

If they’re going to get the water, they’re going to go there and they’re going to stay. And that is also very hard as a rule. Economic development follows, the same track. You start with water. You use that water to grow food. You use the food to expand your population. You use the capital from that population growth and then agricultural sales to establish a tax base and eventually an industrial base. 

You then use that industrial base to build a military. And it is all rooted in having water at the very start. If you don’t have that water, you’re never going to get the industrial base that is necessary to have a projection based military. And so if you look out throughout history, while you do sometimes have dry cultures that conquer wet ones, the only ones who then become meaningful cultures that can project power in the future are those that then stay, conquer, assimilate, wipe out the generation that they’re conquered and then move on. 

It’s just the technology that is required for the industrial age just doesn’t allow it to go any other way. So, are there exceptions? Of course. Every rule has exceptions. Let me give you the two big ones. The first one is the Nile region. Most of the rain that fuels the Nile River falls in the highlands of Ethiopia. 

It then flows down through the tributaries of the Nile, through Sudan, before eventually entering Egypt and becoming the riverine culture that we all know from history. Well, the water falls in one place, passes through another place, and is ultimately used in the third place in the existing treaty systems that date back to the colonial era say that Sudan, and especially Ethiopia, aren’t supposed to tap the river at all. 

It’s all for Egypt. Well that’s breaking. And we’re seeing the Ethiopians and the Sudanese starting to take more and more water from the river for irrigation purposes in order to stabilize their populations and have economic growth. Hard to argue with them, but that does mean there’s no longer enough flow coming down into Egypt to sustain Egypt long run. 

So sooner or later, something is going to crack. Either we face an economic and ecological collapse in Egypt, or the Egyptians, get creative with military power and go up river with the intent of blowing up the dams, preferably in a way that does not trigger a fresh biblical flood in Egypt. No easy solution, but there’s certainly not enough water for everyone to come out on top. 

The second big issue is in Central Asia, where the premiers provide the headwaters for a couple of rivers called the AMA. When the sphere and those two rivers flow through Tajikistan and Kyrgyzstan, Turkmenistan and Uzbekistan before dead, ending in the Aral Sea. Well, during Soviet period, cotton plantations were planted throughout these areas, most notably in Kazakhstan and especially Turkmenistan and Uzbekistan. 

And now most of that water never even makes it to the Aral Sea. So it’s become desiccated. And right now, what’s left of the arrow, the little bits that are left are only about 10% the volume of what existed there. Back when these diversion systems were built, back in the 1960s. So the entire area is gradually drying out. 

And after having a few decades of agricultural runoff get into those rivers, they’ve basically polluted what is now the open salt plains of the formal Aral Sea bed. And hotter, drier conditions mean more winds, which means those salts are being whipped up in storms and dropped several hundred miles away and are causing health issues for everyone in Southeast Asia. 

So sooner or later, one of the downstream states, if it has the capacity, is going to invade the upstream states to control what little of the water there still is. Of the five stand countries, the one with by far the most military capacity is Uzbekistan, and it is very close to the physical borders of Kyrgyzstan into Guestand, which control the headwaters. 

So expect a hot fight there, with the Uzbeks moving in with the intent of taking over. And unlike the situation that we have, say, with Egypt and Sudan, there isn’t a big giant chunk of trackless desert to serve as a barrier. These population centers are all on top of one another. So for water, that’s what you’re looking at pretty much a local issue. 

We still obviously have issues with distribution in the United States, but it’s very rarely cross-border issue. And where it is, it’s really just limited to those two locations.

The Revolution in Military Affairs: Recruitment

Cadets marching in the military

Most of the conversations in this series will revolve around technology, but recruitment is a large component of keeping a military productive. We’re not talking about the high school pull up competitions that the recruiters do, but more of the systemic ideology around recruitment itself.

As military technology evolves, we’re seeing the equipment on the battlefield change overnight. However, finding the people to operate this tech and fill out the ranks needs a refresh as well. Considering that 2/3 of the American population are not straight white dudes, the DEI conversation is about to get a new angle.

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Transcript

Hey, all Peter Zeihan here. Coming to you from Capitol Reef National Park. We are continuing our series on the future of military technology. And today we’re going to talk about staffing and recruitment. What is the United States or really any country need if it’s going to succeed in this changed era of warfare? 

Well, the short is that we really don’t know yet because we haven’t invented the future. 

What we know for sure is that the military is going to have to be more flexible. And if you look at the Ukraine war, it’s easy to see why, as little as a year ago in the Ukraine conflict, it was all about fighter jets and bombers and artillery and tanks. But in that time, it’s evolved completely, with most of those platforms no longer being able to hold their own against evolutions in drone technology. 

And drones are just leading edge of this revolution that combines new types of digitization and energy transfer material science to completely new packages. We now have, for example, our first rocket drones, which have a range of over a thousand miles that can easily take out a refinery. The world is changing. What we do know is that the old style of doing war, which is basically throwing a bunch of bodies at something else and see who comes out on top, isn’t going to work. 

One of the biggest problems that I have with the current administration, most notably Defense Secretary Pete Hegseth, is he doesn’t seem to understand how the numbers work. Hegseth is on a roll, basically on the warpath against something that he calls Dei diversity, equity, inclusion and the idea that one group should have favoritism over the other. I agree is silly, but in the military context, that’s not how Dei has ever been implemented. 

Dei in the military is a recruitment tool based on how you look at the numbers. At most, 30% of the American population are straight white males, and on average, straight white males are older than the average American population. 

So no matter what your definition is of what a good soldier, marine sailor, airman happens to be. The bottom line is, if you’re drawing from a small pool that it’s getting smaller and you’re fighting a war of numbers, by your own definition, you’re going to lose and lose badly. And that’s before you consider the changes that are coming to the technology. 

We need better skill sets embedded within the system, and that means recruiting people there in a different way than how we do it now. right now we generally bring in people in the age bracket of roughly 17 to 25, and we break them down. 

We indoctrinate them into the system, train them on systems that have existed not for years but for decades. Well, that’s not going to work when the technological time to target is measured in weeks to months. We also need to change procurement. The idea that the military goes out there and says what it wants, and then private military contractors go out and design the system, basically parade it in front of the military to see what works. 

And then years from now, we get a prototype, and years after that we get mass production. That won’t work because this all has to go from the point of imagination to the point of deployment in less than a year. So everything about how we fight right now needs to evolve, 

And that means a broader skill set with as wide of a diversity of backgrounds as possible. 

And so why, while we’re going through these transitions, will you tell anyone in the United States who is a woman or who is black, or who is Hispanic, or who is gay, that they have limitations on how they could choose to serve their country? It just doesn’t make any sense from a strategic point of view. 

About the only argument that I have seen that argues for a different direction in order to maintain power is basically the Elon Musk approach, which is to basically go out for everyone who is a white, straight male who has employees go out, sleep with 12 of them and start generating a new white race. 

Well, you know, I don’t know if you knew how math works, but if that all happens today, you’re not going to get your new crop of your new race for 18 years. And we will be on the other side of this military transition by then. We need to work with what we have, and that means using the skill sets of absolutely everyone who has an interest of being in the US military.

Trump Trade Talks: Japan Gets a Deal

Photo of Japanese Yen

Japan is one of the few countries who has been willing to step into the batter’s box and take whatever Trump throws at them. This time at the plate, they were tossed a 15% tariff on Japanese goods (with some big caveats).

Tariffs on some of the most important exports, like cars and semiconductors, have been deferred for future negotiations. Which means Japan will be back at the plate in no time. The Japanese also pledged investment into US infrastructure via state-linked commodity institutions. Trump claims most of the profits will go to American pockets, but the Japanese disagree with that interpretation.

As is the running theme with most of Trump’s “trade deals”, this is predominantly fluff and the real talks are yet to begin.

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Transcript

Peter Zeihan here, continuing our series on the new deals that the Trump administration has announced for trade with our major trading partners. Today, we’re going to tackle Japan. The Japanese situation is very similar to the European situation. And then it looks like the Trump administration, Donald Trump personally came up with a few numbers, walked into the room, said, I want this, this and this and this. 

And the Japanese nodded their head and smiled and say, sure. The headline figure for tariffs going, for, for goods coming from Japan. The United States is now 15%. And unlike in Europe, where there’s not a lot of back and forth in manufactured goods, to the degree that industrial substitution might happen with Japan, there’s a fair amount. 

Japan is an industrialized economy that doesn’t have a lot of consumption because of their demographic bomb. And so they export basic goods. Intermediate goods, processed goods and finished goods to the United States. So there’s a lot of room for things to move around if that ends up being the final number for the long term. 

But that’s probably not going to be the final number for the long term. The most interesting piece of the trade deal, as it’s currently been announced, is that on things like cars and semiconductors, those are going to be pushed off to another day. So even the Trump administration is saying that this is the beginning of the negotiations, not the end. 

Here’s the problem. Japan doesn’t make a whole lot of semiconductor, and the United States doesn’t make a huge number of semiconductors. But both of us absolutely dominate certain pieces of the supply chain. So the United States makes the silicon dioxide that basically goes into all of the world’s semiconductors. And we also do almost all of the design. The Japanese do some design, but they absolutely dominate the photo mask, which is, for lack of a better phrase, really fancy sunscreen. 

So when you were throwing the lasers at the chips, you can trim to different depths to achieve different things. These steps are not replicated in either country to the same degree that they would need to be. If you wanted to have a purely national semiconductor supply chain system. So the Trump administration, by pushing this off, is leaving unresolved the question of what the United States is. 

Semiconductor policy is going to be are we only interested in the last step, fabrication, which is what the Taiwanese do? Is that what we want? And we still want to bring in all the inputs that we need from the rest of the world, or do we want to completely indigenous semiconductor system. The first one is $100 billion question that would take 10 to 15 years. 

The second one is a $5 trillion question. That would take 20 to 40 years. And the Trump administration, to this point, hasn’t figured out how it wants to approach that, because that’s a huge tax, no matter which version of the question it’s going to be. And so things with Japan in that regard are being put off. Something similar is happening with drug manufacturing because the Japanese aren’t the ones that make the really cheap drugs. 

They make the more advanced drugs. And if you want to do that at home, you need a whole support chain going up to it. Okay, that’s kind of piece one. Piece two is a promise of investment, unlike the Europeans, where everything is done at the nation state level. And so negotiating with the European Union is a little loosey goosey. 

Japan is a sovereign nation. when you negotiate with Tokyo, you’re negotiating with Tokyo. And Japan is a country that over the course of the last 50 years, has realized that they have a poor system for raw material production and processing. So they’ve built a number of state entities to basically compensate for that. You basically throw state money at entities who are kind of relieve from the normal laws of supply and demand, and go out into the world and make investments that under normal circumstances, Americans wouldn’t make in order to source lithium or oil or whatever it happens to be, according to the terms of the current deal, those institutions will now start investing 

in American infrastructure in order to produce products in the United States. And 90% of the profits from those institutions will go to American entities. So two problems with that. Number one, these Japanese financial institutions that are government linked, they usually go into raw commodity production and processing. That’s not what Donald Trump said they’re going to do. 

He says they’re going to go into high end manufacturing. So already you’re talking about a significant shift in their mission and outside of their normal realm of expertise. The second problem is the idea that the Japanese will provide all of the money, but take hardly any of the profit. That’s a stretch. And as soon as Trump made these announcements, the Japanese like, that’s not what we agreed to at all. 

So unfortunately, in a similar manner to what we have going on with the European situation, this is the start of talks. This is the Trump declaration of what they want. Here we are. When this all started back on April 2nd. We’re now see May, June, July. We’re now three and a half months later. And we’re only now getting the initial declaration of what Donald Trump actually wants to see. 

Now, this is progress. But if you’re talking about the re fabrication of financial entities at the government level in Japan as the starting point for whatever this later deal is going to be, you’re still talking about projects that are going to be realized over the course of a decade or more. Not the sort of thing that can have any impact on things like the trade deficit on any meaningful time frame. 

We are once again, at the beginning of this process. We are nowhere near the end.