Syria Breakdown: What Led Them to This?

Photo of a bombed out Syrian city

A New Twist in the Syrian Civil War

Syria is back in the headlines as Hayat Tahrir al-Sham (which is basically a rebranded Sunni militant group) has added some gasoline to the civil war fire by capturing the city of Aleppo.

Minority coalitions have historically ruled over Syria’s Sunni majority, including Assad’s Alawite-led regime. But that’s all changing. As external supporters like Russia and Iran get distracted, Assad’s exposure will dramatically increase. And if the US shifts policies to support opposition groups, we could see some changes coming down the pipe in Syria.

As Assad’s regime grows increasingly isolated, conflict in Syria will likely intensify and instability will grow. So buckle up…

 

Friday’s Update on Syria…

Conditions on the ground in Syria are shifting quickly, with rebels poised to advanced toward the critical regime-held city of Homs.

Here’s what we’ll be watching for this weekend as the Assad regime mounts what could very well be its final major defensive position in Syria’s decade-plus long civil war.

 

Syria Updates on Sunday

Peter recorded this video on the morning of 12/6, as insurgent fighters were moving through Hama on their way to Homs.

Events have definitely taken a turn for the worst for Assad, whose regime has not been able to count on the critical Iranian, Russian and loyalist support necessary to push back Hayat Tahrir al-Sham’s offensive.

With that said, the last chapter of the Assad family’s control over Syria (or Damascus and its environs) just means the Levant is going to see another phase of fractious, sectarian fighting. We feel like this video and its explanation of the Syria’s geopolitical reality is still incredibly informative and beneficial in understanding the region’s future.

We will continue to update on events as they unfold—Peter when he is able, and the rest of the team as needed. -ZoG

Nothing in the Middle East is easy, and Syria is not exception.

Its fragmented dessert-and-mountain geography has allowed for roughly a dozen major ethnic and religious groups to carve out their own independent fiefdoms over the last few centuries, often times built up around a significant trade route, a vital water source or for the luckiest, both.

The Assad regime is facing the most significant threat to its already-tenuous hold on power in years, and we may very well be seeing the end of the Iranian-backed Alawite regime in Damascus.

But even if Assad and the Alawites lose, it will be difficult to determine who will actually win. If anything, we are most likely to see the beginning of a second Syrian Civil War, as the various tribal and religious groupings of the Sunni Arab majority vie for dominance amongst themselves, and seek to co-opt or crush the region’s many, many religious and ethnic minority groups.

 

Turkey’s Future and What to Focus On

Turkey has a lot of things going for it: a stable, or even strong, demographic profile, a burgeoning industrial base and an impressively unified political structure. Not too shabby for what was once the most coup-prone member of the wider US alliance structure.

It’s not all rosy for Ankara, though. Recent political decisions over monetary policy have led to some struggles with inflation, and being in the center of the world means you risk being surrounded by problems: Turkey not only borders Iran, but is also just a short hop across the Black Sea from the Ukraine war, and is sandwiched between both the Balkans and the Caucuses. To say nothing of the current… excitement happening in the Levant along its southern border.

In fact, Turkey’s biggest challenge in hefting its geopolitical weight will be having the strategic discipline and foresight to pick which arena it wants to play in. If we look to history, the Ottomans expanded into southeastern Europe—present day Greece, Romania and Bulgaria—before moving into the Levant and Middle East. (While many think of the Ottoman Empire as an Eastern empire because of the religious leanings of the ruling elite, the Ottoman Empire only made meaningful expansions beyond Turkey’s current borders in the latter half of its history. Its core territories were always the Bosporus and immediate surrounds, i.e., Europe.)

Turkey is a capable geopolitical player, and growing stronger every day. But it cannot project power everywhere along its borders at once. While many in Europe (and Russia, and the United States) might hope and expect Turkey to be a bigger regional player in the Middle East, the strategic gains there are ultimately limited. The Turks could very well see their greatest future successes where their Ottoman forebears did: the eastern borderlands of an [aging] European core

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Colorado. It is the 2nd of December. The big news in the Middle East over America’s holiday break for Thanksgiving was that an opposition group by the name of Harriet Tahrir al-Sham—and yes, if something happens in your corner of the world, you can look forward to me mispronouncing it—

Harriet Tahrir al-Sham has captured the city of Aleppo and is moving on towards the core of Syria. Let’s hit this from a geographic point of view and then from a policy point of view.

First, geographic. The bulk of the population in Syria is to the east of the Lebanon and Anti-Lebanon Mountains in a corridor that goes north-south from the Turkish border to Damascus. Basically, these are a combination of oasis cities and cities that are on rivers, so these are some of the very, very few parts of the country where you can actually grow food. Yes, yes, yes—you’ve got the Fertile Crescent and the Euphrates and all that.

But the Euphrates floodplain is very, very narrow, in some cases just a few miles end to end. So it’s never been an area that’s been able to generate a sustained civilizational impulse or create an empire. Whereas this corridor here has always been populated. In fact, it’s one of the most consistently populated areas on the planet going back to antiquity.

If you move to the west into Lebanon and the Syrian coast, you’re on the other side of the mountains, and so that’s where you get a lot more minorities, whether they be Druze, Shia, or Alawite. Anyway, this core has always been vastly, super-majority populated by Sunni Muslims. Usually, what happens in Syria is all the other groups gang up on the Sunni Muslims.

The current government of the Assads is an Alawite-led group. Basically, you’ve got a coalition of small minorities that have banded together to avoid being destroyed by the Sunni Muslims. When the civil war broke out in Syria—this was about 15 years ago now—you basically had the Sunni Muslims, who are the super-majority, rising up, rejecting minority rule, and trying to reestablish themselves.

The fact that Sunni Muslims form the backbone of most of what we would consider Islamic terror groups, such as ISIS, meant that the terror groups had a lot of willing collaborators throughout the majority population. What’s going on now is this new group is basically a rebranded old group and is making another go of it, way too soon if they’re going to be successful.

In addition to Aleppo, you’ve got Homs, Hama, and of course, Damascus itself. There’s a long way to go, but a few things have changed.

Number one, the only real reason why the Syrian government is still in play is because the Russians intervened forcefully over ten years ago and propped them up. Well, Russian support is not what it once was. The Russians are a little occupied over in the Ukraine situation, so it’s not clear that Syria is going to have the same degree of support that they once had.

The second degree of support is Iran, but with the Trump administration incoming, that’s probably going to be dialed back a little bit.

The third is, indirectly, the United States. After 9/11, the United States decided that we didn’t like Sunni Arab Muslim militant groups and went to town on them in places like Iraq, Afghanistan, and Syria. The lingering American commitment to the Syrian civil war has been about breaking groups that are ISIS or ISIS-affiliated. This new group is just a rebranding of what used to be called the Al-Nusra Front—Nusra, Nusra, or something like that anyway.

Which brings us to policy.

The United States has a long history of backing the smaller group against the larger group, no matter who’s involved or where it is. The idea is that if regional powers are tied down with local affairs, they can’t consolidate, become bigger and bigger, become imperial, and eventually threaten the United States in the Western Hemisphere.

It’s something we’ve been doing at least since the early 1800s, from our on-again, off-again indirect interference with the Napoleonic Wars all the way up to the current day. Certainly, we did a lot of this during the Cold War.

Now, besides the fact that we have a changing of the guard in Washington, we also have a different situation in Syria. We certainly don’t like the Syrian government—it’s genocidal, dictatorial, all the things you’re not supposed to like—and it’s being backed by all the traditional powers that have been hostile to the United States.

There’s just one fly in the ointment: we now find ourselves against Russia, against Syria, against Iran, and against Islamic militants. If the United States were to change its mind on just one of those, all of a sudden, the game changes, especially when you consider how occupied the Russians and Iranians are about to be.

The group that is most likely to have a change in circumstance is going to be the Islamic militant groups—the former Al-Nusra group. The reason is pretty simple: the United States has a long history of backing Islamic militants against powers that we find more problematic.

We’ve done it for militant groups in the Iran space. We’ve done it in Afghanistan against the Soviets. We’ve done it with the Chechens in Russia proper. To think this is going to be the one exception where that’s convenient but isn’t going to happen is kind of a stretch.

The militants have already done us the favor of renaming themselves so they can be a fundamentally “new” group. If you think the US can’t or won’t do this, just keep in mind that we did it last time, and the time before, and the time before that, and the time before that.

One of the weird things we’ve seen in the last 15 years is that one of the strongest unofficial supporters of the Syrian government has been the United States, because we have removed from the equation the group that was most likely to overthrow Assad.

Expect to see a policy change—formally or informally—in the months ahead, and expect that to reignite the Syrian civil war in a very big way. This time, the Syrian government will mostly be fighting on its own.

It can’t rely on the Russians—they’re occupied elsewhere. It probably can’t rely on Iran or Iranian-backed militant groups in the region, like Hezbollah in Lebanon, because the Israelis have now gutted them.

All of the traditional pillars of support the Assad government has come to rely on during the entire civil war are snapping right now, and things are about to get lively.

So watch this space. I’ll keep an eye on it for you.

TSMC’s Semiconductor Production in the USA

I’ve done a handful of videos on semiconductors and there’s a very good reason for that. The production of semiconductors and the companies involved will be under the spotlight for the next few years as the entire industry gets shaken up.

TSMC has set up chip production in Arizona, despite initially resisting relocating to the US. This facility isn’t doing the cutting-edge stuff, but it’s still producing chips on the higher end of the spectrum. TSMC has also managed to achieve a high recovery rate on these chips in Phoenix, not quite a major breakthrough but at least it reduces production costs.

Most of the chip manufacturing is automated, so the higher labor costs in the US and skill gaps relative to Taiwan aren’t playing as big of a role as expected. However, to expand the reaches of these facilities and begin development of cutting-edge chips, some major investments will need to be made. Let’s look at what Intel is doing on this front next.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here, coming to you from the Boston Logan Airport. It is not quite five in the morning. Anyway, it’s still a decent backdrop. So we’re going to take an entry from the Ask Peter forum—specifically, could I give an update on the status of TSMC’s efforts to establish chipmaking here in the United States?

I’m happy to report that it’s actually going a little better than I thought it was going to. The very short version is that Donald Trump almost forced TSMC to relocate some of its production capacity to the United States and made it very clear that he wanted the very, very, very top end to be made here.

TSMC said, “Sure, of course, whatever,” and then proceeded to drag its feet in every possible way. Remember that the leading edge of chips these days is less than three nanometers, getting into two nanometers, and probably within the next couple of years, getting to 1.5 and maybe even one nanometer. The facilities that are under construction in Arizona have been dragged out, dragged out, dragged out, and dragged out, with, in many cases, TSMC not even providing proper architectural blueprints so far.

So there’s been construction, then they tear things down, and then they rebuild something and tear it down. They’re basically just buying time. But the first facility actually is operational. It’s just not the cutting edge—it’s like four nanometers, which is still pretty good, but it’s not the kind of stuff you’re going to probably put into an AI server farm or anything anyway.

Part of the big news that came out in late October was the idea that they’re getting a higher recovery rate from the new facilities in Phoenix than they’re getting anywhere else. While this is an important development, you shouldn’t get too excited.

The process for making the chips: you take a little bitty seed crystal, you put it into a pool of liquid silicon, and then you steadily pull it up over the course of several days to grow a crystal. That crystal ends up weighing more than a Volkswagen. It tends to be over a foot or two across and about nine feet long. I mean, it’s a little different at every facility. You get this giant ingot, and then you slice it laterally into thin discs.

You then use a combination of lithography, baking, and doping to etch those chips. You bake them to make sure that everything sticks, and then you do it again and again and again—something like 90 times. It takes a few months to make each individual sheet.

The waste is one of two things.

Number one, you have a section of the semiconductor sheet that just doesn’t work. So that would be waste. Or maybe it’s just the shape because, usually, your chips are squares or rectangles, and the disk is round. So you can have waste at the edges.

TSMC is famous for having the highest recovery rates in the industry. With its four-nanometer nodes, it’s something like 90% coherent and only 10% waste. The TSMC facility is now 94% coherent. So it is an important technological jump. It does drop the overall cost of the items you can produce, and since U.S. labor is more expensive than Taiwanese labor, you know, that’s great. But don’t get too excited about it.

Something else to keep in mind about these facilities is the labor that is necessary.

Very highly skilled? Yes. Is there a lot of labor? Not really. Most of this is automated because you’re using a lithography facility that is being produced by ASML, the Dutch company. You know, it’s automated. The whole point of extreme ultraviolet is it doesn’t require a lot of manual adjustments.

The old technology, deep ultraviolet? No, that did. When you are doing DUV, you’re constantly making changes to every individual machine for every individual run. You get much higher wastage because the chips aren’t all exactly the same. With EUV, it’s all automated. You have to do it once, and you can apply it across the entire system for every lithography machine in your facility. The chips come out much more regular. It’s kind of like an analog versus digital sort of thing.

One of the constraints we have faced with moving this stuff from Taiwan to the United States is that the labor costs more and isn’t quite trained right. But with EUV, that doesn’t matter as much as it would have with the older technologies.

Anyway, it’s moving ahead. Facilities two through five? God knows when those are going to be operational because those are supposed to be the higher-end ones. But this low-end, high-end chip of four nanometers seems to be moving along just fine. Just keep in mind that the real breakthroughs are going to be coming from TSMC this year.

If the United States is really going to get in the game of high-end semiconductors, it’s going to be using a new lithography technology called High Numerical Aperture, which is like the next generation of extreme ultraviolet.

TSMC isn’t bothering to work with that. That’s an Intel project. The Dutch company ASML has provided the technology to both companies, and only Intel has bit. That is the technology that is going to be used at the Columbus facility, which hopes to begin operations in 2026.

We’ll see.

Why I’m Worried About Fentanyl in the US

DEA photo of fentanyl on a pencil tip

When asked to list the things I worry about for the US, most of the typical geopolitical issues I discuss aren’t on that list. So, today we’re getting a bit more granular and talking about fentanyl.

Fentanyl is synthetic, cheap and easy to produce, and incredibly lethal…and that’s a scary list of descriptors. Since fentanyl is something that practically anyone can make, it’s shaking up the Mexican cartels that are used to the cocaine supply chains. As smaller factions emerge and drug manufacturing is “democratized”, the social fabric that has held Mexico together will be stretched. Should that fabric break, we could see fentanyl production move into the US.

As of now, the jump to US production hasn’t happened. And trends are showing that fatality rates are improving, thanks to medical protocols, reduced lethality of pills (because producers realized they probably shouldn’t kill their clientele), and younger users are opting for “safer” alternatives. Hopefully all of these trends continue…

In my eyes, the US doesn’t need to worry too much about the typical geopolitical issues, but the destabilizing effects of fentanyl on the US should be cause for concern.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everyone. Peter Zeihan here. Coming to you from Austin, Texas. A lot of you have written in over and over and over, asked me what I really do worry about. And so that’s the topic of today’s video. Overall, I am not stressed out about the United States. There aren’t a lot of things that can hurt us. 

We basically have a hemisphere to ourselves. Certainly the best part of the continent. And, we’re energy independent. We’re a massive energy and food exporter, and you can have entire continents catch on fire. And it really doesn’t do anything to the United States. In addition, if you factor out things like food and energy exports, the United States is only integrated with the rest of the world to about the tune of 10% of GDP, which is somewhere between one third and one fifth. 

What more traditional world powers historically have been, whether you’re talking about the British Empire or the China of today? So if things would have to go really bad on a global basis for the United States to really even have a mild problem, that doesn’t mean there aren’t problems. It just means you have to look a little bit closer to home. 

I’m not talking about here politics. I’m talking about drugs. Now, the traditional story has been one of cocaine. And cocaine is, from my point of view, pretty easy to understand because it has straightforward concentrations and straightforward vulnerabilities that you would expect from an agricultural supply chain. So you grow the stuff in a specific type of climate in Bolivia and Ecuador. 

In Colombia, you harvest the leaves, you dry them, you process them oftentimes with gasoline, you make a crystal, you turn that into powder, and then you smuggle the powder, by water and by air into Central American countries. And then you get on land and you go up through the various mountain corridors of Central America and Mexico until you eventually reach the U.S. border, and then you distribute it from there. 

As a rule, looking at this from an economist point of view, it takes about six man hours per dose of cocaine. And the gross is going to vary by person, but it’s going to be less than half a gram unless you just want to like, cheat death or risk death or die. 

A lethal dose is about 1.2g. So, you know, definitely cocaine is bad, but don’t do more than a gram. Okay. That is something that we understand. And there are a number of places in the supply chain where you can not interrupt it. You can try to do crop eradication at the point of source. You can try to work with third governments like Colombia to try to interdict. 

You can work with the Mexicans in order to break up the cartel network that handles distribution. Or you can go against retail distribution in the United States, by going after the gangs. These are all options, and we’ve explored all of them in the past. But none of these really work very well for the new drug, which is called fentanyl. 

Fentanyl, unlike cocaine, is not organic. It’s not an agricultural product. It’s a synthetic, a chemical process. And the process for creating is much simpler than it is for cocaine. You use a number of base materials, and you don’t really need all that many of them. And a lot of the precursors are just flat out legal. 

So what happens is in China, they make the precursors and then American citizens, as a rule, order them and they’re shipped in containers about the size of this. This is about a half a liter. And you get about six equivalent of these, and you get them to the United States. You repackage them, you take them down to the Mexican border, and then you use the Mexican postal system to ship them to wherever they need to go. 

And for the most part, these steps are legal because the precursors can be used in other materials. Once the precursors get to somebody who has a garage set up for chemical work, you basically take the equivalent of people who barely passed high school chemistry. And if you’ve got three of them in a hotplate, you can basically make about a kilogram of finished fentanyl in about a week. 

That assumes that you have relatively incompetent lab techs. If they’re not, Cramer quality, if they actually made it through undergrad, you can probably make about three kilos. That stuff then can be pressed into pills and sent north much smaller volumes involved. So remember cocaine about 1.2g is a lethal dose. That same 12. two grams of fentanyl would be enough to kill over 500 people. 

You’re talking about just a couple grains of sand equivalent is enough to kill someone, and this is why it’s become such a problem in the United States. Because instead of six man hours per dose, it’s just a few man seconds per dose. And it’s a synthetic and there are fewer places that you can interrupt it. 

Now, fentanyl has another problem because it’s so easy to get into the business because with one week of work, you can make a few million dollars. That same fentanyl, doesn’t require the huge sorts of structures, social structures, cultural structures, economic structures that are needed for the cocaine economy. 

So with cocaine, because it’s all about controlling the transit systems, the production sites, you get cartels at the point of production in points of transit, and then you’ve got the gangs and the points of distribution 

in Mexico that has created the cartels, who’ve taken a big chunk out of the transit system and then worked up and down the transit systems to control more and more territory with fentanyl. 

 That doesn’t work so well because fentanyl just needs, you know, three dudes in a garage and, you know, a mailbox. And that means that we’re seeing dozens, if not hundreds of millionaires popping up in New Mexico, organized crime groups that are largely disassociated from the cartels. Or maybe they rely on the cartels for shipping, but they don’t necessarily need to. 

It also means that fentanyl tends to be a lot more lethal, not just because it requires so much less. It’s like the individual mom and pops don’t perceive. The quality control is one of their major concerns, so they just press the stuff in tablets and off it goes. And since it takes so little to kill someone, we’ve had 100,000 people die in 2022 and 2023 from fentanyl overdoses in the United States. 

Now, in recent times, we’ve seen kind of three things happen. Number one, the cartels are starting to fracture. They’re not as powerful as they used to be. And smaller factions are getting into, fentanyl manufacture, thumbing their nose at the central authorities of the cartel leadership, regardless of where in Mexico you are. So we’re actually seeing a lot more violence in Mexico rather than less, in part because now we’ve had a kind of democratization of the supply chain system for illegal drugs in Mexico. 

Second, in the United States, we have seen fatality rates drop. A couple reasons for that. Number one, those mom and pops are starting to realize that if you kill all of your customers, they don’t buy anymore. So four fentanyl pills that have been intercepted by law enforcement, only about half of them now have lethal doses only, as opposed to 70% from 2 or 3 years ago. 

So, you know, from a production point of view, I guess there’s some quality control going in there. A second, if you are a teenager and you look at people in your 20s who are basically killing themselves with fentanyl, you know, maybe that’s not the drug for me. And, other more traditional drugs like it’s methamphetamine and cocaine are making a little bit of a comeback. 

Whether this trend has legs is something that we just don’t know. There’s so much about drugs that are a fad issue, and it’s unclear whether or not today’s, Zoomers have moved on from fentanyl, or they’re just taking a break for a moment. I don’t know what to cheer for. There. Third, because the cartels are breaking down. We’re seeing a few problems with transit. 

If you have lots and lots and lots of cartel and cartel violence, oftentimes the shipment doesn’t make it on time. But probably the biggest reason we’ve seen deaths go down in the United States is it’s not new anymore. 

So hospitals and clinics have a little bit better idea of what to look out for. And they’ve developed some protocols and some medications to help people survive overdoses. It’s kind of like how during the Iraq War, we saw a lot more soldiers live, but with horrible wounds, because medical care had improved, to deal with things like IEDs. 

So if you’re looking for something to worry about, I don’t worry so much about Trump. I don’t worry so much about radical Democrats. I don’t worry so much about Iran or Russia. Unless nukes get involved. I worry about America’s drug habits and how we’ve seen a democratization of the violence in Mexico that is breaking down the social stability of our primary trading partner. 

And if you want something a little bit more at home to worry about, let’s assume for the moment that the Mexicans succeed in driving fentanyl out of their system completely. What only takes three Japanese in a garage to do it? And those Japanese don’t have to speak Spanish. So if Mexico stops being the primary processing place for fentanyl demand in the United States, Americans are perfectly capable of picking up that baton and processing the fentanyl in anyone who has a garage and a power.

Photo by Wikimedia Creative Commons and DEA

Trump Tariffs Part 2 – Canada and Mexico

Photo of a bicycle in front of the Canadian flag

Unlike Trump’s proposed tariffs for China, the tariffs heading for Canada and Mexico can be viewed as leverage (or bargaining chips) to address issues amongst our North American trade partners.

Trump’s goal isn’t to disrupt North American manufacturing, he’s just looking to gain the upper hand for negotiations on things like migration and drug control. But that doesn’t mean these tariffs won’t sting. US citizens should expect to see a nice bump in costs to goods crossing these borders. Trump’s North American tariff strategy is a bit reminiscent of Cold War policies where trade access was tied to concessions.

How are our neighbors going to react? I would expect Mexico to cooperate, especially with their new (and hopefully more pragmatic) President Claudia Sheinbaum at the helm. Relations with Canada could sour as they are resistant to any action that could be perceived as ‘bending the knee’ to the US.

Tomorrow we’ll dive a bit deeper on one of the things Trump is looking to stop…fentanyl.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Alright. We’re trying the drone today. Today is part two of the Trump’s Tariffs series. Yesterday, we covered China and discussed how what Trump is achieving there is an industrial reorganization. Tariffs may actually, in the right policy combination, work for that.

That’s very different from what’s going on with Mexico and Canada. Mexico and Canada are the number two and number one trading partners collectively.

If the tariffs that Trump says he’s going to put on actually happen and there is no retaliation, we’re looking at something along the lines of roughly a $1,500 hit to every man, woman, and child in the United States. So, potentially big. That’ll hit some industries more than others. Automotive is definitely the one that will get hit the most because there are a lot of products, especially in U.S.-Mexico trade, where intermediate products go back and forth, and back and forth, and back and forth across the border.

The administrative cost of imposing a single 25% would be huge. It would be easier just to do it every time something crosses. So, all of a sudden, you’re adding $5,000 to $10,000 to the cost of a vehicle that is made in North America. It’s an inflationary issue, an employment issue, and an industry issue. There is no version of the future of the United States that is post-China that does not involve Mexico and Canada very, very strongly.

Keep in mind that Trump put his name on the most recent trade deal with both countries. That’s NAFTA Two. So, potentially very, very, very big.

However, what Trump is attempting to achieve with Mexico and Canada is not the same as what he’s trying to achieve in China. In China, he’s actually trying to move industry. He doesn’t seem to have a problem with the manufacturing supply chains we have here in North America.

His concern is he wants to use the lever or the hammer of trade and tariffs to get progress, in his view, on immigration, migration, and especially on fentanyl. So basically, it’s an “if this, then that.”

Now, that’s not a crazy idea. In fact, there are a couple of reasons to expect it to work. First off, that’s the whole concept of globalization and the Cold War: that the United States used its Navy to patrol the global oceans to force open international trade, including our own market.

We would do this for you if, in exchange, you would allow the United States to write your security policies. That was the policy right up until 1992.

Now, we got away from that in the post-Cold War era, where free trade became a goal in and of itself. Trump wants to dial the clock back 35 years and start renegotiating what security policies mean to include migration and fentanyl.

The idea that you can do that makes a lot of sense because the United States is the only large, rich, consumption-led economy in the world. That means that the U.S. president, whoever that happens to be, has a huge amount of negotiating room to get what he wants, whatever the issue happens to be. So, you want access to this market? That’s fine.

You have to do XYZ, A, B, and C, and you have to do that maybe first.

The question is time frame.

In the case of Mexico, it’s probably going to work because it’s worked before. In Trump’s first term, he tried something very similar on migration issues and forced a deal with the then-president, Lopez Obrador. We now have a new president, Claudia Sheinbaum, who is much better at math than her predecessor.

So, it’s just a question of how these two ultimately do or do not get along.

In the case of Canada, it’s probably going to be a little bit more sticky. The ruling government of Justin Trudeau is a minority government. It is in trouble, it’s not popular, and it faces an election next year. Capitulating to Donald Trump is generally not a great way to win accolades with leftist supporters.

So, we might actually see relations between the United States and Mexico pull forward in its own way, while relations between the United States and Canada suffer.

But a much bigger issue is whether or not what Trump is wanting to do with Mexico and Canada can actually work.

There are ways that Mexico, in particular, can cooperate with the United States on migration. That has happened in the past. I’m sure it will happen again in the future. But fentanyl is different.

Trump’s understanding of fentanyl is that the precursor materials come from China, whereas the turning to finish the drugs happens in Mexico, and then they cross the border into the U.S. That’s accurate, but it’s an incomplete understanding because fentanyl is different from cocaine.

Cocaine has very specific economics and geography of production and transport. Fentanyl does not.

To understand the pros and cons of what Trump is trying to achieve with trade policy, we need to look at the supply chain for fentanyl. Then, we might see how things could work a little bit differently.

That’s going to take a whole other video. We will tackle that tomorrow.

Trump Tariffs Part 1 – China

An AI generated image of connex boxes with American and Chinese flags on them

The Trump administration is planning to impose some hefty tariffs on China. This isn’t just to reform trade practices and show China “who’s the boss”, but rather to shift industrial production away from China permanently.

Trump’s goal is to wean the US off that $500 billion worth of annual imports. This is going to be a challenging time for everyone involved; China is having their feet swept out from under them, and the US will have to find someone who can replace the Chinese (because we surely can’t do it on our own). And not to mention an unwanted bump in living costs for the Americans.

It’s not all bad news bears though. The US has enough cheap energy to help build all the processing and manufacturing it might need, but it will require significant investments, policy changes, and TIME. Trump has the right idea, but his approach is lacking a bit of the strategic depth that this will require.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here, coming to you from Colorado. Today’s the 26th of November, and today we’re going to talk about the incoming Trump administration’s initial plans for trade policy.

Last night, Donald Trump texted out that he plans to levy very sharp tariffs on Mexico, Canada, and China—our three largest trading partners. For this discussion, we’ll focus on the Chinese component.

We’re talking about China first because Mexico and Canada are different issues with different factors at play. First, with China: we don’t like China, and China doesn’t like us very much. The Trump tariffs, if implemented on the Chinese merchandise exports that come to the United States—roughly half a trillion dollars a year—would increase the average cost of living for the average American, every man, woman, and child, by about a thousand U.S. dollars a year.

The stuff that comes from China, like I said, is mostly manufactured goods, almost exclusively. The bulk of it falls into the electronics category, which includes computers, cell phones, cellular technology, white goods, consumer goods, and parts that can go into pretty much anything.

The Chinese have a very predatory trade system, so overall support from the U.S. citizenry is likely to be pretty high, despite the cost of this. This is a more traditional tariff goal here. The Trump administration has long wanted to reroute global trade flows, specifically where China is involved.

That means punishing the Chinese until alternatives can be generated. But therein lies the rub. No American trade policy going back to World War II has ever been very good at building that alternative system. We punish countries we think are engaging in unfair trade practices, but those punishments are usually designed to get them to dismantle those trade policies so we can return to something more fair or normal.

That is not the goal this time around. The goal here is to permanently relocate industrial plants. Simply throwing on a tariff and funneling the money to a general fund doesn’t achieve that. You also need to build a complementary industrial policy that takes some of the income and uses it to build a long-term alternative.

Here’s where the challenge and the opportunity lie. First, the challenge: the things China does, it doesn’t do by itself. It has relatively low-cost wages, especially for its mode of production. However, it’s not a very profitable industrial power. It has only managed to get to where it is now and maintain its position through a massive amount of subsidies.

If those subsidies were to go away, you would see mass de-industrialization of China, which would probably lead to the collapse of its political system. The Chinese aren’t even going to consider that, which is ultimately what a normal trade policy would aim for. To overpower that, you’d not only need a fairly steep tariff rate—much higher than the 10-25% that Trump’s team is suggesting—you’d also have to build an alternative.

When it comes to things like electronics assembly and components creation, the United States is not a very competitive player in that market. Our labor, to be perfectly blunt, is too highly skilled. The same goes for Canada and Mexico. You’d need to develop a different model, and doing that quickly is very difficult and expensive.

However, there is some low-hanging fruit. The Chinese dominate not just electronics manufacturing and assembly but also materials processing—turning bauxite into aluminum, cobalt into cobalt metal, and lithium into battery chassis, for example. This is something the U.S. and the rest of the world have largely stepped back from for two reasons:

  1. It takes up space and is environmentally damaging, leading to regulatory challenges.
  2. If the Chinese are willing to pollute their environment, exploit their workers, and subsidize the industry, why compete with them when they can do it cheaper and hand you the end product?

There are problems with that argument. The Chinese have discovered that this gives them leverage in trade talks. However, rebuilding this capacity elsewhere isn’t difficult or even particularly expensive. For example, the U.S., thanks to the shale revolution, produces a huge amount of excess natural gas and has the cheapest natural gas in the world. From that, we’ve developed the cheapest electricity in the world.

Over the last 15 years, the chemicals industry has shifted to run on natural gas rather than oil whenever possible. As of 2024, the United States is by far the largest, highest-quality, and lowest-cost producer of intermediate chemical inputs for modern manufacturing.

But it took the free market 15 years to make that happen. If we want to speed up the process for everything else, it means implementing an industrial policy that uses revenue from Chinese tariffs to help build the supporting infrastructure. This is low-hanging fruit that we need to address anyway. The Chinese won’t be around much longer, and even if they were, we wouldn’t want them to maintain the leverage they currently have.

Building up industrial plants isn’t necessarily expensive. For example, creating capacity for something like aluminum might only cost a few billion dollars. It’s not costly or time-consuming, but “cheap and quick” isn’t the same as “free and immediate.” It requires a policy to make it happen. Otherwise, the market will handle it over the next 15-20 years, but I’d argue we need to start the transition much sooner.

Once that foundation is established, we can begin tackling more difficult pieces like electronics. So far, the Trump administration has not demonstrated an awareness of this level of nuance in tariff policy. The general belief seems to be, “A tariff is good. Do it, and we win.” It’s going to take a lot more effort than that.

That’s the situation with China. The situations with Mexico and Canada are very different, and we’ll tackle those tomorrow.

No Shale for Europe

Photo of black oil barells

The US oil industry has seen a massive boost thanks to the shale revolution, but can the Europeans replicate the success the US has seen?

Unfortunately for Europe, there are a lot of things working against them. Problem one is that Europe just doesn’t have the right geology to make this work. They are also missing the decentralized network of small companies that helped build out the shale network in the US, they lack innovation, and they don’t have a rapid regulatory approval system. Aaand there is no financial incentives for landowners due to the legal barriers in place.

In the short term, this doesn’t look very plausible for the Europeans. They would need to buildout all the infrastructure, under perfect conditions, and even then it would take a decade to MAYBE get one million barrels per day. So, oil imports from the Middle East and US will continue.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here coming to you from a brisk Colorado. Today we’re going to take a entry from the Ask Peter forum. Specifically, what would it take for Europe to experience an American style shale revolution? The continent is a massive importer of oil and natural gas, and they don’t exactly have a lot of territory that is good for sun or wind either.  

So their choices really are nuclear, which let’s just call that problematic in some places, or imported. And if you’re importing, then you’re at the mercy of whoever you’re buying the stuff from, as they discovered with the Ukraine war, when that is Russia, that’s a problem. And as I discovered in the 70s and 80s, when that’s the Middle East, that’s a problem. 

And then, of course, most European countries don’t have a production base navy, so they can’t even patrol their own supply lines should someone in between decide to cut them off. So, you know, reasonable question. Well, there’s a couple things that they really can’t do much about. And then there’s a couple things that they can, but I doubt they will. 

So let’s start with what they can’t fix. Geology. Yes yes, yes, 90% of known oil and natural gas is in unconventional rock formations like shale. But that doesn’t mean that all shale deposits are created equally. So if you consider the United States, we’ve got the Permian, which in some places has 20 different stacked layers, each with their own petroleum layer, little jumbled together, but for the most part, pretty easy to get to. 

So you can drill down through one, do laterals go down to the next one, do laterals go down the next one? Do laterals and the whole thinking funnel up through a single point of extraction. It’s by far the best in the world of that geology, and it’s, as far as we know, the only one in the world, there are tiers. 

The Marcellus, in the Pennsylvania area is still pretty good, but it’s mostly gas, whereas the Permian is mostly oil. You’ve got the Bakken in North Dakota. That’s somewhere between, and the Europeans just don’t have the type of deep sedimentary geology that the United States or that North America specifically has. So it’s not that there isn’t oil and gas to be had. 

It’s just it’s probably not going to have the same bang for the buck, even if all else was equal. And of course, all else is not equal. The way the United States started its shale revolution was with hundreds, if not thousands of mom and pop companies. And so we developed the expertise as we went. But it started from kind of a baseline understanding, especially national lands in the United States. 

Small mom, the pops are the wildcatters that basically drill or have rights to small chunks of acreage and drill whatever’s best in that acreage. And they’re constantly trying new things. And in doing so, eventually they crack the code on shale. In the last few years, that has evolved quite a bit. And now the super majors have taken everybody’s best practices and are now doing some really aggressive iterations using things like artificial intelligence. 

And overall, since 2012, we’ve probably seen worker productivity in the area increased by 350 to 400%, which is by far the record for any subsector in any industry anywhere in the world. And that’s before you consider that, we’ve gotten much more efficient with the equipment. So we’re actually getting about two and a half times as much crude as we did ten years ago. 

But with one third the number of drilling operators, if you’re going to do this in Europe, you basically have to create it from scratch. With the notable exception of the United Kingdom, there is no constellation, no environment of small and medium sized players. Get your big national players that are de facto monopolies, and that’s about it. And with the possible exception of France’s too Tall and to a lesser degree, BP and EA and I, you know, none of these guys or what I would consider at the technological edge. 

So simply getting into shale in the first place would be a big leap. But at least that’s something you can do something about. The other issues are far more problematic, but luckily there is a little bit of hope here. The first one is proximity. One of the reasons why the U.S show revolution has been so successful is when the technologies were first pioneered, they were pioneered on the edges of projects that had already been in production places like the Marcellus in Pennsylvania or the Permian in Texas. 

And so there was already significant takeaway capacity was just waiting to be used. All the legacy pipes from previous oil booms, we weren’t exactly dormant, but they were certainly had a lot of spare, space in the pipelines. And shale was able to flow right in there. And most of the expansion we’ve seen in the last eight years has been about expanding that takeaway capacity, because it’s all the old stuff been maxed out in Europe. 

Their mature fields have been abandoned for decades. And so on the off chance that there is any infrastructure left, it’s probably going to have to be completely rehabilitated. In addition, a lot of the best geology we are aware of in Europe is directly under where people live. So, for example, we know there’s a good shale geology under the some of the lowest sections, lowest in elevation in the Netherlands. 

But you know, if you get any land subsidence, you all of a sudden have lost part of your country. So the chances of drilling there are not very high. And the richest shale deposit we’re aware of is under Paris, specifically under the roof. So the idea that the jewel in the crown of French historical preservation is suddenly going to be an operating oil extraction site. 

I don’t think so. This isn’t the United States where there’s still oil production on Wilshire Boulevard. They have a very different attitude towards things in Europe. 

The final issue, which is arguably the single largest, obstacle is legal rights in the United States, unless something has been negotiated otherwise, under the land you live on or own our mineral rights that you also control. 

So if somebody decides they want to come into your neighborhood and drill and they get your permission, you get a cut. Whereas there is no country in Europe where that is the case. So if somebody were to come in, they’d get permission of the National government, and then the national government would get not just the oil and gas, but all the money that would come from it. 

And you get nothing. So you’ve set up a situation where you can guarantee very strong opposition from regional governments, local governments, landowners, renters, everybody, because they don’t see any of the immediate benefit, unlike how we have it here. Now, technically, that is a legal change that is up to the individual countries to shift, but doing so would be would be a bit of a heavy lift. 

So even if in a perfect scenario, the Europeans could just wave a wand and change the legal structure without public opposition and all local landowners and adjacent interests were immediately on board. And if they started building out the infrastructure for takeaway capacity today, and if they retooled their entire educational system to generate the scads of workers, that they would need to do this at scale the soonest, that you would probably see a million barrels a day fresh output, from Europe as a whole, would probably be 8 to 10 years from now. 

And to be perfectly blunt, I don’t have that kind of time. The only way that the Europeans are kind of holding things together right now is with imported oil from the Middle East, an imported natural gas from the United States, and liquefied form that is more stable than their previous import menu, which was Russia heavy. But to think that that has ten years to run, in an environment where so much geopolitically is so unstable and changing so quickly, they’re gonna have to figure out another way. 

One more thing. Regulation. This is something that Europeans obviously can do something about. And I’m not talking about here about a relatively anti-business, pro-environment regulation. Obviously, if you’re going to have a robust energy sector. You have to make some compromises there. That’s not what I’m talking about. I’m talking about turnaround time. So the Texas Railroad Commission, which regulates the shale space in Texas, is famous for fast turnaround times.  

They accept applications for drilling permits 24 hours a day, 365 days a year. And in Texas, people drill and Christmas and Thanksgiving and Easter and all the rest. And most of the operations at most of the wells are operating at least 16 hours a day. They just rotate crews. The two examples I can give you of countries in Europe that have attempted, to try shale are the United Kingdom, Poland, the United Kingdom basically drowned everybody in paperwork. 

Very British. And as a result, getting things approved wasn’t measured in days or weeks, but months. Because there was always one more form. It was like working for the U.S. Defense Department. And when they discovered that the geology in the United Kingdom, is, the oil bearing stuff is less dense, it’s in smaller deposits and it’s more spread out, and it’s a lot deeper. 

Everyone pretty much walked away. The other country that tried Poland, had a little bit better geology, but you still had a problem with just permitting. You could file for your permit between 9 and 5 Monday through Thursday. And, God forbid, it was a holiday because, you know, the Europeans have a bunch of those. And this is an a country that actually has a strong national security interest in independent energy production. 

But foreign companies just couldn’t get it to work. And Exxon, you know, that dainty, demure company that never gets its way ultimately just threw up its hands and walked home? So unless you have that change in government culture, it’s really difficult to imagine this moving 

While U.S. shale operations now are getting more and more oil out of each individual, well, now measured in the tens of thousands of barrels a day, often, if you’re going to start new, with a new sector, with little expertise and especially without, say, the Permian geology, you’re probably only going to be getting a few hundred barrels per day. So the barriers between you and your operation that the government puts up needs to be very low for it to be worth that effort. And right now, the incentives in the United States versus Europe are just completely flipped. Okay. Now I’m done. 

When the Missile Is the Message

A missile being fired against a blue sky

Following the United States’ approval for Ukraine to use its weapons systems inside of Russia, Putin decided to launch an intermediate-range missile called the Oreshnik into Ukraine.

This was initially mistaken for a nuclear capable ICBM, but that was cleared up rather quickly. Turns out it is a missile the Russians developed illegally while pretending to abide by an arms control agreement. The important detail in all of this is that the Russians completely misread the room. They thought by flexing their missile capabilities that NATO unity might be fractured, and they could assert some dominance, but that backfired.

Many EU nations are increasingly arming Ukraine and taking a firmer stance against Russia, and some other factors are also increasing European solidarity. With regional security in question, European countries are locking arms and uniting against the Russians.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Greetings from Colorado. I just got off a plane, got back home for the weekend. It’s 22nd November, and the news regards a missile attack that the Russians launched against Ukraine earlier this week.

As you probably remember from a video a couple of days ago, the United States government has given the Ukrainians authority to use their weapons systems on Russian territory. Specifically, in the Kursk province, the Ukrainians have already started to use them to target command and control nodes and a few depots. They’re certainly going to be going after things like rail logistics in the not-too-distant future.

This is something where a lot of Russian politicos have been saying that this is a red line that will trigger nuclear war.

And that was obviously crap because that’s the wrong message coming from the wrong people. The Russians have yet to engage in the sort of meaningful conversation about the war that would allow the return of some sort of deterrence doctrine.

Anyway, in order to try to press their case that there would be consequences, the Russians launched a weapon from down near the Caspian Sea—well, further away than it needed to be to hit someplace in Ukraine.

At first, everybody thought it was an ICBM. That’s an intercontinental ballistic missile. And the only reason those exist is to have nuclear warheads on them. The idea was that it was supposed to be a threat to the United States.

Turns out it was not an ICBM, not an intercontinental ballistic missile. It was a new type of weapon called an “Organic,” which is an intermediate-range weapon.

Now, intermediate-range weapons in Europe—well, between the United States, the Soviet Union, and the Europeans—they were banned under a 1988 treaty called the Intermediate Range Forces Treaty, the INF.

The idea, and this was at the end of the Cold War when Reagan was in charge, was if we remove the shorter-range missiles that could be used in the European theater, then we move off of hair-trigger alert. We could start negotiating some sort of post-Cold War pact, which would eventually culminate in things like strategic arms limitations that would take all of the city-flatteners out of the equation.

Well, about 15 years ago, the Russians started violating the terms of that treaty and started developing weapons systems like the Organic, which now have hit the battlefield.

It’s not so much that this is a warning to the United States because the United States isn’t a target of intermediate-range forces—it’s too far away. This is about the Europeans.

And the question in Russian foreign policy and strategic policy has always been divide and conquer. They don’t like NATO because it allows everyone to band together, and it brings the United States and the Canadians into the party. They want a system where it’s every man for themselves. From a military point of view in the European space, that makes the Russians the most powerful player.

So the whole point of developing an intermediate-range missile and now launching it at Ukraine is a demonstration to the Europeans that we are back to the Cold War in terms of the Russians’ capacity to nuke before anyone can do anything.

Or at least that was the intent. It is definitely not working.

The British and the French have already allowed their weapons systems—most notably the Storm Shadow and the Scalp missile systems—to be used by the Ukrainians to target the Russians directly.

In addition, in Germany, we have a chancellor who’s on his way out, Olaf Scholz, who has been very hesitant to allow German weapons to be used. He is most likely going to lead his party, the Social Democrats, into a trouncing in elections that will happen within 2 or 3 months.

At that point, the new incoming chancellor of the opposition party, the Christian Democrats, has already said the first thing he’s going to do is call Putin, threaten him, and then free the German equivalent system—which is called a Taurus—for use by the Ukrainians.

Third, we have Finland and Sweden commenting about the sabotage by Russian and Chinese interests of internet cables and telecommunication cables in the Baltic Sea. They’re already talking about activating Article Five, which is the mutual defense clause of the NATO treaty.

So the Russians are misreading the situation. They’re misreading how the Europeans are standing. They’re misreading what the European nerve is.

The question is whether or not the Europeans can stick to it.

We’re now in this weird situation where the Europeans are doing a lot more for Ukrainian defense than the Americans because they know, at the end of the day—now, with or without the Trump administration—that they’re the ones who are going to have to live with whatever the security situation evolves into.

So we’re seeing a lot more interest in all of them to step up.

My personal favorite is an eight-party commission that involves all of the Scandinavian countries, all of the Baltic countries, Poland, and Germany, to start investing in defense industry manufacturing in Ukraine proper, so that the Ukrainians have a better chance of standing on their own.

Will it be enough? We’ll see. But what we know for sure is that the Russian effort has had absolutely the opposite effect.

¡Viva Chihuahua!

Photo of the cityscape of Chihuahua, Mexico

I’m overlooking the city of Chihuahua, Mexico as I record today’s video. This city is just one of many that is preparing for a post-China world, and you can probably hear all that preparation going on in the background…

Since China – aka the world’s manufacturer – is vacating its throne, the US is on the lookout for alternatives. Chihuahua is well-positioned to step into a prominent role. That’s all thanks to integration with the US economy, an industrial focus, and being landlocked.

The city has become specialized in industries like aerospace and mid-tier semiconductors, making Chihuahua highly productive and affordable. As industrial expansion continues, expect to see this city come up a whole lot more…

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here, coming to you from Chihuahua City in central Chihuahua in Mexico. I just finished a community development presentation, which are some of my favorite because it allows me to kind of crawl inside of an economy and look at it from the inside.

I thought this would be a great backdrop to talk about the future of American industrial development, specifically in terms of what we’re going to do as the Chinese system breaks down.

Right now, the Chinese produce about half of all manufactured goods by value in the world. And as the Chinese demographic bomb collapses and implodes the entire economic system, we’re going to have to find alternatives. Places like Chihuahua City, which are under massive construction right now to help compensate for the coming shortage, are one of the few places that actually are a good fit for the United States.

Not only do we have NAFTA and NAFTA 2, which was negotiated by former president, now future president Trump—so we know it’s something he’s broadly okay with—there’s a proximity issue. Also, a lot of this hard work has already been done.

The northern Mexican states already trade more with the United States than they do with the rest of Mexico.

In many ways, they’ve already become integrated into our economic system, but each of them has their own story. Places like Monterrey, Tijuana, or Juarez are directly across the border from places like the Texas Triangle, San Diego, or El Paso, and so have a more traditional integration story where products go back and forth, and back and forth, and back and forth, doing whatever finishing work needs to be done.

Here in Chihuahua City, it’s a little different.

It’s always been a landlocked state, and Chihuahua City is right in the middle of it. It’s a four-hour drive just to connect to a city of size, and then like a 12-hour drive from there to get anywhere else.

So this is not a city that can integrate in the traditional sense.

They have to do most of the work themselves, which means they go to different industries. Normally, when you have a place like Monterrey or Juarez, you’re going to bring in a degree of American managers and especially American technology in order to plug in labor in the local Mexican community to whatever is across the border in the United States.

Here, that’s not the case. They have to move up the value-added chain to do more value-added themselves and send more finished products and more finished components to whoever the final finisher in the manufacturing chain or final consumer happens to be.

So while they do things like automotive—which, of course, the Mexicans are great at—they also do a lot of aerospace.

And I’d argue that the facilities here are, in many ways, more technologically advanced than what Airbus uses in most of Europe. They also design mid-tier semiconductors, meaning this is one of the few places in Mexico that actually has a knowledge economy.

When it comes to things like semiconductors, they don’t have the population to have a fab plant for themselves, but they take the semi-finished semiconductors that come from a place like, say, Phoenix, and they do the testing and the packaging and incorporate them into intermediate products, which is a much higher value-added process than a mere fab facility.

Put it all together, and Chihuahua City not only has the highest productivity output per hour of input of labor in Mexico, but it’s above that of about a third of the American states, and it’s above that of every single Canadian province.

So while we prepare for a post-China world, places like Chihuahua aren’t only hitting the ground running—they already have a lot of the infrastructure in place.

And the construction you’re hearing is new industrial parks going up left and right.

Things I (Don’t) Worry About – Chinese Investment in Mexico

A photo of mexico city at night

If you’re getting worried about Chinese investments into infrastructure in Mexico, it might be time to switch the TV off and take a walk…because that narrative is a complete fabrication.

This should help ease your mind: China doesn’t even crack the top ten list of foreign investors in Mexico, there are regulations for  the origins of goods outlined in NAFTA 2 that China can’t bypass (and the person who negotiated these rules will likely be in Trump’s cabinet), and any major investments by China would be outed by business leaders in Mexico (so we don’t need to stress about stuff happening beneath our noses).

And if that wasn’t enough, the Chinese system is in decline, and so is their global influence. If they do somehow manage to make investments in the region, it’s only going to help the North American industrial base prepare for the collapse of China. At least this is a good thought experiment to remind us that the US needs to focus on building out its own industrial capacity.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey everybody, Peter Zeihan here, coming to you from Massey Draw above the Denver metroplex. Today we’re gonna talk about something that has been on a lot of people’s minds during my work trips the last couple of weeks.

Two weeks ago, I was in Mexico, and one of the first questions that everybody asked me was what I thought about the Chinese effort to build industrial plants in Mexico to get around NAFTA regulations and ship stuff into the United States.

Last week, I was in Canada, and that same question popped up. I decided to turn on the television for 15 seconds for the first time in a year and wow, wow, wow. It doesn’t matter who you are—left, right, center, economics, socialist, whatever. Whatever you’re watching, this is a hot topic. It pleases me to say, as somebody who just looks at the data, it’s a complete fabrication.

China doesn’t even make the top ten list for foreign direct investment—that’s investment in physical plants—in Mexico. In fact, it doesn’t even show up in government statistics; it’s so low down the scale.

And, you know, honestly, folks, let’s be honest here. The soul-searching… this kind of stuff is really hard to hide. I mean, an industrial plant that’s going to be big enough to process—even if it’s just to stamp “Made in Mexico” onto a previously made Chinese product and ship it to the United States—

That’s not small. That’s not quiet. We don’t have stealth fields, and there isn’t a single facility doing this anywhere in the northern Mexican states. The infrastructure into central Mexican states is insufficient for the task anyway.

This is something that we have dreamed up ourselves in our post-truth environment that just happens to have taken on a life of its own.

It reminds me a little bit of when everyone was panicking a couple of years ago about the Chinese purchasing farmland. And again, the Chinese weren’t even in the top ten list. Now, that doesn’t mean there aren’t foreign entities looking to do something like this, but it’s not China—it’s Canada.

Canada is the number one owner of farmland in the United States outside of Americans. It’s also the number one investor into Mexico after the United States. And yes, yes, we should be concerned about Canada, though with the rule of law, their politeness, and their heavy coats… I mean, Canada, I’m watching you.

Anyway, should things change—should this become a real thing—three things to keep in mind.

Number one: NAFTA 2, which was renegotiated by Donald Trump in his first term, has very clear rules of origin laws that say a certain percentage of goods have to be made in the NAFTA states. This hypothetical scenario where the Chinese are trying to get around that is already covered by US law, and the US already has tools within the NAFTA system to deal with it economically, politically, and to block the products should it become a problem.

That authority already exists.

In addition, the most likely person to take over trade policy in a second Trump term is Robert Lighthizer, who is the guy who wrote these clauses and negotiated NAFTA 2 in the first Trump situation. So I have no doubt that if there’s any inkling this is going to go down, Lighthizer will take personal responsibility for this. And he is by far the most competent person who was on Trump’s first team.

And if he accepts Trump’s offer, he’ll be the most competent and capable person on Trump’s team. So put that to the side.

Second concern: If something like this does go up, it will not be quiet. When the Chinese build industrial plants in third countries, they bring in their own workers. They house them on-site, and it generally generates a lot of labor protests for the host country to deal with.

And Mexico now has a healthier press environment than the United States does. Mexican workers will not be shy. Mexican business leaders will not be shy about shining a light on something like this should it go down. Keep in mind that most of the business leaders in northern Mexico are relatively oligarchic—a little bit Elon Musk—and they really don’t like it when things don’t go their way. They’re not going to be quiet.

So we have a really good alarm system built in should this happen.

Third, and finally: The Chinese system is failing due to demographic collapse. Before you consider trade tensions, before you consider the possibility of a conflict in the world that would interrupt raw material supplies, energy supplies, or merchandise exports, we need to prepare for a post-Chinese world.

Which means here in North America, we need to roughly double the size of the industrial plant.

And if the Chinese do decide to come in to build industrial plants in North America, think about what that means. They are spending some of their limited capital resources, technology, and labor in order to help us get ready for a world without them.

So even in the worst-case scenario, where I’m completely wrong and this is about to happen at scale, the worst-case scenario is still pretty good.

British Agriculture Is About To Suck Even More

Photo of a a farm in England

Listen, I’m not one to scoff at a nice serving of fish ‘n’ chips, but when you’re serving baked beans for breakfast…that’s where I draw the line. You guessed it, we’re talking about the decline of British agriculture today.

Protests by farmers broke out on Tuesday, which highlight the growing issues with British agriculture. The Brits have been relying on imported food for quite some time (which opened their eyes to what real food tastes like), but that’s all going away.

Brexit has worsened the already declining agricultural industry by severing access to EU imports (to say nothing of EU subsidies) without an alternative source in place. Since local farming struggles with high costs and low quality, Britain will likely remain uncompetitive or be forced into an unsavory deal with new imports.

Prefer to read the transcript? Click here

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Transcript

Hey everybody. It’s Tuesday the 19th here, coming to you from a blustery Colorado. And today we’re talking about food in the United Kingdom. And I know, I know, I know, your first instinct is blehhh.

But I think it’s important to understand why. The issue today is that we had protests in London, right outside of Westminster, by about 10,000 farmers who were technically protesting a change in inheritance tax.

So the details of that really don’t matter too much, but we’re seeing a lot more aggravation among folks in British agriculture for very good reason. The sector is being phased out. Now, this has been, to be perfectly blunt, a long time coming. Britain was the first country to really apply deep water navigation to a value-added economic system.

So as the Brits got access to the wider world, their diet changed, their agricultural system changed. As a rule, oversimplifying, the more variety you have in climate zones, cultures, and soil types, the wider variety of food products you get. And to be perfectly blunt, England is all white. People in the Scottish are also very white, and the Irish are still more white people.

And they all are in the same basic climate zone. So there’s a limited number of products that you can grow. But when the British Empire got access to India and the Americas and Southeast Asia and all the rest, all of a sudden, they could import food products from the world over that could be grown at a lower cost and in greater variety than what they’re going to have at home.

So a greater and greater percentage of the British diet became sourced abroad at the same time that the value of those crops went up and the variety of those crops got more interesting.

If you fast forward to the world wars, the Brits were importing the majority of their calories on any given day. And so, when the Germans started their U-boat campaigns, you can understand how things got kind of lively very, very quickly.

Fast forward to the 70s, when the Empire was dying and the Brits joined the European Union. They lost access to a lot of the stuff around the world but gained access to all the stuff on the continent. And while the European system is definitely white people, there’s a lot of different varieties of white people in a lot of different climate zones, cultures, and soil types.

So they were basically able to displace what they lost from the Empire with what they could get from the European Union.

Well, seven years ago, the Brits voted for Brexit and have yet to put a replacement system in place.

So they’re losing access to the European stuff and falling back onto what the island of Great Britain can produce itself for the first time in about three centuries. And their discovery kind of sucks.

The future for agriculture in Britain falls into one of two categories. Either the Brits will seek a free trade zone with the European Union or re-membership, or they’ll seek something with North America, which will give them access to that greater variety at a lower cost.

The problem here is that they’re not entering into either of these sets of negotiations as equals. They’re entering as a country that has basically shot themselves in the foot diplomatically, strategically, and economically. They’ll have to take whatever is on offer. And if there’s one thing that the Americans and the Europeans agree on in agriculture, it’s theirs first.

So if the Brits want to join either system, they’re going to basically have to sign off their agricultural sector and import pretty much all their products from whoever their partner ends up being.

In the case of the European Union, that’ll be of higher quality, which is something their domestic agricultural industry can’t compete with. And in the case of the United States, it’ll be lower cost, which will also be something their sector can’t compete with.

So, regardless of how you look at this, the future of British agriculture is one of two things: purely domestic, high-cost, low-quality—or gone, because they’re importing food from somewhere else.

The protests we saw today are just the very, very beginning of what is likely to be a painful and disorienting destruction of the entire sector for the entire country for the entire rest of history.