No Immigrants & Negative Growth = Canada’s Economic Tipping Point

Man holding a small canadian flag against a misty background

Canada sharply restricted immigration and scored itself a 0.2% population decline. This flips the script on a long-running strategy of lax immigration to offset low birth rates and prevent pension/workforce collapse.

Slamming the door shut quickly has triggered demographic decline; should the door remain shut for too long, they risk restarting a long-term economic hollowing-out. However, the severe housing shortages, affordability crises, social backlash, and rise of nationalist politics make a good case for curbing inflows.

Canada is facing a rough economic outlook in the coming decades, unless it can figure out the people problem or negotiate more favorable trade integration with the US.

Prefer to read the transcript? Click here

Transcript

Hey, all Peterson here coming to you from not Canada, but Colorado. But we’re gonna talk about Canada anyway because, you know, it’s snowing. Okay, so the big news in Canada is that they have had population drop this year, 8.2%, their first drop in cheese quite sometime. So a few decades at least. What does this mean for them? 

Why did it happen? Where is it going to take them? So if you dial back to 15 to 20 years ago. Canada was in a population bomb situation that is very similar to what’s going on in Germany and Italy. They basically the birth rate had dropped, for decades, and they hadn’t had, rising birth rates since really almost World War two. 

And it was really starting to cause some problems for them. They knew that in the next ten years, which would bring us to, you know, five years ago, that they would be facing pension collapses, more people in their 70s and 60s and 50s and 40s and 30s and so on. And there was really no hope. 

Very little hope, anyway, that they would ever have a domestic regeneration of their population structure because there just weren’t enough people under 30 to have kids in the first place. So under the previous, previous, previous, Prime Minister Stephen Harper, who was a conservative from the province of Alberta, which is basically the Texas of Canada, started opening the doors to immigration. 

Now, Canada had always had a relatively egalitarian view towards immigration compared to everybody else in the world. But it was always, an issue of a race. The problem is, is when the migrants come to the United States back in the pioneer days, they could go out and become small, hold farmers and be exporting grain to the wider world in a matter of months. 

And the wealth came really easy in Canada. Not so much. The prairie provinces did have that option, but they were drier and they were colder and they were less reliable. And if you start going into interior, say, Quebec and, Ontario, you’re on a chunk of geography called the Canadian Shield, which is a bunch of uplift that had been scraped, cleared by the, glaciers. 

And so there just wasn’t much soil to work with. And the soil was very poor. And of course, it gets a little cold for most of the year. So they never had the pioneer experience that the United States had. And that took Canada in a different direction, and means that most of the population isn’t just massed on the southern border for warmth, but clustered into cities for warmth. 

About 85% of the population of Canada lives in the major cities. It’s a very different dynamic economically and socially than what we have in the United States. Socially. It makes it really easy to bring in other groups because it’s already a polyglot. Economically it means and unless you keep that cycle of people coming in, you start to age out really quickly. 

And that’s what happened back in the 1990s. So Harper opens the doors, immigration doubles, triples, quadruples, and they bring in enough people who are in the age bloc of roughly 30 to 45 that they can pay into the system enough in taxes, before they retire, that it doesn’t break the bank. The downside of that plan is that once you start that policy, you can never stop, because if you bring in someone who’s 40, ten years later, they’re 50, ten years later, they’re 60, and all of a sudden they’re, retiring. 

So where is the United States? People can walk here from the South. And so we tend to get migrants that are under 25 in Canada, they typically have to fly there. And so they tend to get migrants that are over 40. So once you open the door, you have to leave it open and you bring in hundreds of thousands of people every single year. 

You do that for 20 years, and you start to change the political and the ethnic makeup of the country. Now, in large parts of Canada, that’s not a problem. I mean, if you’re in Toronto, it’s a polyglot. If you’re in Montreal, as long as the people are coming in are French, it’s fine. And, you know, a lot of French ethnics from France came to Montreal in the aftermath of the European financial crisis and never left. 

But they were close enough ethnic mix that it wasn’t too much of an integration. I mean, people from Montreal eventually discovered that the French can be kind of pricks. But, you know, that’s a French inter French problem for the rest of Canada. 

It was a much more diverse crowd, a lot of South Asians, but really people from everywhere and eventually it reached the point that Canadians who had been born in Canada, regardless of their ethnic affiliation, were starting to lose connection with the place that they were consider themselves to be from. So there’s a cultural issue, but the bigger one was much more economic. 

Everybody has to have a place to live and so when you bring in a half a million or more people a year into a country that only has about 30 million people, you start changing the dynamics of the housing market very, very, very quickly. And many cities in Canada, most notably Vancouver and Toronto and Montréal, but also the secondary cities like Regina, and Saskatoon, suddenly became unaffordable for people who had lived there all their lives. 

And I’m not talking like the bottom 10% on the socio dynamics. I’m talking like 80% of the population. It hit a break point two years ago in calendar year 2023. Back then, Justin Trudeau was still premier, and he realized that it was shifting the entire country, not necessarily on the left or right spectrum economically, but on the left right spectrum socially and the far right. If we were in the United States, we would call them MAGA. 

Started to rise up and agitate and became very politically potent. And so he realized that unless his great centrist liberal experience was going to be threatened, that he needed to dial it back. And in the course of about 12 months, the TRO government basically shut almost all possibilities for illegal migration to Canada. And since the borders between Canada and the rest of the world, aren’t really the walkable type. 

That pretty much it was it. And so this last calendar year calendar 2025, we actually had a population decline. Now, under normal circumstances, that wouldn’t have been enough. And under normal circumstances, Justin Trudeau’s Liberals would have lost horribly in the general election that they had last year. But enter Donald Trump, who started agitating against all things Canadian, started calling Canadians nasty. 

And we got this big nationalist upwelling for whatever candidate it looked like Trump was not supporting. And so the liberals were able to eke by with a new government once Trudeau resigned. 

Where does that leave us now? Well, Canada has now closed the door, and with that door closed, the demographic time bomb starts ticking again. And if they leave it closed for any more than five years, we’re going to be looking at a hollowing out of the entire economic fabric of what’s left of the country. 

What I wrote 15 years ago when this was just starting up was that without a massive change in demographic structures, we were within just ten years of the country going to a position where Alberta was basically paying for everything, because that’s where the oil is. We’re back in that situation again. The difference this time is that globalization has failed, and is now basically going through the process of dying and Canada, luckily, was never really globalized. 

They basically traded with the United States and very few other places, over 80% of their trade. If I remember correctly. Gum South, that hasn’t changed. What has changed is that today there is an impulse in North America for a massive re industrialization program to build up the manufacturing plant that we need here to replace what we used to depend on from the Eastern Hemisphere. 

There is definitely a role for Canada play in that. Now they have aging infrastructure, they have an aging workforce. They’re heavy regulators. nowhere near going to benefit as much as Mexico has and will. But via the existing connections between Auto Alley and Detroit and the province of Ontario. They’re far more integrated into American automotive manufacturing, the really other part of the world, except for the possibility of Mexico versus Texas. So there’s plenty to work from. 

There’s plenty to work with. And since we’re only talking about a country here of 35 million people, of whom like a third are already retired, you don’t have to have a lot of breakthroughs for Canada to really benefit on the aggregate, but it does require a very different approach to policymaking, not just in Ottawa, but also in Washington. 

And we’re probably not going to get that in the next three years. Now, NAFTA negotiations renegotiations happen in calendar year 2026. How those talks go will determine what is possible for Canada for the next 15 to 20 years. And if they’re not going to allow large scale immigration, that is really the only game in town. So it’s going to be very interesting to see how the Canadians come to terms with higher nationalism versus the Trump administration, versus the need to just suck it down and put up with the Trump administration in order to get what they need on trade, because they can only do one of the two. 

Whoops. I said that backwards. They have to do one of the two.

What’s the Deal in Canada?

Canadian flag flying over Parliament

While we Americans were carving up our turkeys last week, the Canadians had a political breakthrough. The Prime Minister and the Alberta Premier made a compromise to advance a new pipeline route for Alberta’s heavy crude.

This pipeline would extend through northern British Columbia, requiring the repeal of federal bans on pipelines and tanker loadings in the region. In return, Alberta will adopt a national carbon-pricing framework. This marks a dramatic shift following Trudeau’s 15 years of hostile relations.

Carney’s restoration of a political middle seems more feasible following this compromise. While there is still plenty of uncertainty about what this next chapter looks like, I’m cautiously optimistic.

Prefer to read the transcript? Click here

Transcript

Hey everybody. Peter Zeihan here coming to you from a chilly Colorado. It’s only about ten degrees right now, which is like -12 Celsius y Celsius. Well, we’re going to talk about Canada today, specifically on America’s Thanksgiving Day. We had a breakthrough political agreement between the prime minister of Canada, a guy by the name Carney, and the premier, which is kind of like a governor of Alberta, Miss Smith, very, very short version. 

It was a civil conversation that ended in a compromise that will probably benefit almost all parties. It’s like wild, exclusively dealt with energy. Basically, the Canadian government at the federal level has agreed to now push a Bitterman pipeline. That’s that heavy, thick crude that Alberta produces by basically electrifying the ground crazy technology. Anyway, it comes up thick. 

It comes up dirty, requires a lot of specialized processing and handling. And so Alberta has always sold its crude into the American market, because the United States is the only that really process it at scale. But it’s always sold it into a big discount, because it’s a captive market and the United States is an oil exporter itself. 

Now, the federal government has committed to a pipeline across British Columbia, to the northern part of the province. Right now, there’s a federal ban on oil pipelines and tanker loadings, in northern BC. So that will have to change in exchange, Alberta has agreed to a carbon pricing regime with the goal of getting Canada as a whole down to zero emissions by 2050. 

Now we can discuss the pros and cons of that at a later time. But the bottom line is that Alberta has always vociferously avoided any sort of carbon pricing or emissions trading because it is an oil economy, whereas, Canada tends to be relatively green. And even though Alberta is a single largest source of income for the federal government, the fact that it’s all based on the back of oil, has never really gone over well in Ottawa or many other other provincial capitals. 

Now, there are many, many, many, many, many details that remain to be worked out. But a couple things to keep in mind. Number one, we have had the federal government and the Alberta and provincial government screaming at one another. For the best part of the past 15 years. The reason is the no longer in power government of Justin Trudeau was basically had a collective IQ wattage of about four, and couldn’t even pretend to have an adult conversation about any of the topics at hand. 

Does not mean for a second that the Albertans were flexible. But if the federal government really wasn’t willing to entertain discussing real issues with Alberta, of course nothing was going to happen. Now it seems that that is changing. Which brings us to number two. The political middle in Canada has been this vacant parking lot for over a decade. 

The Trudeau government could only rule, even as a minority government, by catering to lots and lots and lots of special interests, of which Greens were one. And that made it very difficult to get anything done at the national level. Even before you consider the Alberta question, Carney, campaigned on returning to the political middle. And if he can lead Canada’s Liberals, which are not a great comparison of the kind of like America’s Democrats, if he can lead Canada’s Liberal Party into the political middle, he’ll dominate a lot of things for a long time. 

But third, like I said, lots of fine print, lots of things that remain to be done at the moment. Canada’s First Nations are not part of this deal. They have facto veto power over many decisions. Number two, British Columbia, which is the province that the pipeline has to go through, is not part of this deal. 

And in the past, they’ve screamed bloody murder to basically scrap anything that Alberta has ever wanted to do. Basically, think of this as the clash between Texas and California just in Canadian politics. And then third, Canada has yet to set up that pricing regime. And until we know what the number is, one of the other components of this deal, which is a carbon capture program, we don’t know how that’s going to work. 

Carbon capture is the idea is that as a side effect of an industrial process, you produce carbon dioxide, and then you inject it into the ground rather than letting it go into the atmosphere. From a cost benefit point of view, it’s a really bad idea. From an environmental point of view, it’s probably a broadly good idea because it gets the carbon work, can’t get in the atmosphere, but it’s not free. 

And until they figure out how much carbon credits cost, no one knows how much you will benefit from this sort of market by putting the stuff in the ground. So lots and lots and lots and lots and lots of details to get into. But the fact that, Carney and Smith were all smiles and had such a broad arrangement of compromises and agreements, we have not seen this in Canadian politics for really the better part of a generation now. 

I’m hopeful, but they’ve got a lot of work ahead of them.

Why Trump’s Stance on Canada Makes Sense

Canadian flag flying over Parliament

The Trump administration’s tough stance on Canada isn’t as novel (or as arbitrary) as it may seem.

The US has always been cautious with neighbors on the northern border, from Britain in the past to modern Canada. This view follows the long-standing US strategic view that an independent power on the northern border could pose a security risk.

That caution is wise and should be applied to any potential economic integration as well. Merging the US and Canada might sound nice, but when you lift the hood…not so much. The US would be stuck with the financial burden of caring for Canada’s rapidly aging population.

Prefer to read the transcript? Click here

Transcript

Hey everybody. Hello. From Rock Island Pass at the border between the Hoover Wilderness and Yosemite National Park. Today we’re taking a question from the Patreon crowd as we’re doing this whole trip. What what what what why? Why is the Trump administration hit Canada so much? Is there anything to it or or should we just whinge? That’s actually the specific text of the question. 

Let’s start by saying that there is is something to it and it goes beyond her. The Canadians burning our Capitol, back in the War of 1812. And you Canadians, you cannot pledge innocence from this. You know you did it. Yes. The Brits drove the car pool, but it was Ontarian Abrines that brought the torches to the party and actually burned the white House down. 

Now bigger picture. The United States is a large country that basically has the best parts of the continent. But that doesn’t mean that the United States is alone on the continent. Obviously, Canada is the entire northern frontier and throughout American history. If you go back to before reconstruction, the United States was always concerned that an extra hemispheric power would establish a beachhead somewhere in the vicinity of the North American continent and potentially use it to interrupt American power or maybe even launch an invasion. 

And of course, most recently and from the beginning, actually, Great Britain was the power of concern. Now, I don’t mean to suggest that there was a British invasion imminent or anything like that. Don’t put words in my mouth. I’m going to piss off enough people with this video as it is. But the idea that you can have an independent power right on America’s borders that doesn’t bear some degree of security risk is just silly. 

That doesn’t mean that I think that there’s a war around the corner, that it’s even inevitable. Certainly not imminent, but it’s not a blind policy decision to decide that you actually want all of the continent under a single flag. And both it for those of you to the south of us in Mexico, this applies to you as well. 

Now, that said, I think that the borders between the United States and its neighbors are fine. I’m not worried about an invasion. There’s good buffers, whether it’s, lakes and force in the north or deserts and mountains in the south. The population density of Canada certainly couldn’t do it by itself. Mexico maybe a little bit better. But northern Mexico is such a logistical snarl because of a lack of infrastructure. 

That too, I’m not concerned about. But the bottom line is, is that this didn’t come out of nowhere. This has been part of the American strategic view for 200 years, and to pretend otherwise is being a little bit windy. Now. That said, do I think we should do it? I think candidate even if they ask. No, because it’s bad math. 

When industrialization really got going roughly a century ago, people started moving from the farms and into the cities and they started having fewer kids. And that process was much more intense in Canada than it was in the United States, because I don’t know if you knew this, but can it gets cold in the winter. And so the Canadians basically huddled together in their cities for warmth, and there’s a much higher dense urbanization rate. 

Oh, got a message dense urbanization rate for Canadians than there is for Americans, which means that the Canadians of age are much slower. They’ve also probably played the immigration card as hard as they can. It’s starting to generate social disruption. And so the old Trudeau government and the new government have cracked down on immigration. Quite a bit, basically slowed it to a trickle. 

Oh, Mr. Popular, all of a sudden, which means that Canada is aging much, much, much quicker than the United States. And remember, in the United States, the baby boomers are already two thirds retired. So we know we face an explosion in social welfare payments over the next decade. Canada is ahead of us, and Canada lacks a millennial generation of size comparable to what we have south of the border. 

Which means if we were to do a merger of the Canadian provinces and the American states, it would be up to the United States to pay for the retirement of most Canadian citizens, most notably in Ontario, Quebec, and in the maritime provinces where the demographic decline is most advanced. So from a purely financial point of view, merging the two countries would be economic suicide for the United States. 

Let Canada pay for this. And if that means Canada pays for other things too, great.

Smokey Bear’s Best Friend: fire.airnow.gov

Wildfires with smoke and a car in the background

We’re talking about every hiker’s worst nightmare. No, not the feeling of slipping into wet boots that didn’t dry out overnight. We’re talking about smoke!

There’s a growing wildfire smoke problem across North America and there are three main drivers. The Western Rockies had an unusually dry year, causing large fires that could smolder well into the winter. Canada’s muskeg region is vast and swampy, but long-lasting and hard-to-control fires break out as the region dries out, sending waves of smoke across the US. And of course, Pineapple Express (no, not that kind of smoke); the atmospheric rivers that leave the PNW parched and fire prone. Surprisingly, the West Coast has fared much better than most years thanks to heavier rains.

The smoke situation is a recurring and hard-to-predict, but using FIRE.AIRNOW.GOV can help you track air quality and plan ahead.

Prefer to read the transcript? Click here

Transcript

Hello, Peter Zeihan here coming from Colorado. And today we’re going to talk about smoke. This is a topic that is very near and dear to my heart as a backpacker. As you may have noticed, whether you’re living in Minneapolis or Chicago or Des Moines or Kansas City, we’ve had some crazy smoke outbreaks already this year. So I thought it’d be worth showing a tool to you, as well as talking through the three biggest things that shape the smoke forecast for the United States. 

First of all, the tool fire.airnow.gov tracks a several thousand air quality sensors scattered across the country and maps out the smoke plume. So you know what to anticipate. Also gives you an idea of the danger level based on the particulate matter in the air, so you can judge your day accordingly. A tool that I use every day, all summer long. Use it to plan my trips, because I don’t want to be in the middle of that smoke choke, when I’m backpacking. Anyway, that’s the tool. Let’s talk about the three big things. Number one, moisture conditions in the Rockies, specifically the Western Rockies. As you move up elevation, the land becomes more arid because the air density is lower, so it can hold less moisture. 

What that tends to mean is that as you move up, you get into a more and more arid environment where conditions can change very, very quickly from maybe adequate moisture to completely inadequate. And you introduce a spark weather through, some asshole with a cigarette or a lightning strike, and you can get a big forest fire very, very quickly. 

Now, this year, the Western Rockies did not get as much moisture as they normally do. So they started out the season pretty dry. And already in western Colorado, we have a series of fires that collectively are about 200,000 acres and going. And most of the air quality issues we’ve had in the Denver area so far this year are because of those fires. 

About the only good point I can say about these fires is because of the nature of the topography. Mountainous. Sometimes it’s difficult for the fires to jump from one valley to another, and they tend kind of, sort of to be somewhat self-contained. However, these are rugged areas. There’s low population density. It’s very difficult to fight fires in these areas. 

And so if a fire does start up, they tend to burn until winter. And sometimes they’re not completely out until after Christmas. So these are kind of a chronic issue that kind of needles air quality throughout the Rockies. That’s number one. Number two Canada. Okay. So Canada is a very weird place, topographically speaking, is a huge country with lots and lots of climate zones. 

But the one to watch the most is an area called the muskeg, which is a zone in northern Saskatchewan, in Manitoba, going over into the Canadian Shield, into western Ontario. These are areas that are almost completely unpopulated. And in the wet months they’re basically swamps. But if you have several months of low rainfall, the swamps start to dry out. 

And as soon as that happens, all it takes is a spark and you can basically get some sort of surface peat fire almost that can burn, burn, burn and burn. At the time that I’m recording this in the middle of what is this August, there are over 200 fires burning in this section of Canada. In many ways, it’s more dangerous and more problematic than what we have in the Rockies, because these zones are not mountainous. 

And so if you have an area that has become parched, it can just burn and burn and burning, burning, burn. And if you remember back in July when we had really poor air quality as far south as Kansas City and as far east as New York, almost all of that was because of these Canadian fires and because it’s swamp part of the year, and because it’s basically frozen tundra part of the year. 

These are not things where any sort of mitigation can really help. In the Rockies, you can go through foot by foot, acre by acre, clear out the Deadwood cut down the dead trees, haul it all off, put it into piles or whatever. That’s something I’ve done on my property for sure, because I live in a fire zone. You can’t do that. 

And the great untouched barrens of northern Canada, you just have to suffer through the fires and it’s going to be a bad fire. You’re up there. So for those of you in the Upper Midwest and the northeast part of the United States, expect more and more waves of smoke. All right. What’s the third one? Pineapple express? There are things called atmospheric rivers where you basically get channels of high altitude winds that suck moisture out of the oceans, and they just push them across the planet. 

And when these channels hit a mountain range, they rise and they drop a lot of moisture. So what we see in California, Oregon, Washington and British Columbia is the atmospheric river whips around like a fire hose at the firemen has lost control of, and it will spray the area with massive amounts of rain in some years or in other years, it’ll miss you completely and you’ll just kind of get the suction effect. 

And as the wind goes down the other side of the mountains, you get a compression effect, which actually increases air density and temperatures and makes you more prone to fires. So you get these two extremes. You get sprayed down by the atmospheric river hose, or it avoids you completely and just sucks the moisture along in its wake. Drying you out this year is absolutely a hose year, and so we’ve seen almost no fires up and down the Pacific Northwest. 

But if you remember back to say, the year 2000, when it seemed the world was going to end, that time we actually saw the Amos River avoid this region completely desiccated. And we had some of the worst forest fires in recorded history. So for me personally, going to Yosemite and a couple of days, this is perfect because while there are fires in Canada, I’m not going that direction. 

There are fires in western Colorado. I’m leaving that area. I’m going to California, which has now experienced some of its best moisture conditions in several years. The chances of fire are minimal for the rest of you, fire air now.gov and keep ahead of it.

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.

Prefer to read the transcript? Click here

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.

Getting Ready for Trump’s Tariffs

AI generated image of supply containers with the flags of the US, Mexico, and Canada on them

If you look back at my videos covering a potential future recession, you’ll notice that I really wasn’t too concerned in the short term. Well, this next set of tariffs to be announced in early April, might change all of that.

The 25% tariff on trade with Canada and Mexico will increase costs for several industries and potentially shut down key manufacturing states. But it doesn’t stop there. The 40% tariff on imported food will be devastating for low-income families and could push millions below the poverty line. And again, it doesn’t stop there.

The proposed reciprocal tariffs could create economic chaos. Besides the bureaucratic nightmare that would ensue, US consumers and businesses would have their feet swept out from under them.

As the US begins to prepare for the decline of Chinese manufacturing, the slowing of industrial expansion caused by these tariffs couldn’t come at a worse time. Should these tariffs go into effect in early April, you should get ready for a US recession (and almost certainly a more severe global economic downturn).

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, all. Peter Zeihan here, coming to you from a bright and sunny Colorado today. Oh. This is going to be a big one. I have to warn you about the recession that’s just around the corner. Now, if you go back to my work from last year, I have been of the belief that we had no reason to fear recession at all. 

U.S. consumer spending was strong. Industrial construction spending had been hitting records for almost two years straight. Technological productivity was starting to pick up again. Things looked pretty good. There was no big debt overhang except for in the federal government. And that’s not new. And in private sphere, credit card Defaults, mortgage and car loan defaults were well below historic norms. 

They were simply off the record lows that we had in the aftermath of Covid. Things looked pretty good. But we’ve had a significant degradation in the environment in just the last several weeks, and it’s worth outlining to everyone on how we got to where we are, and especially what’s just around the corner. And if you were to sum it up in one word, it’s tariffs. 

The Trump administration has had this on and off again tariff policy versus everyone, but particularly heavily concentrated here in North America targeting Mexico and Canada. We’ve had 71 specific tariff policies announced since Donald Trump became president. And the biggest one is a 25% tariff on Canadian Mexican exports, which has gone on and off and on and off and on and off. 

Based on the diplomatic back and forth among Ottawa, Washington and Mexico City, what that’s done is it’s reduced the argument that investing in North America is a good idea, because if you’re going to have tariffs on American manufacturing, and that’s exactly what this is, because U.S. manufacturing is not like historical manufacturing. It’s an intermediate goods trade. 

So for example, the intermediate goods trades just among Canada and the United States is about two thirds of $1 trillion. And that’s products going back and forth and back and forth and back and forth, having value added by whatever company happens to be best at that space. We got twice that sort of relationship with Mexico and if you slap a 25% tariff on that, it gets applied every time something crosses the border. 

One of the fun facts of the world today is we have basically absorbed every Canadian province and every northern Mexican state into the American industrial behemoth. And by putting tariffs on it, we’re basically breaking up our own system, particularly in industries that have a lot of moving parts, like aerospace and automotive. Well, one of the tariffs that’s supposed to hit in the first week of April, specifically per second is an establishment of that 20% tariff. 

Trump says he’s not going to offer any exemptions this time along. No more delays. We’ll see. Because he seems to think that 60 days is a enough time to unravel 40 years of supply chain of supply chain integration, which is, you know, amusing. 

If this goes down as Trump says, it’s going to do, it’s going to mean an immediate recession in the manufacturing space in Washington, Missouri, Colorado, Kansas, Texas, Alabama, Tennessee, Kentucky, South Carolina, Wisconsin, Michigan, Indiana and Ohio. These are the states that are big into either aerospace, automotive, or more likely, both. And you’re basically looking at a shutdown in those sectors, because every single vehicle we produce in this system is going to go up in price between 4 and $6000. 

And there is not a model of jet that Boeing is capable of producing. That with a 25% internal tariff can still produce more cheaply than what we can get from Europe’s Airbus. So we’re not necessarily looking at those industries being dead forever. But the adjustment period will require years. Okay. That’s only the first piece. The second piece is agricultural tariffs again kicking in the first week of April. 

And if it goes according to plan, April 2nd again, it’s a 40% increase. Now. Right now the United States imports about, one sixth, one fifth based on who’s doing the numbers of the amount of food that we eat. Keep in mind that what we import is stuff that we cannot, cannot, cannot produce, whether it’s because of climatic issues or because of seasonal issues. 

So, for example, it is March right now, blueberries can’t be produced in the United States right now. Those come from the southern hemisphere. Let’s say you want seafood unless it’s produced in the American waters, something like Pacific cod is simply produced too far away. We can’t substitute that coffee’s another good one aside from a little bit coming out of Hawaii. 

And I love me some Kona. The other 99% of our coffee consumption comes from places that are basically tropical or semi tropical and uplifted with elevation. That’s where coffee is produced. And it’s like that for every single product category. There are very few places where there’s any meaningful competition between imported foods and local foods, because the local foods are going to be so much cheaper to produce, assuming we can produce them in the season in question. 

So a 40% import tariff on agricultural products is hardly going to change at all what American agricultural producers produce. Because if they could produce those things in those seasons, they would already. So that just hits people’s pocketbooks directly. 

And the bottom 20%, the bottom quintile of Americans by income, one third of their money is spent on food. So you’re talking about knocking somewhere between 10 and 20 million people below the poverty line. Just from that one thing. And the scary thing is these first to Canada, Mexico and AGG, these aren’t the big one. The big one is the third one, something called reciprocal tariffs. 

Now on the surface reciprocal tariff sounds like it’s fair like it’s simple. If they put a 20% tariff on I don’t know steel tubing. We put a 20% tariff on their steel tubing. That ignores a couple of things. Number one, it puts your tariff policy completely at the mercy of their tariff policy. So you lose policy flexibility. 

Number two, it ignores things that we import that we don’t export. Coffee is a great example. Why would we put a 50% tariff on coffee when we don’t even export any. And then third, it’s a problem from an administration point of view. Official I know it sounds kind of a bit of a snoozer, but it’s really a deal killer because right now we have dozens of tariff policies on different products, and Donald Trump has added 70 to those over the course of his term. 

So far in this second round, there are tens of thousands of product categories. There are 200 countries that comes out to 2.3 million tariff policies, which would create a bureaucratic abomination from which the world would never recover. There’s a reason why we unilaterally abandoned this sort of tariff policy a century ago and never looked back. Now, Trump, in the last 72 hours, I’m recording this on the 21st of March. 

He has come up with some modifications on that. So we don’t know what the final shape is going to be. And he’s suggesting now that it’ll be a single number per country with probable call carve outs for things like manufacturing or tech or agriculture or defense. So instead of 2.3 million, we only have a thousand policies. And that theoretically could be applied. 

But keep in mind, all of these reciprocal tariffs are on top of everything else that he’s doing. And for a country that imports as much as the United States is, this is absolutely going to be a massive shock to the consumer. You basically have three types of economic activity government spending, which if Trump does what he says he wants to do, is going to be stall to shrink, although that’s not the impact so far. 

Number two, industrial spending that’s been flatlined now for the last two months. And third is consumer spending, which is the biggest one of all these three things together are more than enough to cause a recession in the United States and something worse than a recession on a global scale. Now, I have spent my professional life warning people that globalization is coming, and when it does arrive, it’s going to be a shock for some countries more than others. 

With the United States being of the countries that’s on the less side. And in the long term, a demographic industrial strength means that we will probably be just fine. But getting from here to there is going to be a bit of a rough ride. The Trump administration’s policies, when it comes to tariffs, are going to make this a much longer transition and a much harder ride than it would need to be otherwise, because I ultimately have my eye on the disintegration of China’s a unified nation state with all that industrial plant going away. 

And we need to massively expand our industrial plant if we’re going to prepare for that world and just the Canadian Mexican tariffs before you consider the rest has basically put that process on hold and we’re losing time. And if these tariffs go down in the first week of April like it sounds like they’re going to, we’re going to lose a lot more.

Getting Ready for Trump’s Tariffs – TEASER

AI generated image of supply containers with the flags of the US, Mexico, and Canada on them

Today on Patreon, I released the full video covering Trump’s next round of tariffs set for early April and the impact they’ll have on the economy. For access to that video, join the Patreon now!

We’re also excited to announce our next LIVE Q&A session will be on April 9th! This is an exclusive perk for our Analyst members on Patreon. More info can be found on the Patreon page.

Click here to learn 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, all. Peter Zeihan here, coming to you from a bright and sunny Colorado today. Oh. This is going to be a big one. I have to warn you about the recession that’s just around the corner. Now, if you go back to my work from last year, I have been of the belief that we had no reason to fear recession at all. 

U.S. consumer spending was strong. Industrial construction spending had been hitting records for almost two years straight. Technological productivity was starting to pick up again. Things looked pretty good. There was no big debt overhang except for in the federal government. And that’s not new. And in private sphere, credit card Defaults, mortgage and car loan defaults were well below historic norms. 

They were simply off the record lows that we had in the aftermath of Covid. Things looked pretty good. But we’ve had a significant degradation in the environment in just the last several weeks, and it’s worth outlining to everyone on how we got to where we are, and especially what’s just around the corner. And if you were to sum it up in one word, it’s tariffs…

Will the US and Canada Actually Merge?

Photo of US and Canada Flag

Listen, I didn’t want to make this video, but too many people asked for it…so here we go. What would a potential merger of the US and Canada look like?

The US won’t be invading Canada and there won’t be a nationwide Canadian petition for US membership, but how would it happen? It’s more likely that individual Canadian provinces – like Alberta and Saskatchewan- would secede and apply for US statehood.

These two provinces are young and wealthy, meaning they’re going to have to put the rest of Canada on their backs (financially speaking). They already have strong economic ties to the US, so a merger isn’t as far-fetched for them. The rest of Canada would likely destabilize if those provinces left, due to aging demographics and financial struggles.

For the US, incorporating Canadian provinces would mean a significant reshaping of American politics. However, that doesn’t mean it would be all that difficult to add them in; it’s a much easier process adding states than amending the constitution.

Regardless, I don’t see this happening anytime soon. There’s too many financial, political, and demographic factors at play. But if it did happen, both countries’ political and economic landscapes would dramatically shift.

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

All right. I didn’t want to do this video, but too many people on both sides of the border have asked so what would a merger of the United States and Canada look like? All right. Let’s start with the simple thing. The United States is not going to invade Canada. There is no serious talk about Trump. He hasn’t even really joked about it. 

So let’s just put that to the side. Canada has just shy of 40 million people. So if it was to join in a single piece, it would be right up with California as our first or second most populous States. But it has a demographic picture that’s kind of a mix. And so what would be far more likely to happen? 

Because the idea that a majority of Canadians are going to petition for U.S. membership is a stretch. We’ll be far more likely to happen. Is individual provinces of Canada would secede from the Canadian nation, and then apply for statehood for the United States. 

The first two states to watch are the two that are youngest demographically, that are the richest in per capita terms, that export the most commodities per capita, and are already fairly culturally linked in with the United States. 

And those are Alberta and Saskatchewan. And if you’re looking at a map of Canada, keep in mind that everyone lives in a thin strip along the southern border. So you’ve got British Columbia on the Pacific. You’ve got some mountains, big mountains, and then Alberta and Saskatchewan, Manitoba, the third of the prairie provinces. And then you crossed something called the Canadian Shield, which is about 1000km of very rugged terrain, heavily forested, where there’s only one road and one rail line. 

Before you get to eastern Canada and in eastern Canada, you’ve got the population bloc of Ontario and Quebec, which are the bulk of the country’s population. And then fringed around them are something they call the maritime territories, which are provinces, but lightly populated. And, basically, I’m overstating this, so apologies. Heavily populated by retirees. So from from a financial point of view, there’s not a lot there. 

Where the money is, is Ontario and Quebec, the two most populous provinces? British Columbia, which has a big population around Vancouver and serves as the Pacific Gateway and then Alberta, which is the energy hub. Saskatchewan is kind of a little bit of the energy hub. And then a lot of agriculture, just like Alberta. What would happen is Alberta and Saskatchewan or Alberta or Saskatchewan would leave, the Canadian nation, which is legal in Canada. 

You just have to have a plebiscite that was affirmed by A90 ruling by the Canadian Supreme Court quite some time ago. With regard to tobacco separatism. Anyway, the reason that these two provinces, Saskatchewan and Alberta, would leave is largely financial. When Quebec was having all of its fits in the 70s and 80s and early 90s about secession. 

The the what? The deal that was struck was that Ontario, which at the time was the richest and the most populous province, would basically pay Quebec to just stop it. So, Quebec has basically been paid for the last few decades to remain part of Canada and not have secession votes. It’s gotten more and more expensive because Quebec’s birthrate, is among the lowest of the major. 

It is the lowest of the major provinces. And so the whole province has already functionally slid into obsolescence. The problem is, in Ontario. The birth rate has been very low for a long time. And if it wasn’t for the huge surges of immigration, which have had other complications. 

Ontario has now aged to the point that if it wasn’t for huge surges in immigration which generate their own problems, Ontario wouldn’t be able to pay to keep, Quebec in the country anyway, but it is still aging very rapidly. 

And of late, Canadians have pushed back against this open door immigration policy, which hasn’t been necessary for economic reasons. But now, culturally, it’s kind of hit a breaking point and everything has slowed significantly, which means that Ontario is now rapidly aging again. And within five years, Alberta will be the province that is expected to pay for, Quebec to remain in the country with a little bit of help from Saskatchewan. 

The maritime provinces have already aged out, and if the two most populous provinces age out, there is no way that Saskatchewan and Alberta, which collectively have less than 7 million people, can pay for the rest of Canada to continue to exist unless they just become destitute. That’s the financial argument for why you might see secession in the prairie provinces. 

And that’s before you consider that every individual Canadian province, trades more with the United States, and it does with the rest of Canada. And that is true for none of them more than it is for Alberta. So you’d actually solve a fair number of problems if Alberta applied and Saskatchewan applied for American, statehood. Now, the question then is what happens next? 

Because these are the two richest bits of the country. And if you split British Columbia off from the rest of the country, because now the prairies have gone a different way, it basically devolves into fourth world status very quickly. It’s industry is already wildly noncompetitive, and basically what has kept B.C. afloat for the last several years is capital flight coming in, most notably from China to be processed in BC and then spread throughout the Canadian economy? 

That would stop if there was no land connection. The only other business that you really have in BC is it serves as the entrepot for Asian exports coming into Canada. If you use the super port in Vancouver, repackage everything on the rail and send it east. If you can’t get through Alberta and Saskatchewan. That’s not going to work either. 

So BC looks really awful in that circumstances, and the rest of Canada out east doesn’t look great too, because basically it’s a retired country that looks worse than most European demographics. So. If all of these other provinces, either in combination or independently, were to ask for statehood in the United States, we’d have to do some really hard math as to whether it would be worth it. 

Picking up a half a dozen states that economically are almost destitute. Basically, you’d be adding a half a dozen mississippis. I’m not sure we would be willing to do that. And that’s before you consider the politics of it. By the way, the United States does political math. Saskatchewan and Alberta would probably be considered 1990s style Texas Republicans a little bit more libertarian, socially moderate, economically conservative. 

They wouldn’t get along with today’s MAGA all that well. But the rest of Canada, especially BC and Ontario and Quebec, would be of the Elizabeth Warren branch of the Democratic Party. And getting that through Congress might be kind of interesting. Now, that said, adding states is not as complicated as amending the Constitution. You want to amend the Constitution, you need two thirds vote from both houses of Congress. 

And then in three quarters of the states, legislators legislatures have to ratify it. You want to add a state, you just need a simple majority. So you just need a simple majority of Congress. You don’t ask the states at all. And then the president signs off just like a normal bill. So if if if if if if we get to that point, Canada will very quickly become a political flashpoint regardless of what politics looks like in the United States, because you’re talking about potentially adding ten provinces or ten states to the United States, a system that’s 20 senators and about the same number of representatives as California has, which I believe is around 50 right now. So a significant shift in the balance of power, that would completely re fabricate how we have our politics. Now, if that happened in a year, wow. That would be all kinds of explosive, because the United States is in the midst of a pretty deep political reorientation, by itself. But at any time that, you have that sort of disruption, you’re going to change the political math by how the country works. 

And then and then you get to talk about how things like Medicare, Social Security, and Medicaid, which are the three of the four biggest line items in the U.S. budget, get re fabricated when you add so many people who are already retired. It would be a hoot. Don’t think it’s going to happen anytime soon, but if it was going to happen, that’s how it would go down.

Trump Takes on Trade

Photo of man standing in front of trade shipping containers

There’s plenty of tools at the disposal of the US President and tariffs are one of them. When used appropriately – i.e., to get something else or discourage a certain action – tariffs can be a very effective measure. However, Trump is using them as an end, rather than a means to an end.

This has blossomed into “reciprocal tariffs”. These aim to match foreign tariffs on US goods. At first glance, this idea seems fair, but the complexity of international trade, vast product categories, and admin that would be involved make this nearly impossible.

If Trump continues down this path, it is likely that US international trade would come screeching to a stop and a severe recession would follow.

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, all. Peter Zeihan here, coming to you from Colorado. We are continuing with our, coverage of Trump’s first month in office. We’ve gone through the Middle East and China, the former Soviet Union, Europe. Today we’re going to talk about, international trade, specifically tariffs. Now, tariffs obviously are something that Trump is quite fond of. And it’s pretty clear by this point that he doesn’t necessarily see tariffs as a means to an end, but just an end in of of themselves, which is not great economic policy unless you already have your industrial plants set up. 

And even then it’s wildly inefficient. But let’s focus on more of the specifics. I’ve talked at least briefly about the tariffs on America’s closest trading partners. I think it’s worth underlining what a couple of these things would do. One of the new ones is Trump says he wants to do a 100% automotive tariff on Canada. 

Keep in mind that every car manufactured in the United States includes a substantial percentage of parts that come from Canada and Mexico, most of them over one third, a lot of them two thirds. And vice versa. It’s a very integrated system. So if you were to put anything more than about a 15 to 20% tariff on autos specifically, are you going to be taxing things as they go back and forth across the border? 

And you’re going to cause a massive headache for American consumers, raising the price of your average vehicle by somewhere between 4 and $8000. If you do 100% tariff, we just stop making cars. Detroit collapses within a week, and Texas within a month. So, you know, not my recommendation. But I think a more interesting topic is one that’s gotten a little coverage. 

The Trump implemented last week and something called reciprocal tariffs. And it sound on a surface to be pretty fair. The idea is if somebody else has a 15% tariff versus a product, that comes from the United States, then you should flip that and have a 15% tariff on anything that you take from them that is in that product category, and at least on the surface, against places like China where tariffs are high and subsidization is high, in order to force American products out of the product mix. 

It seems like a great idea, right? A couple problems here. Number one doesn’t always line up that way for climactic reasons. So, for example, if Kenya has a tariff on imported coffee, we’re going to what tariff coffee we bring in from Kenya because, you know, we don’t export coffee, so we’d just be charging our people more. 

That’s a pretty minor one. The bigger one, though, is administration. There are literally hundreds of thousands of product categories. And that’s before you consider intermediate product trade. And so if you want to do a reciprocal tariff, number one, you need a massive staff, at least an order of magnitude more than what we have a Customs Enforcement in the FTC, Federal Trade Commission right now just to learn all the product categories and all the tariffs for all 200 odd countries in the world. 

And then you would need at least five times as many of that staff to then enforce, these tariffs at the border. Keep in mind that most international trade, even today, is not digitized fully. It might be on the container level, but each container is going to contain somewhere between dozens and thousands of products, and typically not all from the same country, because as container ships go around the world, they drop things off, they pick things up. 

If there’s space in a container, you can always shove more in there. And by the time it gets to the United States, it’s a mess. And then what comes off is not all of it necessarily. Some of it gets shipped back out. And so somebody has to manually enter every single product. So it’s not so much that, reciprocal tariffs isn’t fair or is at least intellectually a good idea, but actually putting it into process basically ends trade, because it’s impossible to administrate with anything approaching the number of people we have in government right now in total. 

Much less if you wanted to do anything else. Now, the fact that Trump has announced this anyway gets back to the general theme of all of this is that he’s built a completely incompetent administration that won’t tell him the truth, because the truth might not make him look great. But on this specific topic, it’s less of a designed incompetence and more a purposeful incompetence by his other staff. 

Trump’s trade representative is a guy by the name of Jamison Greer, who is a smart dude who basically was raised from a pup by Robert Lighthizer. And Lighthizer was Trump’s first term trade representative. And Lighthizer has been in and out of government and at the center of American trade law going back to the 1980s into the Reagan administration. 

So, I mean, this is a guy who knows everything, is everything about trade. He’s not shy about using tariffs, but it’s always when there’s a specific goal in mind in order to reshape the relationship. He just doesn’t just do tariffs or turfs anyway. Greer learned at Lighthizer he was his chief of staff, during Trump’s first term. 

Definitely knows what’s going on. And definitely knows that reciprocal tariffs is a horrible idea unless you’re going to do an absolutely massive state expansion, which is definitely not in the cards. So one of two things either happened. Number one, he probably took the advice of Lighthizer because one of the things that Lighthizer learned from his four years working with Trump the first time around is you never contradict Trump. 

Not in public, not in private. You just nod. You smile. You make him think that you were one of the brainless people that he has surrounded himself, that do nothing but tell him how wonderful he is, and then hopefully he gives you enough room and enough lack of attention, for you to actually go and do your real work. 

And for Lighthizer, at least in part, that worked. He was able to renegotiate NAFTA and the Korean trade deal. He got a new trade deal with Japan, made a lot of progress on a trade deal with the United Kingdom. But then, we just ran out of time. And then there were the events of January 6th. So, Greer clearly knows that reciprocal tariffs are horrible. 

Just beyond stupid idea. But either one. He kept his mouth shut, nodded, and smiled. Or number two. He told Trump this and, managed to do it in a way that didn’t get himself fired already. Even odds for probably the first one being the way one or whatever went. 

So we’re going to see more things like this. 

Because the only way that reciprocal tariffs can work is with a staff you can’t build. So either we go 1 or 2 directions at this time. Number one, reciprocal tariffs are actually implemented, in which case pretty much all international trade stops in the United States falls into a really, really ugly recession in a short period of time or, or there’s an actually an effort to implement it on a case by case basis for specific countries, absolutely wrecking trade relations with that country. 

That could get interesting based on who you choose to go after. Hopefully it would not be a country like Canada. Oh my god. But if you did against India, that could actually set the stage for changing the relationship in any number of ways. But Trump coming to that conclusion would require someone to explain to him how reciprocal tariffs overall are. 

Really bad idea. And I don’t think that is going to happen at all.

Can Tariffs Replace Income Taxes?

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

Imagine never paying income tax again. Sounds damn nice to me too. That’s until reality kicks in and you start looking at the math on how large the tariffs would need to be to replace those taxes…

Tariffs on imported goods would need to be roughly 50-65% and you could imagine the fallout that would have. Trade with key partners would collapse, prices would surge, supply chains would be disrupted, and energy supplies would take a hit. Tariffs once worked as a revenue source for the US, but with all the current programs and expenses, they barely scratch the surface.

In theory, there could be a way to make this work; like implementing entitlement programs, so a lower tariff would suffice. However, that would require some massive political changes that the US just isn’t ready for.

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, all, Peter Zeihan here. Coming to you from a windy Colorado. We’re taking a couple of questions from the Patreon page today, specifically. A lot of talk in Washington these days is about replacing all income taxes with import tariffs. Is this possible? What do you think about what it would look like? Great question. The proposal dates back to something that predates the income tax, which was really adopted only about a century ago. 

But you have to keep in mind the volumes in question. Today, the United States imports about 1.14. trillion dollars of goods and services, about, three quarters of that as goods. And the tax generates about 2.6 to $2.7 trillion of income. So if your goal is to zero out the income tax, you need a tariff on everything, not just from China, everything that is in the range of 50 to 65%. 

I guarantee you, if you increase the price of things by half, it’s going to change how we live. For example, we bring in a lot of Canadian crude, heavy stuff that is then refined into, distillates such as gasoline and diesel, which are the primary fuel source for most of, say, the Midwestern part of the United States. That would go to zero almost overnight with a 50% increase. So we’d have lots of reshuffling. We’d have to basically shut down trade relations with all of our major countries that participate. Link supply chains with us. And, anything that is electronic come to Asia would get very expensive. 

So you’d have some big impacts. The reason why you’d have this, such as mismatches. We don’t have the same economy that we had back during the times in the 1800s, when tariffs were our primary source of income. So we have built out the social welfare state with Medicare, Medicaid, Social Security and defense now being our four biggest line items in the government. 

So if you were to zero out Social Security, Medicare and Medicaid, then you could perhaps talk about doing an equalization with a tariff that’s only around 20 or 30%. But I would argue that that would require a lot of political evolutions in the United States that we are not quite ready to cope with at the moment. So it’s an interesting idea, but as a, as an income tax eliminator, we’re nowhere near to tariffs, being the solution to that particular problem.