All That Bitchin’ Won’t Keep China Around

A skyline of Beijing, China

We’ve all been there. It’s Friday evening, the office is packing up for the weekend, and the boss decides it’s the perfect time to announce something big. So, I hope you enjoyed your weekend of mulling over the idea of what a 100% tariff on all Chinese imports would look like.

This is a retaliatory tariff in response to Beijing’s rare earth restrictions, but this is bigger than trade drama. China is falling apart demographically, which will domino into everything else over the next decade (ahem, like exports). Whether China-US trade stops because of tariffs or demographics, it is coming soon.

In short, quitcha’ bitchin’ and get ready for a world without China.

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Transcript

Hey, everybody. Peter Zeihan here coming to you from Colorado. It is the 10th of October, and it’s just after closing time in Washington, D.C.. And right after everybody closed for the day, Donald Trump said that there’s going to be a 100% tariff on everything coming from China by November 1st, if not before, because the Chinese are putting restrictive, policies on their exports of rare earth materials, most notably to the United States. 

Rare earths are materials that are produced in trace amounts as a byproduct of the refining and mining of other metals, most notably, silver, lithium, copper. You basically have to take the concentrate that’s left over once you’ve gotten the primary stuff and then go through a series of refining steps that are very energy intensive and very polluting. 

And China has cornered that market. So they produce more than 80% of all of these materials. In some cases, it’s a functional 100% monopoly. Anyway, a lot of these materials help other properties emerge in more traditional things that I can be used very heavily in things like defense, materials. And so the Chinese have always found this to be a very useful pressure point. 

They’re also very much used in semiconductors. Anyway, the Chinese have restricted their exports. Trump has said no more and is now basically, saying that he’s going to double or more the tariffs that are in place. And that’s just the beginning. Okay. Now, before anyone makes this about trade or makes sort of Trump, I need to remind you guys of something. 

The Chinese are dying out. They already have more people aged 54 and over than 54 and under, and within ten years they will not have enough people under age 60 to run an economy. So it doesn’t matter who you are, it doesn’t matter what your producer export or import. 

You need to assume that that trade relationship is going to go to zero. Doesn’t matter if you’re exporting soy or beef or semiconductors or ethane or anything. Zero zero is where this is going. It doesn’t matter what you import from China, whether it’s transformers or wire or process chemicals or fertilizer or anything. It doesn’t matter. It’s going to zero. 

The only wiggle room here is the time frame. Either the Chinese die out over the next ten years and it goes to zero, or the Trump administration puts into place and owners tariffs. And by November 1st, or maybe even before it goes to zero, either way it is going to zero. So everyone needs to plan for that happening. 

Does the time frame matter? Of course it matters. Would I like to have more time? Of course I would like to have more time. But to pretend that this is a purely political question that can be negotiated away is a fallacy. And if that is your position, you’re going to lose everything. So quit your bitching and start your planning for a world without China. 

Sooner or later.

Should China Invade Siberia?

Cleaning the tents in northern Siberia

While the Russians are busy throwing everything they can at Ukraine, could China make a move to seize Siberia?

This is highly unlikely and there’s really no point for the Chinese to make a move on Siberia. Best case, they get some oil fields (which they can’t operate without Western assistance) located in a cold and barren region with limited potential for any growth. And they run the risk of the Russians whacking that scary red button.

If any power wanted to challenge Russia in the Far East, they would need to cut off Moscow from Siberia. This would involve severing the Trans-Siberian Railway and making a move on the choke point in Tatarstan. But again…that nuclear carrot would still be dangling over the invader’s heads.

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Transcript

Hey, all, Peter Zeihan here coming to you from Colorado. Today we’re taking a question from the Patreon page. And that is with the Russians. So obsessed with all things Ukraine, with all our military force going there, with the dependency they have on the Chinese for military equipment, would now be a good time for China. Just take over Siberia, I think. 

I see where you’re going. But, invading Russia is never as easy. It sounds, three things to keep in mind. Number one, the single most valuable thing in Siberia is the oil and natural gas. And the Russians aren’t the ones who really produce that. You’ve got something called the covector field, which is the general vicinity of Irkutsk, which is by, Lake Baikal. 

And then you have the fields offshore of Sakhalin Island in the Far East. Neither of these are operated by the Russians. They’re very technically challenging projects that are done by Western companies. And there’s still Western consulting work being done in order to allow the production to continue under sanctions. And if that were to end, or if the Chinese were to take over those facilities themselves, the Chinese do not have the technology to operate them either. 

So it would be kind of a wasted effort. So that’s number one. Number two. Population. Yes. There’s only 10 to 15 million Russians in Siberia. But that’s because the carrying capacity of the land is very low. You’re not going to be able to forward stage a population there that can really do much. The agricultural potential is shitty because the climate is so crappy. 

Third, if these reasons do not dissuade you, consider that the Russians still have the world’s single largest nuclear arsenal, and they made it very clear during the Yeltsin years that should the Chinese attempt to invade, that the Russians would not meet them with tanks and with guns and with men, they would just nuke China’s cities. And that policy formally remains in place. 

So if, if if the Chinese decided that they wanted to make a bid for Siberia, what they have to do is prevent the Russians from interfering in the operation. And the first piece for that would be to sever the Trans-Siberian railway. The TSR is a single transport network that allows European Russia to interact with Asiatic and Siberian Russia. 

And if you were to cut it somewhere closer to European Russia, then there’s really not anything the Russians could do in a conventional set to counter Chinese actions or Japanese or anyone coming in from the Far Eastern theater. The logical place to do that cut would be a place called totter Stand, the Tatars are an ethnic minority, the single largest minority 

in Russia and Kazan, their capital, is not only a relatively advanced city. This is not only the educational system that generated Mir. This is not only an oil area in its own right, but it sits on top of the TSR. So if Tatarstan were to declare independence or fall into rebellion in some way, then the Russian ability to manipulate events in the Far East, much less send troops, would be gone. 

And then all that would be left would be the nuclear card. And then we could talk about some really interesting things. No sign that that is happening right now, by the way, same goes on the Ukraine war. There’s a specific city that sits upon all of the connecting infrastructure that links Moscow to the Caucasus, Rostov on Don. 

And if Rostov on Don, which has been a major staging point for Russian forces in the Ukrainian war, were to fall or rebel or whatever, then all of a sudden Russian power in the Caucasus would be shattered and we’d be dealing with, at a minimum, a new Chechen rebellion. So there are these nodes in Russia that really matter. 

But at the moment no one is poking them with any sticks.

Can China Break Through the First Island Chain?

Photo of a submarine emerging out of the water

I often hear rumblings of China’s naval power, but one of the many reasons I pay no mind is the first island chain. This is a line of islands stretching from Japan through Taiwan and the Philippines down to Indonesia, Malaysia, and Singapore. And China has very little chance of breaking through that chain…here’s why.

China would have to occupy and pacify Taiwan and the Philippines’ Luzon. Then the Chinese would have to defeat Japan, which is laughable to even entertain. But let’s say China magically pulls that off, they’re still facing demographic collapse, dependance on imported materials, and trying to maintain global sea access. And of course, the US would withdraw protections from Chinese commercial shipping. Oh, and don’t forget the regional powers who would step in and ensure that China was contained.

Long story short, I’m not worried about China breaking through the first Island chain.

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Transcript

Hey all Peter Zeihan here coming to you from Colorado. Today we are taking a question from the Patreon crowd specifically. It’s about the first island chain and whether I think that can be the basis of an alliance that does not involve the United States to contain, the Chinese. Good question. For those of you who are not familiar with the strategic geography of the Western Pacific, the first island chain is a long line of populated islands that basically parallel roughly the entire coast. 

So Japan in the north, Taiwan and the Philippines in the center, Indonesia, Malaysia and Singapore in the south. And the reason that the Chinese stress about the first island chain is that there’s no obvious place for the Chinese to achieve naval breakout and project to the rest of the world. To this day, the United States counts basically all the members of the first island chain, except for Malaysia as firm allies. 

And Malaysia is obviously a robust trading partner. And so the Chinese have basically lost the opportunity to even attempt a breakout in any meaningful way. And most Chinese naval strategy is about how to punch through the first island chain and get beyond. The question, of course, is whether or not this can happen without the United States. And the short answer is yes, it’s pretty easy. 

Two things. Number one, achieving a temporary breakout for the Chinese achieves nothing. Let’s say that they are able to break through between the Philippines and Taiwan, for example. There’s a fairly big gap there. Okay. They’ve now made it out into the wider Pacific. But all their supply lines run through that break. So the Chinese don’t simply need to get a fleet out. 

They then need to keep the break open. And the only way to do that is to occupy the entire approach to and from that break, which in this case would mean the occupation and pacification of the Filipino island of Luzon, which is where the majority of the population lives in the Philippines, as well as the entirety of Taiwan. If they can do that, then they have a way in and out. Problem one that’s really hard and that’s probably the softest place in the chain. 

Problem two because of the presence of Taiwan right off the coast, they can’t just do this in one location. Southern China requires a breakout in the Southwest Pacific. Northern China requires a breakout in the Northwest Pacific, which means you’re not just occupying Taiwan and Luzon. 

You now also have to get the Japanese home islands. All of a sudden, you’re talking about a completely different sort of fight against a much more capable foe, that is much better able to defend itself. Otherwise, you might have a breakout for Shanghai, or you might have a breakout for Beijing, but you need both. That is the only way that China can survive in a world that has turned hostile. 

Problem three let’s say they do that. Not likely, but let’s say they do. So China is a country in demographic collapse. It lacks the consumption to produce what it needs. China is a country that is starved of raw materials. It has to import them almost first and foremost, including energy foods up there, too. So China doesn’t simply need to achieve breakout, it needs to achieve sea dominance on a global basis in order to access the world’s raw materials and end consumer markets. 

And, you know, I don’t know about you, but if a country starts conquering countries simply in order to get naval access for what? It’s commercial shipping, that’s a bad plan. So the very act of achieving a degree of security control over its near abroad pretty much ends any opportunity the Chinese would have for economic access to the wider world. 

One of the problems that the Chinese face, one of the issues that everyone who assumes that the Chinese are on this endless rise forgets, is that the Chinese economic system is utterly dependent upon freedom of the seas, and the only country on the planet who can guarantee freedom of the seas is the United States. Probably the best way to guarantee that the United States will stop protecting your civilian shipping is to start conquering other countries. 

So for this scenario to work for the Chinese, the United States not only has to say bygones and go home and cut all of its alliances and cease importing and exporting on a global basis. You then also have to have no one else trying to rise to that position, and the Chinese would have to conquer functionally the entire first island chain, which is an area with a combined population of roughly 300 million, I think maybe close to 400 million now that I’m thinking about it. 

And that’s just to achieve step one of a global breakout. So would an alliance of the first island chain be enough to stop them? Absolutely. Wouldn’t the alliance be needed now because the Chinese simply are incapable of taking on the whole thing, and taking on the whole thing would be the first step of getting to places like, I don’t know, the Persian Gulf. 

And along the way they would come across countries that are not part of the island chain, which could also wreck the entire thing. Australia, Vietnam and India being the big three. So this this firmly goes under the list of things the Peters Island doesn’t worry about.

China vs. Mother Nature: Can the Dikes Hold the Rain?

Person with umbrella standing on Xinghai Bay Bridge

Flooding has already claimed lives and destroyed infrastructure in Hebei, Beijing, and Tianjin. Over five feet has already fallen—more than an average year’s total rainfall and there is more on the way. There is more to this than just another bad weather forecast.

The North China Plain is flat and prone to droughts and floods. But the Chinese have learned to manage the Yellow River through a series of channels. Each year, the riverbed rises due to the silt, and the surrounding land now sits will below the top of the river. Which means that the dikes are the only thing preventing a catastrophe. We’re not just talking some rural farmland being flooded, we’d be looking at a mass casualty event in the heart of the country’s capital.

We’re not in panic territory quite yet. However, all it takes is a few more inches of rain and one of the dikes to give way, and hundreds of thousands of people will be at the mercy of Mother Nature.

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Transcript

Hey all, Peter Zeihan here come to you from Colorado. And today we’re going to talk about weather in China. There are areas of Hubei province, Beijing, the capital, and Tianjin province, which is the super port, the artificial port that has a lot of the capacity that serves northern China, that have all gotten just huge amounts of rain. Some areas have gotten in excess of five feet of rain, which is more than they normally get in an entire year, and more rain is forecast. 

Normally I wouldn’t comment on something like a weather report unless it was a hurricane about to hit the, say, the Persian Gulf or something. This is an exception. The issue is to just flat out human geography, cultural geography, and, economic geography. 

The North China plane, which is where Beijing is and where roughly two thirds of the Chinese population lives, is a very large flat zone that is normally fairly arid. 

And if you look at a map of northern China, you’ll notice that the yellow River, the primary river, does a lot of curves and everything because it’s not particularly steep area. So this is a region that is always dealing with either drought or flood. And when it floods, things get crazy because the river basin, the actual channel, isn’t very low compared to everybody else. 

In fact, most public works by Chinese government is going back a couple of millennia have been built about wrestling the yellow River into some sort of submission so you can break the flood cycle. What that has meant is that they’ve channelized the river over most of its lower length. So that when you do have the river coming through, especially in drought season, it drops a lot of silt, which builds up the riverbed. 

And so they have to build the dikes higher. So in most of the places where the yellow flows through populated China, the riverbed now is actually at a higher elevation than the surrounding floodplain. 

As long as the dikes hold, this is not a problem. So, yes, we have had evacuations that affect people. Thousands moving into the tens of thousands right now. Yes. We’re expecting more rain, but as long as the dikes hold, this is a water management issue. The concern would be is if in a populated zone, one of the dikes gives away. Because if that happens and it starts to erode, then you have a different sort of problem. 

Then you have the river pouring out of the basin and down into where everybody is living. In the past, when this has happened, you have literally had hundreds of thousands of deaths. The last time it went down in the early 2000s, the Chinese mobilized several million people to fill up sandbags until the river could be wrested back under control. 

Industrialized China has done a great job with their water waterworks. I’m not saying I expect everything to go wrong. I’m saying this is the sort of thing that breaks confidence in governments very, very quickly. There’s nothing like having tens of thousands of people drowning in your capital to shatter political coherence. Now, Chairman XI is far more aware of social disruptions in China now than he has been in a while. 

He decided to cancel the recent EU China summit. So the Europeans decided to relocate it to China so that he would attend. He is there. He is obviously aware, and I’m not suggesting we’re about to have a catastrophe. What I’m saying is I can’t predict the weather. All I can tell you is they’re expecting to have at least another six inches of rain throughout the entire zone, which could turn this from an isolated point as the water is moving down the river to a broader system where all the tributaries start to flood, too. 

So it’s something to watch. It’s not yet something to panic about. And if it does become something to panic about, you’re not going to have to hear it from me, because it will be everywhere. Because China will be underwater…

The Live Q&A Is Tomorrow + China’s Stance on Iran

The flags of China and Iran
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Iran was once a breeding ground of strategic importance. Well, they at least had the right stuff in the right place…or there was enough chaos to convince people to watch them. But times are changing, and the Chinese are no longer interested in Iran.

Iran has had no shortage of setbacks in recent times: battles with Israel, US hitting nuclear sites, and a diminishing influence over Hezbollah, the Houthis, and Iraq. And the amount of oil coming out of Iran pales in comparison to that of Saudi Arabia (and others). The Iranians are also losing their “control” over the Strait of Hormuz.

Iran is losing everything that has defined the country for decades, and the Chinese are taking notice.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. And today we’re gonna talk about how the Chinese view the Persian Gulf, specifically Iran. 

In the last month, the Israelis have launched an air war that’s basically destroyed Iran’s capacity for air defense. And the United States then went in and dropped a few bunker busting bombs on their nuclear program. 

Too soon to know if that actually worked. But, you know, the point is, Iran is not having a great time of it. They’ve lost control of Hezbollah functionally in Lebanon, the Houthis aren’t doing the best. They’ve lost control of Iraq. It’s been a really bad few years for them, and it’s the type of thing that’s going to take decades to kind of fix. 

So a lot of folks have assumed that for the last 20 years that the Chinese have considered Iran a strategic pull of any of their multipolar policy. And that’s that’s just not true. It’s not that the Chinese don’t see things that they can cooperate with Iranians on. Far from it. But Iran’s just not that important. A couple things to keep in mind at their peak. 

Back in the 1970s, before the Shah fell, before the clerics took over and it became the Islamic Republic of Iran, that has been hostile to really everyone. Iran was a major oil producer, about 4 million barrels per day, of which about 3 million barrels per day would be exported. But at their height, three more 3 million barrels per day exported. 

They were only exporting half of what Saudi Arabia exported at their absolute lowest. Saudi traditionally, produces something like 9 to 12 million barrels per day, with like 80 to 90% of that being exported. Iran has a much larger population, much more domestic demand, and can’t produce nearly as much. So if you are going to care about the Persian Gulf, Saudi Arabia is far more important than Iran, and Kuwait and the UAE together are more important than Iran. 

And the Chinese know they can do math. So that’s problem one with a theory that Iran’s really important. Number two, reason that Iran would be important is because it shares a long border with Iraq. And if you care about Iraq for whatever reason, then the Iranians can cause no end of problems there. Well, under the Biden administration, we withdrew from Iraq completely. 

And all of a sudden the strategic interest just isn’t there. So Iran can no longer use Iraq as a launching point into other parts of the Persian Gulf unless it wants to invade it first. And that would be, you know, noticed, the third issue was the Strait of Hormuz. The idea is that Iran will use jets and missiles and speedboats to basically block the Strait of Hormuz and prevent oil from getting in and out. 

Two problems here. Number one, the U.S. doesn’t care for the United States purposes because we are now a significant net exporter of crude, and we just don’t take a lot of crude from the Persian Gulf at all. Our interest in the Persian Gulf has always been to keep oil flowing to the Bretton Woods allies, so that they would be on our side versus the Soviets. 

But the Soviet Union is long gone. And now the long largest consumer of Persian Gulf crude is China. So the idea that the United States will get involved in a war with Iran to protect oil flows to China, that’s some very bad strategic math. And the Iranians know that and the Chinese know that. So what’s left? Well, shit. 

That’s everything. So bottom line is that Iran is not nearly as important to the Chinese or the Americans as it used to be. Strategically. It’s only falling off the map, especially now that doesn’t have production ability. And economically, ever since the American shale revolution really kicked up around 2012, that’s when we got into oil shale in a big way, with the United States really doesn’t care economically. 

And that’s before you consider the recent changes in the administration, with the Trump administration being broadly hostile to all of the old allies, whether it’s France and Germany or Korea and Japan, countries that use Persian Gulf crude. So we need to start thinking about this in a different way. The country that is likely to close the Persian Gulf isn’t Iran anymore. 

It’s probably Saudi Arabia and maybe even the United States, because those are the countries that would have strategic alternatives. Saudi Arabia can ship a huge amount of crude out of its western coast, and just avoid Iran and the Gulf completely. And if you shut down the Persian Gulf, the countries that suffer, the one that really goes down the most is China. 

And so from the Chinese point of view, Iran is no longer a potential strategic asset. It’s a vulnerability. And it’s sooner or later the Americans are going to realize that.

“Made in China” Becomes “Made in Vietnam”

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

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

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

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

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

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

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Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Xi Purges Chinese Military of Corruption…Kinda

Photo of Chinese military marching

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

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

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

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Transcript

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

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

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

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

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

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

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

Finally, Some Clarity on US-China Relations

Donald Trump and Xi Jinping at the G20 Summit

It’s a bird, it’s a plane, it’s…some long-awaited clarity on US-China relations. Here are the two major developments that we’re tracking and what they mean moving forward.

Defense Secretary Pete Hegseth just made the strongest official statement on US support for Taiwan in case of a Chinese invasion. Of course, he made this declaration without consulting any military leadership, but hey, at least something happened.

The other development is that Trump and Xi finally set up a phone call. There are clearly some big personalities (and egos) at play here, so it’s a big win to even get this on the calendar. With all the issues going on between China and the US, as well as a slew of internal problems for each country, a chat is long overdue. Especially when that little chat could impact one of the world’s largest trade relationships…

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Transcript

Hey, everybody. Foggy morning here in Colorado. Peter Zeihan here. Today we are going to talk about American Chinese relations because we’re finally about to get hopefully, hopefully, maybe, a little bit of clarity. Two big things are going on this week. Number one, and Defense Secretary Pete Hegseth has said that China is the threat if Taiwan is invaded, of course the United States will respond in kind. 

Military options are not just on the table. They would be our go to, It is the clearest repudiation of this concept of strategic ambiguity that we have been existing in East Asia for decades. That is the idea that Taiwan is not technically recognized. So the United States will not say, one way or another, whether or not we’re going to send them. 

The Biden administration, let me rephrase that. Joe Biden personally repeatedly repudiated that. But this is the clearest, most detailed, repudiation we’ve ever had from any American authority, ever. The question, of course, is whether or not that this is what the Defense Department is ready for. Hegseth apparently did not even discuss this issue with his own office, much less with the Joint Chiefs or the military chain of command at all. 

So I will never tell you that the military is not preparing for every eventuality. That’s why it exists. But it seems to be a disconnect between the political message that Hegseth is trying to send and what the U.S. military has actually been doing since January 20th. So that’s kind of piece. One piece to Donald Trump and Chairman G of China are having their first phone call this week. 

This is something that has been pushed off again and again and again and again. It’s been a very weird power play carried out by four year olds. She wanted Trump to make the call. Trump wanted to make the call, thinking that whoever came to the mountain would be the weaker party. I you know, if it makes sense to them, it makes sense to me. 

Whatever. This will be the first time that the two leaders have really had a conversation since the last time was Trump. President. And there are, of course, a number of big issues on the table. The most important one is the trade war. Trump put tariffs on China, which were 145% hundred and 85%, 510%. It’s hard to keep track. 

And then after a few weeks of basically seeing trade between the two countries go to zero, something that we’re going to start feeling soon because there are some holes in the inventory now that are starting to leak out. Trump abrogated his own tariff level, dropped it back down to low levels and said, you know, we have a deal. 

And all the deal was that this was that they agreed to talk. Well, now we’re talking. The problem we have on both sides of the Pacific is to be perfectly blunt. The leadership, Chairman Ji, spent the last 13 years purging the Chinese government of anyone who will tell him anything. Not just bad news, just anything. And that is in turn, gutted the bureaucracy of the Chinese system. 

So that is now the world’s least informed leader of the world in general of his own country. He has no idea what’s going on aside from the ideology. Trump is trying to catch up to him. Trump has executed his own purge of the government, is having his cabinet secretaries destroy the capacity of the United States to collect data long term. 

He’s sending back intelligence reports that don’t support his ideological views, no matter how far from reality they might be. And of the top 1600 positions in the US federal bureaucracy, a lot of them are still unfilled. When Trump came in, he didn’t just clear out the people at the top. He went as far down as he could, legally could go. 

And then even a little bit further. But those positions have not been filled. And even when he has nominated people and sent them to the US Senate for confirmation, a lot of those haven’t happened because he’s trying to achieve basically 17 bills worth of stuff in one with this giant super mega happy bill. And, you know, it’s taking every little piece of attention that Congress has. 

And so the Senate hasn’t been able to pick up the confirmation roster. So he is arguably today the second least informed world leader. The two of them manage what used to be the world’s largest economic trading relationship. Now it’s the third largest we are Mexico and Canada are now more important to us than China, but it’s obviously a massive strategic relationship that has to be handled carefully. 

So we’ve got two old guys driven by ideology who don’t think the rules apply to them, who have blinded themselves to information, and now they’re going to have a talk about what’s going to happen for the rest of us. It’s going to be consequential one way or another.

America’s Processing Crisis: Racing China’s Decline

Photo of workers in a manufacturing shop

One of the biggest challenges to US reindustrialization isn’t the raw materials, it’s the lack of processing infrastructure to convert those raw materials into intermediate products. Let’s break it down.

The US needs to (roughly) 20x its processing capacity to support the industrial buildout; however, the tariffs from the Trump administration have complicated things a bit. Importing already processed materials has become harder and the buildout of domestic processing capacity still needs years to ramp up.

Sure, we’ve been content getting all this stuff from China for decades since it was cheap and easy, but all that is changing as the Chinese system collapses. If the US doesn’t have the processing infrastructure ready, we’ll be in for a rude awakening.

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Transcript

Hey all. Peter Zeihan here, coming to you from Dead Horse Point State Park. Weird name. Looking over here at the Colorado Basin. That is a potash facility, which means it’s time to talk about processing. One of the biggest problems the United States faces in its re industrialization effort isn’t necessarily mining the minerals. It’s turning them into something useful, putting them into an intermediate form that can then be used in manufacturing. 

One of the things that Donald Trump administration has done by acting tariffs on everybody is make it more difficult for us to get the intermediate and finish materials that we need in order to do the industrialization process. What should have been done first, and this is not simply a criticism of the Trump administration, but also the Biden administration and the Trump administration before that, the Obama administration before that, and on and on, is that, North America is very rich in any number of raw materials, but we need things like this in order to separate the ore, in order to get at the minerals that we are after. 

And then you turn them into an intermediate product like, say, semi-finished aluminum or copper, whatever it happens to be. We basically need to increase processing on the continent by roughly a factor of 20. It’s different based on whatever mineral you’re talking about. But the problem we have is that the Chinese have basically massively subsidized their processing industry. 

So China is not nearly as rich in the raw materials as we are here in North America or the Western Hemisphere writ large. But they’ve expanded their money supply. They’ve funneled everybody’s private capital into whatever projects generate employment. And so if there’s something that technically that they can achieve, even if they’re not the low cost producer, they subsidize the crap out of it in order to corner the market in whatever it happens to be. 

And then because no one can compete with these subsidized prices, they basically drive other processors around the world out of business. And that’s before you consider that the environmental regulations in China are significantly less intense than they are in any third world country, much less first world country. So cheap capital. Turning a blind eye towards environmental damage, they’ve tended to corner the market. 

Well, we only now have a few years to undo and rebuild, some of our mistakes in order to have these materials locally. And unfortunately, it’s very difficult to consider being a manufacturing power, much less an industrial power, without having these things in place first. So we are now set up to have kind of the worst of all worlds. 

The Chinese system is breaking. It’s going away. We’re losing access to everything that they’ve been subsidizing for us these last 30 years, and we have yet to build enough of that capacity at home to begin a serious re industrialization program, much less provide enough manufactured goods for our own population. So expect to see a lot more things like this in the future all over the continent, because without them we don’t have anything to work from.

The Fire Hose of Chaos: How Do You Lose 100 Million People?

Chinese men and women walking in the street

Over 100 million people are missing in China!? No, the Chinese aren’t playing the world’s largest game of hide and seek, instead there’s widespread fraud in their data collection system. Yay! Government officials are admitting that they’ve been fudging their population numbers for quite some time, overcounting by at least 100 million (with some private estimates up to 500 million).

This starts from day one. Births often go unregistered, then local officials inflate vaccination and school enrollment numbers to secure funding. And by the time these imaginary people would theoretically enter the workforce, start paying taxes, and provide their first reliable data point to the government…there’s already been two decades of faulty statistics baked into the system. Now, the Chinese have a cohort of 20-somethings that’s over 100 million smaller than initially believed.

The future of China’s demographic stability and workforce is now in question, and there’s no plausible fix. While the US has better systems in place, the recent cuts to data collection under the Trump administration risk sending the US down a similarly dysfunctional path.

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Transcript

Hey, all. Peter Zeihan here. Coming to you with a woodshed edition of our daily videos. Today we’re taking a question from the Patreon crowd about China. Specifically, over the last couple of years, the Chinese have steadily revised down their estimates of their total population, with Chinese statisticians, government statisticians regularly opining now that they’ve over counted the population by at least 100 million people. 

And a lot of private estimates say that the over count could be as many as a half a billion. And, well, this is not my, projection. I have no way of doing a snout count of the Han Chinese. The question is, you know, how how do you lose that many people? 

Really? If you want to sum it up in one word, it’s fraud. Which the Chinese are very good at, especially at the government level. There are certain points in your life where the government becomes aware of your existence. In the United States, that’s when you’re born. That’s when you die. That’s every year when you pay taxes is or when you get a Social Security number, when you get a driver’s license, things like that. 

China is not nearly as economically developed as the United States. And government services are not as robust. So there are fewer points where the government becomes aware of your existence. And birth is not one of them. A lot of people in China are still born in either rural hospitals or maybe not in hospitals at all. 

The first time the Chinese become aware of you is when a doctor gives you your initial set of vaccinations. That is a census point. The second time they become aware of you is when you show up for your first day of primary school, think kindergarten, and then the next time they become aware of you is not until you pay taxes for the first time, which if you’re going to be blue collar, it’s probably around 16 to 19 and it’s going to be white collar. 

That’s probably going to be around 21 to 24. So those three points, well, here’s the issue. The doctors have falsified their documents for the immunization, saying that they’ve given more immunizations than they have because they get paid per shot. And then when you get to primary school, the local governments have lied about how many people have showed up for school because their government subsidies are based on the number of people in their province, and this is the primary method that they have for collecting census data. 

So these two first points at, when you’re an infant and roughly age five, the data has been fabricated on a massive scale. And the thing is, the national government in China did not figure this out until their own data didn’t match up. And remember, if you dial back about 25, 30 years ago, that’s when China was in the midst of the early stages of its industrial boom. 

Everyone was working in manufacturing, and they had just started in a big way, building out their white collar workforce, starting with their educational system. So since roughly 1992, but really not picking up until roughly the year 2000, the Chinese went very big into white collar training and thinking that they were going to evolve into a services economy. Now, that didn’t work out for them, but that’s a different issue. 

Bottom line is they established a system of training, tertiary education, college and grad school where a huge number of people were drawn out of the workforce and stayed in education for two, three, 4 or 5, six more years. And so the Chinese didn’t get their first data point as to how many people they had. The federal government didn’t get their first data point until how many people they had, until these people turned 21 to 24. 

Well, if this process started in roughly 2000, they didn’t get their first real data until 2021 to 2024. And that is the window when the Chinese started looking at their data at the national level and realizing it didn’t match up with the data they had been getting for 20, 25 years from the local level, that the number of kids that they’re supposedly born of blacks 20 years actually worked. 

And the result is a difference of at least 100 million people. Which means if the Chinese want to fix this problem today, they won’t get more workers for another 25 years. Because first, you have to encourage people to have more kids, and they have to have more kids, and then they have to grow up and 

Fixing the statistical system is a little late. That should have been done, you know, 20 years ago, but bygones. Now, the result here is that the Chinese data 25 years out of date, basically grossly overestimated the number of people that they have that are 25 and under. Suggests that the Han ethnicity is, well, to be perfectly blunt. 

Do they have not had enough live births to even continue it? And now that they’ve discovered it, basically everyone in China who’s over or under age 40, so roughly 25 to 40, they’d have to basically have five kids if they were going to save the ethnicity this century. It’s that bad at this point. Can’t really fix that with policy. 

And for those of you is like, oh, those stupid Chinese. That could never happen here. Well, yes, we have more data points. Things like driver’s license. Yes, we collect better data at the local level because in the United States, local and state authorities have the authority to tax in a way that local governments in China cannot. 

So local governments basically just get a big subsidy from the federal government every year here, there’s different stages of income at different stages of government. So the data is much better. But one of the things that the Trump administration is doing with all of its cuts is basically going after statisticians because it’s perceived as something that is kind of a waste. 

Now, I personally find that horrific. So we’re not collecting data anymore on disease transfer. We’re not collecting data anymore on energy, inventories. We’re not collecting data anymore on fraud. And we’re not even enforcing white collar fraud laws that are on the books. So we are setting ourselves on a path towards Chinese level statistical dysfunction. There are a lot more safeguards. 

There are more points of contact with the population in government than there are in China. The sense of fraud has not become ingrained in society here like it has there, but we are absolutely going the wrong way. Does this mean we’re going to be missing 100 million people in 50 years? I doubt it, but the idea that a government can function if it blinds itself, that’s a bit of a stretch.