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.

The US Economy Is (Kind of, Sort of) Growing

Zoomed in image of a 0 bill

Recent data out of Washington shows the US economy is growing faster than expected, but let’s lift the hood on these numbers.

This growth is fragile and uneven. Industrial construction spend is declining, with much of the spend allocated towards AI and data centers. This might boost short-term growth, but it signals that a bubble is forming. We also have to account for construction costs increasing, making growth appear stronger when we’re just spending more for the same stuff. Consumer growth is steady, but only because the top 10% of earners are keeping the ship afloat. The bottom two-thirds of Americans are cutting back as everything grows more expensive.

Growth hasn’t cracked yet, but it’s going to hit harder than necessary when it eventually does.

Prefer to read the transcript? Click here

Transcript

Hey all. Peter Zeihan here. Coming to you from a Colorado that’s rapidly melting. Today we’re talking about economic growth in the United States. Specifically, in the last couple of weeks, we’ve gotten new data about how fast the U.S. economy is growing. And it’s at a surprisingly robust clip, something that the white House has taken a bit of a victory lap on. 

How does this light up against all of the forecasts, including from myself, that the tariff policy and the industrial policy of the Trump administration is actually going to lead to slower growth of the long term? We’re at that moment where everyone can have their cake and eat it, too. There’s two big things going on, according to a dissection of the data. 

First, industrial construction spending was still the single most important metric that I follow these days, because it shows what we’re actually building, what we put money into the ground for, as opposed to plans, continues to steadily dip down. We need that number to at least go up by 50%. If we’re ever going to build out the industrial plant that we need to prepare for the end of the Chinese system. 

Instead, the tariff policies has generated so much chaos in the industrial space that that number is continuing down. But that does also generate a certain type of growth, specifically with AI and data centers. Somewhere between 30 and 40% of industrial construction spending is going into data centers right now. And that does generate some high octane growth from the jobs and the construction. 

Also keep in mind that when everything that you used to build something steel, wood, copper is more expensive and were high tariffs on all of those items. Just because it costs more doesn’t mean it doesn’t count as growth. So we should be able to use those inputs to build twice as many data centers as we are. 

But since you have to spend the money on that anyway, it generates the same amount of growth in terms of the consumption of those products. So it makes it look better than it really is. That’s number one. Oh. Yeah. And any time any specific subsector is that huge of a percentage of any major statistic, you know, it’s a bubble. 

Number two, just as important, maybe even more so consumption, consumption has held steady despite the tariffs and the chaos of no one knowing what everything is going to cost the next day. But you have to dig down into the numbers a little bit to, get the full picture. Consumption for the bottom. Roughly two thirds of the population is actually dropping as people cut back as grocery bills and cost of electronics continue to go up. 

The only segment that is increasing their consumption is the top 10% of the population in socioeconomic terms. But here’s the thing. The bottom two thirds of America’s population is only responsible for about one third of consumption, whereas the top 10% is responsible for roughly half of the total. So you can have a small sliver of the population at the top that has not adjusted their consumption, maybe is even spending more now because they don’t care about the tariff increases. 

They’ve got the money to burn. But most of the population is tightening their belts, which is generating lower consumption for them. But because the top 10% consumes so much relative to everyone else, it comes across overall as a steady number. So everyone is right and everyone is wrong, myself included. Growth at this point is still holding up, but it’s becoming much more lopsided, much more dependent on some very, very specific factors that are very clearly already in bubble territory. 

So it suggests that when this does crack, it’s probably going to hurt a little bit more than it needs to. When will that happen? I can’t tell you. If Donald Trump were to stop issuing new tariffs and stop changing the tariffs are in play, I might have a better forecast for you. But we’re now at something like 650 tariff policies for the year to date. 

And everything is just changing too much that there is no confidence that really anyone in the industrial space has an economy right now. And that is very clearly bleeding into the consumer space as well.

Help Wanted – The US Needs More Workers

Sign reading "Help Wanted" in a window

US labor data shows a slowdown in job growth, but given the recent changes to the Department of Labor, who knows if we can trust it. Regardless, labor patterns are definitely looking off…

Demographics are reshaping the labor market. Swaths of Boomers are leaving the workforce, and Gen Z doesn’t have enough people to keep up. Fewer workers means higher inflation. AI might help offset some of the labor shortages, but that will be expensive and time-consuming. Throw in an anti-immigration administration, and you’ve got years of inflationary pressure baked into the US economy.

Prefer to read the transcript? Click here

Transcript

Hey everybody. Peter Zeihan here coming from Colorado. And today we’re talking about the U.S. economy specifically looking at the situation of the American labor market. Now, we’ve recently had new data coming out of the Department of Labor. And normally we generate the United States generates about 300,000 new jobs, per month. According to the last chunks of data, in October, we actually lost 100,000. 

And in November, we only generated about 60, 65,000, reasons why we should take that data with a grain of salt. First of all, we had to shut down during this period, and so a lot of the surveys that were done, weren’t done or the ones that were done were done in an incomplete manner. So I don’t know if we can trust that data. 

Second. The Trump administration has gutted the Department of Labor, so it’s incapable of doing its job in the way that used to, because it said that the, data was being fudged to make Trump look bad. Well, with the new staff in place, the Trump administration looks bad. So you take that for what it is. 

Third, we’ve got I think, going on here where employers are trying to see if they can use early stage AI to replace workers. And while that is very much up for debate, and it’s very much in its early years, something I found really interesting is that the surge hiring that normally happens in October, in November to prepare for the holidays hasn’t happened this year. And normally when you think of AI, in the way that large language models do it, you’re talking about things that substitute for white collar labor. And usually the people who are being hired for Christmas are doing inventory in his blue collar labor. So we’re having some weird, weird crosscurrents that we just don’t know about yet. So that’s number three. 

Number four. More importantly, we might have to adjust our expectations, for demographic reasons. So the baby boomers, the largest generation we’ve ever had, at one point, there were over 75 million of them. And now three quarters of them have already retired. So the largest chunk of the labor force has left. And then the new generation coming in. The Zoomers are the smallest generation we’ve ever had. Well, if you exit the largest group and enter the smallest group, you’re going to have a quantitatively smaller labor force. In fact, we’re probably losing about a half a million to three quarters of a million of a people out of the labor force this year. And that number will keep going up in the next ten years as the Zoomers continue to enter the workforce, because they just get smaller and smaller. 

So that 300,000 kind of stake in the ground that we’ve become used to these last 60 years is probably not correct anymore. And it all adds up to an economy where we just have less labor to work with overall. And so if AI is able to increase productivity, this is actually great, because we’re certainly not going to have enough bodies to put in those positions. 

This is probably going to be a strongly inflationary environment for the next several years, regardless of what happens with policy. And at the moment, what is happening in policy is also strongly inflationary because of the anti-immigration sentiment that we have in the United States and most strongly in the white House itself. So if we have a shrinking labor pool and the Trump administration is also shrinking the labor pool further because of immigration, then our only option is to increase productivity. 

And the only way you can increase productivity is by adding new technology. But that takes capital, which is also in short supply because of what’s going on with the baby boomers taking their savings and moving into retirement. Bottom line inflation, inflation, inflation that’s cooked into the system regardless of whatever else goes right or goes wrong. First, and most notably in the labor market. 

Global Depression Is Coming Sooner Than Expected

I know the tariff policies coming from the Trump administration are giving everyone whiplash, but that’s not the cause of the impending global depression…the tariffs are just accelerating the timeline.

Demographics and deglobalization are the two forces driving this collapse. It has been baked into the system since the world urbanized and industrialized nearly a century ago. Now, Trump’s tariffs have brought this crisis forward by destroying what little fabric holds these systems together.

There was a world in which America’s exposure could have been mitigated through strategic partnerships and building out domestic capacity. However, these policies continue to isolate the US, stifle North American industry, and make it harder for the US to weather this storm.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. Today we’re taking a question from the Patreon crowd specifically. Do I think Donald Trump’s tariff policies are going to trigger a global depression? Or is there another potential path out of this? Right question. Wrong time frame. Here’s the issue. There are two big things that are shaping what’s going on in the world right now. 

And Trump is not one of them. The first one is the demographic inversion that has been working towards us for a century at this point. Short version is that when you industrialize and urbanize and move from the farm and into the city, you have fewer kids. As a rule, most countries we’re looking at 6 to 8 children per woman back in the turn of the to the 1900s. 

And now in most of the world, we are well below replacement levels. In some places like China or Germany and Japan. We’ve been looking at levels below replacement levels for a couple of generations now, and we were always going to hit a demographic tipping point between 2025 and 2035. 

This was always the decade that the model was going to break. We were going to run out of consumers. We were going to run out of producers. We were going to run out of people who could provide capital and be left with a lot of old people who can’t work and absorb capital and don’t consume very much. So the economic model was always going to shift. 

That’s the big one. The second one is globalization. We were always going to hit a point where the United States couldn’t sustain the network anymore. And if you remember back to the world before World War two, we didn’t trade goods. We shot at each other, and we fought over access to consumer markets and raw materials, and we fought over maritime trade routes and all the rest. 

When the Americans rejiggered the world of Bretton Woods at the end of World War Two, we told everyone that we would guarantee security for everyone’s commerce. If you allowed us to write your security policies for you. Basically, us got control of the world by indirectly subsidizing everybody, and that included keeping our market open. I have always said that the decade from 2025 to 2035 was the decade where that was all going to break down. 

Number one, the rest of the world has gotten too rich for the US to continue to inadvertently subsidize it anymore. And number two, we’ve now reached a point where there are so many secondary naval powers the United States can’t guarantees freedom of the seas any longer. So this ten year period, starting this year was always going to be when it all broke down. 

We were always going to have a global dislocation. We were always going to have globalization. We were always going to have a Great Depression on a global scale. It was going to happen anyway. What Trump is doing is speeding things up. He’s breaking down the economic case for having industrial plants outside of the United States without simultaneously building up the industrial plant to replace that loss within the United States. 

And this is forward positioning. The global breakdown to the front part of that decade. So am I a big fan of Trump’s policies? Of course not. Do I think they’re causing a global catastrophe? It’s more like it’s accelerating something that was already well past the point of no return. Now there is plenty of room at the presidential level for policies that would ease the transition, especially for the United States. 

And the first step of that would be building out industrial plants to replace what we’re not going to have access to for much longer. But so far in this administration, we haven’t seen this. We’re actually have policies that are penalizing trade within the region of NAFTA, which is actually encouraging places like China to build more industrial plant in order to take advantage of it, because right now you want to build a car in North America. 

The parts go back and forth across the borders among the United States, Canada and Mexico. That means you have to have tariffs on more than one step in the cars production worth of cars produced exclusively in, say, Europe or East Asia. You only have to pay those tariffs once. And so we’ve had a stalling of industrial construction in the United States at a time where we really need to triple down on what we’ve been doing for the last few years. 

So is this all Trump’s fault? Of course not. It’s Trump taking steps to make it happen sooner. Absolutely. And his current presidential policy in the United States, making it worse for the United States. And it needs to be, unfortunately so.

Markets Drop After Fed Rate Cut

Stock market chart declining

The Fed just cut interest rates by 0.25%. Instead of the desired boost to a slowing US economy, we ended up with a market drop.

The economy is losing steam, and there’s no one at the helm to correct course. Job market stress is on the rise, manufacturing is shrinking, constant tariff changes have stalled investments, and there’s no relief in sight. With capital from the baby boomers leaving the system, foreign capital is the next place to turn; however, strained trade relations make this risky.

Unless the Fed wants to go full Venezuela and start printing money, we’re going to be heading into uncharted economic territory. And with the current administration, who knows what that could mean.

Prefer to read the transcript? Click here

Transcript

Hey, everybody. Peter Zeihan here coming to you from Colorado. And the news is the Federal Reserve has just dropped interest rates by one quarter of 1%. 

That means it’s a little bit cheaper now to borrow money. And the idea is it’s supposed to, like, boost the economy. But instead the markets have dropped, because the, well, we’re in shutdown, so most government statistics are offline. 

The Federal Reserve has its own system that is self-funded. Totally different topic there. And they seem concerned enough that they’ve decided to do a what’s, historically speaking, a relatively large cut. So what’s going on? What is it the fed sees? How is it going to impact all that good stuff? So number one, the economy is absolutely slowing. 

We’ve got a lot of stress in the job market. And most importantly, manufacturing has been dropping. One of the many impacts of the Trump’s tariffs is kind of generated, this, background of ambient chaos. We’ve had over 540 policy changes on tariffs since January 20th, and they keep stacking up. And so businesses don’t know what the rules are going to be tomorrow, much less a year from now. 

And that tends to discourage investment decisions. And we’ve certainly seen that in the data until the point that the, the shut down, shut off the data. We also have an administration in the Congress that really seems in no hurry to get things back on line. And so we’re going to have to wait until we have something very bad that happens, whether that is for example, many, many, many people stranded, during the Thanksgiving holidays or a general problem with, health care, because we have, announcements on the 1st of November as to what everyone’s premiums are going to be. 

Lots of things are going to get worse before there’s any chance of them getting better. And that is now reflecting in the general ambient chaos that is policymaking out of Washington and specifically out of this administration. So that’s kind of baked in. The bigger problem, much bigger than that, is what’s going on with capital supplies. You see, as a rule, most private capital is generated by people who are in their 50s and early 60s, when their kids have moved out and they’re preparing for retirement or the height of their earnings, but their expenses have gone down and that surplus is put into the retirement accounts. 

It’s about 70% of total private capital. And for the American baby boomer cadre, that’s about trillion, a lot of cash. Well, when you retire, you go into a more conservative portfolio with more cash and more property and more T-bills and less stocks and bonds. 

There’s a thousand ways that’s wrong. But all collectively, they’re like very, very small. 

That’s just the general trend. This is what people do as they get older and retire. 80% of America’s baby boomers have now retired, so about 80% of those finances have been turned into more conservative investments. And we’re moving into an environment where things like goosing interest rates down in order to increase lending doesn’t work because the money just isn’t available. 

And the only other sources of money that are available are, number one, foreign money. Where other countries have been dealing with this faster than the United States has. So it’s seeking someplace it’s more productive. You can only take that so far, especially in a high tariff environment where your economy is actively discouraging the mobilization of capital. And the second issue is if the Federal Reserve just massively expands the money supply, which is massively inflationary. 

So the concern in the mid-term is we might get the worst of all worlds, you might get lower interest rates, you might get a little bit more consumption from that. But in an environment where supply is being constrained because of a lack of business investment, very inflationary, which would force the fed to go the other direction. Now, I don’t mean that as a specific forecast, because we’re entering in kind of the unknown here. 

We’ve never had a demographic transformation like we’re seeing on a global basis or an American basis in modern history, certainly not in the digital age. And so we’re going to be living through this in real time for the first time. But what we understand of macroeconomic laws is that seems to be where we’re headed right now. And barring a significant change in capital availability or government policy, that’s kind of hard wired in at this moment. 

So the fed is in a bit of a box. The white House is part of the problem, and the baby boomers are no longer part of the solution. And that leaves the rest of us in an environment where investment is difficult, where consumption is expensive, and where inflation is rising.

And You Thought the Jones Act Was Dumb…

A mack truck on the highway

If you tasked me with creating a list of the greatest threats to America, I’m not sure cabinets, name-brand drugs, and semi-trucks would be on there…but the President disagrees.

So, get ready for a massive economic bulldozer to hit the US due to these new tariffs. With 90% of all US cargo moving by truck, these higher costs will create a ripple effect through every sector. This all started back with the Jones Act, which made domestic shipping prohibitively expensive, causing a shift in freight from ships to rail to (almost entirely) trucks.

Since those trucks are made across an integrated North American supply chain, dipping into Canada, the US, and Mexico, tariffs are hitting hard. That means everything Americans consume, from your food to your clothes, will cost a whole lot more.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here coming to you from Colorado today. We’re talking about the newest hit to the American economy. We now have tariffs on cabinetry, semi-trucks. And what was the third one? Name brand drugs, all of which have been classified as national security threats. Cabinetry. That’s an interesting one. Anyway, we could pick apart this all day, but I’m going to focus on the trucks because that’s the one we’re all going to feel soon. 

And most deeply, right now about 90% of all cargo, all ten miles of cargo that are transported to the United States are transported on the roads by semi-trucks. Now, it didn’t used to be this way. If you go back to, the depression, we had something called the Jones Act, the Interstate Commerce Act, which said that any to any cargo transported between any two American ports, regardless of where they were, had to be on a ship that was American built, American captain, American crude and American owned. 

As a result, we saw the cost of transport on the waterways increase in terms of, cost per ten mile by a factor of five. And we went from transporting most of our goods and especially most of our intermediate manufactured goods, especially in places like, the Great Lakes in the upper Midwest. We went from that being the dominant mode of transport to basically at whittling away to today in terms of ton miles, we only use our waterways for about 1% of our total cargo. 

It has been, in my opinion, the stupidest law that the United States has ever adopted. And it’s now been in place for a century. As a result, things went places where those restrictions were not in place. first with train and now with truck. Now with the Trump administration policy, there’s 100% tax on those trucks, of which about 80% of the imports come from Mexico. 

Another 10% from Canada. And As with anything that involves NAFTA, nothing that just made in one of the three countries. It’s an integrated supply chain that uses all three. So basically what we’re doing with this new tariff is saying this multi-step supply chain that we have, where parts of the trucks go back and forth among the three countries, if the finished product is actually done in Mexico, which is the relatively low cost work we will then tariff the cost of the entire truck when it comes back. 

So, in essence, retrofitting American workers and American companies who are making American products, who just happen to have the bumper stamped on in Mexico, and since 90% of our cargo is transported by heavy truck, you’re going to feel this in every sector. It doesn’t matter if you’re a hog farmer in Iowa sending your hogs to market, or if you are just ordering something on Amazon, it’s getting shipped across the country. 

The only people who will not feel this are the people who are in a physical position where supply chains for imported goods do not use the trucks, and that means you would have to be in one of the major port cities that has a mega port. So those are New York, new Jersey, Miami, Houston, Savannah, to Colma and LA Long Beach. 

Anyone else? This is going to hit everything that you consume. So I have long said that the Jones act is the dumbest law we’ve ever had, but it’s got some competition.

Say Goodbye to the World’s Trade Routes

Cargo ship with containers

It’s always lovely when everything you’ve talked about throughout your career decides to happen all at once. At this critical decade, how will the globes trade routes fare? And which routes will fracture first?

There are three major trade routes that come to mind. Southeast Asia is made up of many regional states that rely upon each other, so none of them want this to shut down. While this should hold, there are some other players (China, Japan, and India) that could add some tension. The Persian Gulf and Strait of Hormuz are easy to disrupt and will likely be the first to go; this will have an outsized impact on places like Japan, Korea, Taiwan, and China, that rely on oil coming through here. And the last route to keep an eye on is the Baltic Sea; the Ukraine War’s outcome will likely determine what happens here.

Bottom line…get your s*** while you still can.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here. Coming to you from the Lost Creek Wilderness. I have moved out of the jump on him into the narrows. So I like a one sided canyon sort of thing. Anyway, trail goes. 

Back in there somewhere. Anyway, taking a question from the Patreon crowd, specifically, as globalization breaks down and as military alliances fracture, which trade route will fracture first become unusable? 

We’re at the point in history where there’s a lot of things going wrong at the same time. Most of my work has been saying that all of these factors, whether it’s demographics, globalization, American isolationism, European fractures, the Chinese fall, whatever happens to be, they all come together in about the same ten year period. 

And we have now entered that ten year period. So the partial cop out to answering this question is, I really don’t know, because everything is going wrong. And all of these, routes are going to be in some degree of danger. But let me give you the two that I think. Well, let me do the three that I think are most concerning. 

First, the one that I think actually will hold together and that’s the Southeast Asian route through, Indonesia, Malaysia, Singapore, Strait of Malacca, the Luna Strait, that area basically connecting Northeast Asia with the rest of the Eurasian continent. This is an area with 15 countries, all of which have their own ideas of what should happen, and none of them have the ability to project naval power, far enough for the entire zone. 

The reason that I think it’s still going to work out for this area, though, is that most of those countries in Asean and then link in to, say, Australia, see the world through similar lenses. I don’t anticipate them launching wars of aggression against their neighbors. They know that they occupy different parts of the manufacturing supply chain. 

They know they need inter-regional trade and agriculture and energy and intermediate manufactured parts. So they have a vested interest in finding a way to make it work. The problem would be countries from out of region India, China, Japan who might see things differently. But even here, I think it’s pretty safe to say, that it’s going to hold. 

Japan might try to raid Chinese shipping, but they have no intention of shutting down shipping through the region as a whole. With Australia, you have the Americans of all to a degree. And India is really not a trading power. And China, of course, if it’s going to survive in any form, has to have access to this trade route. 

So that one’s probably okay. The second one, the ones absolutely hosted so opposite is coming out of the Persian Gulf here. You’ve got a number of countries with limited global reach, but missiles and jets and drones would have no problem closing the Strait of Hormuz. And even if you get past the Strait of Hormuz, you then have India and Pakistan, who in a globalized world would love to see the other one lose access to things like energy. 

And so I can see any number of scenarios where Iran or Pakistan or India or Saudi Arabia or even the United Arab Emirates find it in their interests, at least for periods of time, to close that entire route down. And that’s 20 million barrels a day of crude that could no longer make it to market. It would have catastrophic impacts for everyone further east, most notably Japan, Korea, Taiwan, and especially China, which uses more than the other three put together. 

And then the third route, depends on what happens in the Ukraine war. The Baltic Sea has always been a zone of commerce, but it’s always been a zone of conflict. And in times past, the countries that are either adjacent to the sea or just one step removed. So we’re talking here, all of the Scandinavian countries Finland, Sweden, Norway, Denmark, also Poland, also Germany, also the United Kingdom, also the Baltic, also Russia, have all at various times in their history tried to militarize their part of the sea, to shut it down for the people. 

At the moment, everyone is on the same side except for the Russians. And the Russians are using the Baltic Sea because we’re still in globalization, barely to ship 1 million to 1 million, a half barrels of crude out to the wider world around sanctions. Sooner or later, that’s not going to work anymore. Either. The Western countries are going to interfere with the oil shipments, which I’m a little surprised hasn’t happened already. 

Or the Russians are going to say screw it and basically Mess up, corporate shipping on the Baltic Sea. One way or another, this is likely to happen. The question is, how long will it last? If Russia does well in Ukraine, it can last a long time because you don’t need to be able to poke out. 

All that much pressure collapses in Ukraine that this is no longer concern. And the issue is how Europe evolves or devolves in the future, whiskey or any number of directions. So Middle East shipments, most notably through Hormuz, look really bad. Red sea is not much better. Baltic something to keep an eye on. But there’s reason for hope. And then Southeast Asia. That’ll only break if things go really horribly bad.

Immigration and Tariff Policies Stunt US Economy

Immigrants standing in line in front of an American flag | Licensed by Envato Elements

The Trump-era policies are going full Darth Vader and have the US economy in a chokehold (or force choke for the nerds out there). Today, we’ll be focusing on the policies covering immigration and tariffs.

Nearly all legal (and illegal) forms of immigration have been closed or drastically restricted. This includes high-skilled H-1B visas, which now have six figures in fees; most startups can’t go dropping that kind of dough. Once you mix in all the costly deportations and the retiring baby boomers, the US labor force is drying up quickly.

Tariffs are only adding to the problem. With 10-60% tariffs on imported goods (the Chinese sitting near the top with 50%), we’re beginning to see rapid price increases. Walmart and other retailers are reporting hikes that are only going to get worse.

Fewer workers, higher costs, and not enough domestic investment, all the things you don’t want to hear about an economy. The Fed warns that the only reason a recession hasn’t formally set in yet is because labor demand and the workforce are shrinking at similar rates. That has left the US economy dazed, confused, and highly vulnerable.

Prefer to read the transcript? Click here

Transcript

Hey, all Peter Zeihan here come from Colorado. Today we’re going to, look at the American economic situation, how a number of Trump policies are coming together in the current environment and where we should expect that to take us during the rest of the year. Short version is the picture doesn’t look great. Let’s start with immigration. 

There’s basically four paths to immigration that the Trump administration has, put the crimps on first. You’ve got your illegal, irregular migrants, who cross the border and then try to slip into the system somehow. Number two, you’ve got your people who try to follow the rules and do it legally. Third, you’ve got your folks who come in on a high skilled visa, something like H-1b, to get a specific job sponsored by a specific company. 

And then finally, you got your rich folk that just come because they went to all four of these routes are in collapse. We now have the Trump administration going into churches during services in order to round up Hispanics and kick them out, as well as intervening in courtrooms and going, where they’re having their hearing on things like asylum or even just to see if they’ve done the paperwork. 

Right. And, before the hearing can happen, escorting them out of the country comes out to about 17 grand per person to do extraditions this way. And it strongly preferences people who do not have criminal records because they’re more likely to be out in public. So the original promise of just going after criminals that has long in the past, and we’re basically going against the rank and file of people who came for jobs or to be with families. 

Regardless of what you think about this, from a legal point of view or an ethical point of view, it it has an absolute impact on the job market. We’ll get to that in a minute. Legal pathways, those are pretty much all been closed down. And that is not simply a Trump two thing. That’s also a trump one thing that is also a Biden thing. 

Most of restrictions that Trump won put on legal migration were actually codified by the Biden administration and now than doubled down on. So you wanna come to United States, there’s only two paths left. 

Number one is you get an H-1b visa. That is the visa that like, say, the tech industry uses to bring high skilled people in to help populate their workforces. The number of those being granted is being reduced by about three quarters. And the fee for it is going up to something between $100,000 and $2 million. What that means is not only are far fewer companies going to do it, but the companies that will do it are only going to be the really big ones. 

So your apple, your meta, things like that. And so if you’re a small startup, you’re now stuck with local labor. And as anyone who’s in the tech space will tell you, there is not enough local labor for a tech industry in any country of the world. There’s a global supply, but there’s only enough to man tech sectors in maybe one quarter of the world’s countries, of which the United States has always been the largest market. 

And by severing the United States from that labor pool, you’re basically guaranteeing that the pace of technological change, will arrest, significantly. And we’ll see impacts of that within a month. And then finally, the only other way to get in is a gold visa. Now, Trump’s original idea was a $5 million gold visa that would get you into the country and basically give you residency. 

There were no takers. None. That’s put too fine a point on it. But if you’ve got $5 million to spend for a green card, you don’t need a green card. So they’ve dropped the price now to $1 million. We’ll see if they get any takers from that. It’s pretty steep. Still has to be approved by Congress. 

So basically, almost every path, for bringing migrants, immigrants, vacationers, whatever you want to call it, you know, have to have a bond to travel the United States for tourism, has been severely crimped, if not closed down completely. And it’s leading to the first population reduction in American history. And, from an economic point of view, we’ve got two issues going on that are both really bad. 

Number one, for the first time since Vietnam, the workforce is shrinking. And for the first time in American history, the labor pool is shrinking. What companies are doing is in this sort of environment, they’re letting go their older employees as they retire the baby boomers, and they’re not hiring replacements. Now, that has happened before. But for that to show up in the data this time as a reduction in overall employment numbers, you’ve got to remember the scale here. 

The boomers were, until very recently the largest generation in American history. And the Zoomers at the bottom of the pyramid right now are the smallest generation in history. So for that to register as a collapse in jobs, the numbers is immense. And it’s the opinion of the Federal Reserve that the only reason we haven’t seen a formal recession yet is that the job market and the labor pool are shrinking at the same rate, and that it’s the fastest we’ve ever seen in any era of American history. 

Now, macroeconomic theory tells us that this will generate and, not particularly long order, a very, very crushing recession. But I’m not ready to say that yet. Jerome Powell, the Federal Reserve is not ready to say that yet because there’s so many things in motion. What we do know for certain is it makes the United States much more vulnerable to any sort of shock, because there’s just simply fewer pillars holding up the system. 

Well, we’re getting that shock because of the tariff policy. We’ve got tariffs ranging from 10 to 60% on various countries in the world. The tariffs are on China at 50%, which is where we get a lot of our consumer goods. And so just since September 1st, just in the last two, three weeks, we’ve now seen price increases across the board that will show up in statistics next month most likely. 

But we’re seeing in corporate earnings already, remind you’re that we went in and out and in and out and in and out of these tariffs from when they were, initially applied in April. There were extensions. There were there were holidays, and most of them are now in place. So we’ve really only had them now for about six weeks, but that’s an long enough time to burn through some inventories and jack up prices on shelves. 

So Walmart, writ large, is looking at a 30% increase in prices across the board, with some items being more than double that. Keep in mind that this is when people are still pulling inventory that they built up during those holidays in preparation, so that 30% increase is going to absolutely increase month on month unless and until these tariffs go away. 

So we have a far weaker employment situation. We have far smaller labor force. We have a far less skilled labor force. We are not seeing the industrial investment that would be necessary to replace the manufactured goods that we’re losing access to, and we have tariffs that are making everything more expensive. This will generate an economic adjustment, in the not too distant future. 

The question is how soon, how bad in which sector? If I were a betting man. Usually not, but here we are. I would say the manufacturing is a sector to look at first, because more blanket the tariff structure, the easier it is to relocate manufacturing supply chain steps outside of the country with the tariff structure and just do it somewhere else, because instead of having product going back and forth across borders, which is how we say produce cars, you then have to pay that tariff multiple times per vehicle, whereas if you build the car completely beyond your shores and then bring in the finished vehicle, you only have to pay it once. And we’re seeing that in the investment decisions of companies that will manifest as employment problems next year. I think we’ll have our economic correction far before that, though.

The Federal Reserve’s Dilemma

Photo of the building of the US Federal Reserve

The Fed is facing a catch-22. While they would typically lower rates when consumption and growth begin to slow, there are also competing policies that are shrinking the labor force and driving up costs via tariffs. Other countries have faced similar dilemmas due to demographic issues, but the US is in this pickle largely due to policy decisions.

With record deficits and no political will to cut entitlements, cooperation between Trump and the Fed isn’t going to happen. So, the Fed is stuck between a rock and a hard place…

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here. Coming to you from a breezy Colorado. This week we have a Federal Reserve meeting in D.C. where they’re going to decide what to do with interest rates. The idea is, if you lower interest rates, you reduce the cost of capital, which spurs economic growth, whereas if you raise interest rates, you dampen demand, which tends to get inflation under control and balancing growth versus inflation. 

That is basically why the Federal Reserve exists and why we have monetary policy in the first place. The real problem the Federal Reserve is facing right now is policy out of the white House. The combination of high and rising tariffs are increasing the cost of operation for American businesses and increasing purchasing costs for American consumers, which is reducing economic growth. 

At the same time, anti migration policies the Trump administration has implemented is shrinking the labor pool to the point that the American population is actually expected to shrink this year for the first time in American history. And that is triggering inflationary pressures throughout the supply chain that are complemented by the tariffs. So tariffs like 50% tariffs on steel, aluminum, copper drastically increase the cost of building for, among other things. 

And so the fed is kind of in a catch 22. The slower growth caused by the tariffs on the consumption side would seem to indicate that it wants to lower interest rates to spark growth, but the higher inflation, because of the tariffs and the immigration policies are raising the cost of everything or raising inflation, suggesting that the Federal Reserve should, if anything, raise rates in order to keep inflation under control. 

And there is no way to win this, there’s no way to make everybody happy and there is no balance to be found. So the Federal Reserve is in a catch 22. Now, this is not a unique situation. If you go back to the last 20 years in Europe and Japan, we’ve had somewhat similar situation, but largely caused by demographic issues as populations age out of the 2030s and 40s and into their 50s, 60s and 70s, consumption naturally goes down and eventually you lose people from the workforce on the tax base altogether. 

And when that happens, monetary policy is not nearly as useful tool. And you’re dealing with exactly these same issues, chronically lower demand and consumption because the population is getting poorer and older and ongoing inflationary pressures as the labor force shrinks. The difference between the European and the Japanese experience and the American experience is in the European. In the Japanese experience, it was primarily a demographic issue, whereas in the American experience, at least so far this year, it’s primarily a policy issue. 

Now, what has happened in the United States in the past is the Federal Reserve chair has sat down with the American president to discuss priorities and what it takes to get what you want. This was most famously done by Federal Reserve chair, former Federal Reserve Chair Alan Greenspan and former American President Bill Clinton back in the 90s, where the discussion was, if you can keep the budget under control, if you don’t do a lot of deficit spending, then I, the Federal Reserve chair, can keep interest rates low and generate a boom which lasted for the better part of a decade. 

Unfortunately, that is not possible this time around, and not just because the president doesn’t like the Federal Reserve chair. The other problem is simply that the fiscal deficit we have today is bigger than we have had at any time in American history, with the exception of a couple of hiccups during war time and getting that deficit under control would require basically eliminating Medicaid and cutting Medicare and Social Security by half. 

That’s how overextended we are. So it leaves the fed in a no win situation. Governance is hard, especially when you’re a quasi independent institution like the Federal Reserve.

While I Was Gone, Part 3: Economic Status

Person using Forex trading on a laptop and phone

Today, we’ll be turning our attention towards the economic moves that the Trump admin made while I was away.

Intel was partially nationalized (10% government stake); this move supports semiconductor security but could also turn the company into a defense contractor rather than an innovator driven by profit. The Block Island wind farm project was completely halted…despite being nearly completed; this undermines US energy reliability, trust in government contracts, and the need for rapid energy expansion. And of course, Trump had to throw in an out-of-pocket personal attack with a Fed board member (Lisa Cook) over mortgage discrepancies, which is just another step towards making the Fed a political tool.

All these economic actions nudge the US further away from free-market capitalism, and closer to something where the government dominates industry, contracts, and monetary policy. However, experimenting with new economic models is inevitable, it would just be nice to let some other countries be the guinea pigs.

Prefer to read the transcript? Click here

Transcript

Hey all Peter Zeihan here. Coming to you from a rainy lake of the Ozarks. We’re continuing our series on. What the hell were you guys thinking while I was gone backpacking? Today we’re going to talk about some economic issues in the United States. We’ve got three things that you guys decided were good idea to do. A certain green. Got three ideas that you guys decided were good ones while I was gone. 

The first one was that Donald Trump partially nationalize Intel. Intel is, of course, America’s premier semiconductor manufacturing firm, taking a 10% stake for the government. This does not give the United States a seat on the board, but it does obligate the United States to pay for a lot of R&D. And if your goal is to near-shore semiconductor fabrication, there’s some serious logic here. 

And if your goal is to deepen the government’s involvement in design and control the technology, there’s some logic there as well. But it does come at a pretty significant cost. When you start to nationalize companies, they treat the government as one of their stakeholders, and they start to optimize their operations to do whatever the government wants that might achieve a national security goal, perhaps, but it comes at the cost of the company basically letting everything else fly, and reducing the profit motive to actually make the company better. 

They become more of a defense contractor. So pros and cons, Second big item is that the Trump administration issued a cease order for the Block Island windfarm off the coast of Rhode Island, and it’s really hard to spin this as a positive. The money had already been allotted. Things have been paid for. Remember, you have to pay for green tech projects pretty much upfront. And so the financing was all in place. 

The project was already 80% completed and was about to start wiring power next year. And now it’s just completely stopped. So number one, this is an investment issue. Number two, this is a foreign investment issue because the Danish companies were involved. And number three, it’s a power issue for the eastern seaboard. But most importantly, the federal government has now decided to kill the project specifically because Donald Trump doesn’t like wind turbines. 

He doesn’t like the way that they look now. Wind turbines in the right spots are among the most efficient ways of generating power. This isn’t like solar, where the it’s dark half the year. Wind, especially offshore wind, is a very strong, reliable source of energy. But Donald Trump doesn’t like the look of them. So from the point of view of contract law, the federal government has now established itself as a relatively unreliable partner in the power sector. 

And no matter what your interpretation of America’s near term future, whether you’re like me and you see, we need to double size of the industrial space with your tech guy and you want to massively expand AI. Whether all you want to do is replace the old infrastructure with new infrastructure. The United States needs to expand its power grid by at least 50% over the next several years, and all of a sudden, the federal government is no longer a positive contributing partner to that. 

And everyone who is involved in government contracting in the power sector is now going to be wondering if there’s any reliability at all. That’s really bad. If you’re trying to do something quickly, because the federal government will always be the single largest economic entity in the United States. And now it’s got people wondering if they can be trusted of all, because there’s no scientific reason, there’s no economic reason, there’s no financial reason. 

There’s no national security reason for this contract to be canceled. It’s just been canceled because Trump doesn’t like the look of windmills. That is very, very Latin American. The third issue is that Donald Trump has tried to fire or has fired a woman by the name of Lisa Cook, who is a member of the Federal Reserve Board. Now, the US Federal Reserve is basically the central bank of the United States. 

They say interest rates and manage monetary policies in order to manage the American economy. And under existing law, you cannot fire a board member unless there’s cause. The cause that Donald Trump cited was that Lisa Cook now stands accused of falsifying some data, on free home purchases she’s made over the last 10 to 15 years. I believe. 

In total, the three mortgages in question have a total finance value of about $1 million. Have all since been paid off. And he’s saying that she lied about it being her primary residence in order to get a slightly better interest rates. And we’re talking here about less than a half a percent. This is kind of rich because no charges have been brought. 

It’s simply an accusation. No data has been presented. But Donald Trump has been convicted in a court of law of over a half $1 billion of real estate fraud. So you know, there’s a little bit of a ocracy here. Whether or not if she were charged and found guilty, is qualifies her as a being fired for cause is a really open question. It’s really questionable whether the Supreme Court would rule that way. And this is a court that will absolutely go all the way it up. But the core issue here is Donald Trump has found a way to remake the Federal Reserve in his own image. 

One of the problems that Trump is facing is a lot of the tariff policies that are in place at the moment are highly inflationary and are driving economic activity out of the United States by making the United States a less reliable partner in things like manufacturing supply chains in addition, things like steel and aluminum, copper tariffs to make it much more difficult to construct anything, whether it’s in the power grid or your house. 

And so we are set up for higher inflationary, lower growth environment moving forward. So Trump’s idea is if we can reduce capital costs significantly, then we will have more economic activity. And faster growth that people will get credit for. The Federal Reserve would never go for that because that would be wildly inflationary. Think about what happened under the Biden administration when we had a series of federal spending projects, none of which Donald Trump has really trimmed down. 

That dumped a lot of money into the economy post Covid and generated faster economic growth, but faster inflation because we saw demand go up and up and up and up without an underlying increase in supply. What Trump is doing is constructing supply and now trying to goosed demand with interest rate policies, achieving something that’s at least as bad, for political reasons, demand scarcity or a directed demand, something like that. It’s a lot like, like wartime mobilization, where the government takes a larger role in the system controlling the production, but it’s not driven by a crisis, is driven by a change in macroeconomic fundamentals, and it’s is focused on demand as it is on supply. 

And if that sounds not particularly capitalistic, that’s because it’s not even remotely capitalistic. But as we’ve seen from the Donald Trump administration so far, that is really not a major concern. Nationalizing companies, he sees as a plus, taking over direct control, personal control of the monetary authority he sees as a plus. And the sacrosanct nature of contracts is not something he seems even remotely bothered by. 

These are characteristics that have a lot more in common with, like the Latin American flavor of socialism or even modern day China. And one thing that they do not generate is efficiency, or private ownership or private decision making. But kind of that’s the point. 

So none of these steps are good. They all basically make the federal government part of the problem, in a way that five years ago we would have said something that the liberals prefer to do, but now Donald Trump is there. The reason that this bothers me so much, but the reason why I’m trying to maintain an open mind is that the models that we use to manage our economy and by our, I mean humans are changing and need to change. 

For the last century, we’ve basically had four overarching economic models. We’ve had free market capitalism, which is something the United States tends to champion. Not anymore. We’ve had a European social model that is more based on social placidity and equality, but doesn’t generate as fast of economic growth and as much economic dynamism. Europe, of course, is known for that. 

You get command communism, where you have a central authority that makes most of the economic decisions. That’s Maoist China, that is the Soviet Union. And then you have something called fascist corporatism, where there’s a fusion of corporate interests and government interests. And that’s classically Nazi Germany, but also like 1970s and 1980s Korea, maybe a little bit of, Japan and certainly China today. 

All four of these models are based on the relationship between supply and demand and capital and labor. And with the world going not just through a globalization phase, but a massive population phase, we are losing access to labor and capital in the volumes and in the ratios that we’re used to, because when people retire, they take their money with them and they are no longer working. 

So we’re seeing a change in the fundamentals that define our four economic models. And we need to try something new. What that something will be is very much in play. But what the Trump administration seems to be pushing us towards, whether it’s consciously or not, is something that’s kind of like a constrained, managed demand model where the government is the single largest player in determining who gets what, and because of problems with supply and consumption. 

They’re actively ratcheting down demand because there won’t be enough stuff to go around. But Trump is also constraining artificially the supply of product within the American market. So whether this, constrained demand model is something that is going to be a thing in the future, I don’t know, it’ll probably need to be a lot more cohered than what we’re seeing out of Washington right now. 

But it is something we shouldn’t reject out of hand because we know the old models aren’t going to work. The primary concern that I have at the moment is that the United States has the healthiest democracy of any major country in the world, which means we don’t need to make the adjustments first. We can wait to see what everybody else does first and then sort of pick and choose. 

The idea that we are needs to be the ones at the vanguard of this next phase of economic theory, I think, is a bit of a stretch. And if we are going to do it, I would like to see it be a system that is a lot more coherent and a lot more geared to American strengths and weaknesses than what we’ve seen out of the administration these last couple of weeks. 

Soooo….