Getting Ready for Trump’s Tariffs – TEASER

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

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

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Transcript

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

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

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

Trump Takes on Trade

Photo of man standing in front of trade shipping containers

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

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

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

Prefer to read the transcript? Click here

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

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

Learn about medshare here

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trump, Cartels, Terrorism and…Increasing Migration

Photo of man in gloves opening cocaine package

Trump had a fat stack of executive orders waiting to be slammed down onto his desk as soon as he took office. One of those was his designation of Mexican cartels as terrorist groups, which will have some unintended consequences.

This new designation does little to address the networks which smuggle drugs into the US, and is largely irrelevant to the deepening fentanyl crisis. But perhaps the biggest hmmm of Trump’s order is that certain victims of terrorism can qualify for asylum in the US, which means millions of Mexicans and Central Americans could now immigrate. Legally.

This kind of “oopsie” is nothing new for Trump, as his border wall inadvertently facilitated illegal immigration by creating new routes to access the US. While Trump claims one thing, his actions may be doing the exact opposite of what he intended (TBD whether it’s deliberate ignorance or incompetence). As we all expected, Trump’s time in office will be nothing short of a wild ride…and I’m going to need some more popcorn.

Prefer to read the transcript? Click here

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

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

Learn about medshare here

Transcript

Hey, all. Peter Zeihan here, coming to you from a Lake Wakatipu in Queenstown, New Zealand. It’s a 21st locally, which means it’s the 20th in the United States, which means that Donald Trump was just inaugurated. And we’ve had several dozen, executive actions, quickly thrown in there. There’s a lifetime of material for me to work with in there, but I’m going to focus on the one that I think is actually most significant to how most Donald Trump supporters view the world. 

And it has with, designating the Mexican cartels who traffic illegal narcotics into the United States as terror groups. 

Okay. Let’s talk about what it does. Let’s talk about what it doesn’t do, and let’s talk about where it’s going to lead us. So what it doesn’t do is strictly loosen the tools of the US military can use on foreign soil, because Mexico is not a country that we are at war with. 

So designating the cartels, sponsors of terror doesn’t really do much unless you also designate the Mexican government as a sponsor of terror. What it does is allows the US government to very easily move against any entities who are associated in any way with the cartels, especially from a financial point of view, especially if they’re victims. So, like if there’s a 

Taqueria in Mexico City that pays protection money to the cartels, this action would target them because of the financial transfers, but it’s not actually going to encourage us Apache helicopters to be flying south of the border and blowing shit up. Keep in mind that, the number one drug that is of concern from my point of view is no longer cocaine. 

It is fentanyl. And fentanyl as a synthetic has a very different supply chain. What happens with cocaine is it starts in Colombia. It’s turned into a leaf. It’s pressed into a brick, it’s refined with gasoline. It’s turned into the white powder that we all recognize. Well, hopefully we don’t. All cocaine is bad. Don’t do cocaine. Anyway, it is smuggled by plane, train or automobile north and eventually makes the jump by water or air to Central America, where it gets on land and it goes into Mexico and up north. 

So interrupting cocaine flows. This is a good thing. We like this. That is not what we’re dealing with. We’re dealing with fentanyl. Fentanyl is a synthetic. And what happens is in China, you get a chemicals company that makes a precursor, which is then processed into another precursor. That precursor is put in the mail and is mailed to the United States. 

And then it is smuggled south across the border to a mom and pop shop that processes a few kilos of this stuff a month, and then that stuff comes north. That is where the money is. That is where the danger is. And this does nothing for that, because the mom and pops aren’t big enough to justify classification as terror groups, because there’s literally thousands of them, as opposed to just a few, cartels anyway, so it’s going after the wrong thing. 

More importantly, when you identify a group as a terror group, you have also identified the people that they prey upon as victims of terrorism. Right? We all agree with this, right? Well, if you identify someone as a victim of terrorism, then they automatically qualify for asylum status within the United States. So what Trump has done with this designation is designate 130 million Mexicans and 50 million Central Americans as automatically qualifying for U.S. immigration protection. 

Now, if you dial back 4 or 5 years ago, I said that Donald Trump will long go down in history as the most pro illegal migrant, president in American history because by building a wall, what he has done is built 50 roads, construction roads that bypass the most robust natural barrier on the North American continent, the Chihuahuan and Sonoran Deserts. 

And lo and behold, it came to be true. And we eventually got 2 million illegal migrants a year. What he has done now is generated the largest inflows of illegal migration of the asylum clause of any American president in American history. Now, normally I would argue that this would mean the end of him, because his supporters will immediately abandon him because he’s done exactly the opposite, or achieved exactly the opposite of what he said he was going to do. 

 But this is Donald Trump, and he defies convention all the time. But it will set the stage for a very different conversation in the United States. And I can’t wait to see how that comes out. 

Oh, one more thing that I would be remiss and saying, this is my last day in New Zealand. I have been drinking, I’ve been doing some wine tastings, and this is not what I would call great analysis. There’s nothing that I just communicated with you that would be any sort of secret to the national security community, the law enforcement community, the folks who are interested in immigration at Pro or Con, or anyone interested in generally security of the border in general. 

But clearly the new president, the president is unaware, otherwise he would not have done it. Because this is going to generate exactly the sort of crisis that he says he wants to solve. The reason for this is very simple. Donald Trump has made sure that there is no one in his inner circle who is capable and competent in the issues that really matter. 

And his cabinet nominations reflect that, the only other two leaders in modern history that I can think of that kind of fall into this category of deliberate blinders, reshaping of China, who is rapidly leading his country into a full out national collapse, and Barack Obama, who hated having conversations with other people to such a degree that he basically hermetically sealed himself into the white House for his eight years. 

Donald Trump now joins those other two as one of the three most deliberately unaware leaders in modern history, which means that of the dozens of executive orders that were just handed down, there is undoubtedly more that fond of his general category of going directly against what Donald Trump says that he stands for, which means that we are in for an incredibly interesting period over the next four years, as, Donald Trump’s leadership or more accurately, the lack of competence in his circle leads to some wildly interesting outcomes. 

And I am here for it.

Why I’m Worried About Fentanyl in the US

DEA photo of fentanyl on a pencil tip

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

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

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

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

Prefer to read the transcript? Click here

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

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

Learn about medshare here

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Photo by Wikimedia Creative Commons and DEA

Trump Tariffs Part 2 – Canada and Mexico

Photo of a bicycle in front of the Canadian flag

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

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

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

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

Prefer to read the transcript? Click here

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

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

Learn about medshare here

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

The question is time frame.

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

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

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

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

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

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

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

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

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

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

¡Viva Chihuahua!

Photo of the cityscape of Chihuahua, Mexico

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

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

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

Prefer to read the transcript? Click here

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Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A photo of mexico city at night

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

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

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

Prefer to read the transcript? Click here

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

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Transcript

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

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

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

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

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

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

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

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

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

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

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

That authority already exists.

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

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

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

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

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

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

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

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

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

My Recent Interview On Borderlands + Patreon Info

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From the video description:

In this episode of Borderland, Vince sits down with renowned geopolitical strategist Peter Zeihan to dive into the complex realities of immigration, U.S. policy, and Mexico’s uncertain future.

Peter breaks down what both the left and right get wrong about America’s immigration debate, and offer his perspective on the models that could reshape U.S. policy. He also takes a hard look at Mexico’s new president and the growing threat driven by cartels.

He is also the New York Times bestselling author of The Accidental Superpower, The Absent Superpower, Disunited Nations, and The End of the World Is Just the Beginning.

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If you sign up for our Patreon page in the month of October, the proceeds from your subscription for the remainder of 2024 will be donated directly to MedShare. So, you can get our all of the perks of joining the Patreon AND support a good cause while you’re doing it.

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If You Think Mexico’s New Government Is a Problem, Wait Until You See Its Solutions

Mexican President Claudia Sheinbaum raising hand behind a podium

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Mexico’s newly elected president, Claudia Sheinbaum, is settling into her new digs. Despite her qualifications and experience, will her leadership actually look all that different from former President Andrés Manuel López Obrador (AMLO)?

While AMLO may have been popular, his policies and ideological governance will mark him as one Mexico’s worst leaders. Since Sheinbaum and AMLO are closely aligned, I’m not so sure we should expect anything different from the new president.

To make matters worse, the judiciary system has been weakened thanks to AMLO’s reform merging the National Guard into the military. So, Mexico’s political system is – let’s call it – fluttering.

We also need to touch on the geographic and economic challenges facing Mexico. AMLO attempted to redistribute wealth to help benefit the poor, but the country’s situation hasn’t improved…especially with the rise of the violent cartels. Sheinbaum has her work cut out for her, but let’s wait and see if she decides to follow AMLO’s policies or lead a bit more pragmatically.

Prefer to read the transcript? Click here

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First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are free and we will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

Hey everyone. Peter Zeihan here. Coming to you from a very damp North Carolina. Today we’re going to talk about changes going on in Mexico. Claudia Shane Bond is the president elect. She took office on October 1st, which is Tuesday. Tuesday? Yeah. You’re seeing this Wednesday? She is of the people who have run for office in North America in recent years, probably the most qualified.

Unlike, Justin Trudeau. She wasn’t a kindergarten teacher. She actually was a mayor of Mexico City. No less. And unlike Trump, she wasn’t a marketer. She had a real boy job. And unlike, folks like Harris or Biden or Obama, she wasn’t a senator. She was actually responsible for people and getting the trains to run on time. So in terms of expertise and managerial skills, she’s clearly the top of the heap.

The question is whether or not she’s going to show any independence. The outgoing president’s, Andres Manuel Lopez Obrador is going to go down in history as one of the worst leaders in Mexico, despite the fact that he’s leaving on relatively a popular point. He was an ideologue who wanted to punish most of the other factions that are responsible for policymaking in Mexico.

And in doing so, he dismantled a lot of the country’s institutions. In fact, in his last couple months in office, he basically gutted the judiciary. So if you’re an American, imagine that your most popular hated presidential candidate wins, and then he or she goes through and changes the way the judges are appointed. So instead of going through Congress, it just goes through party caucuses like that person’s party caucuses.

Some version of that is basically what Mexico has now, which is going to make it very difficult for the country to recover and have any sort of judicial independence in any sort of multi-party system. The question now, of course, is whether Shane is going to be part of the problem or part of the solution. And considering that she considers herself Lopez Obrador’s protege, I can’t say that the prognosis is particularly good here.

We also have another reform that has just been pushed through, the lower house of Congress just approved the folding in of the National Guard into the military writ large. It’s already passed, the upper house or is it the upper house? Just passed it. Anyway, it’s already passed both houses of Congress and now goes to the states where they need 17 states to ratify it.

And considering that Lopez Obrador’s and Shane Bonds party controls 20 of the state legislatures, that should be a pretty straightforward process that then comes back to Mexico City and the president formally stamps, it becomes law. Now, why does that matter? Well, the National Guard was set up a few years ago because the military was so horrendously corrupt and Mexico City needed a new semi military operation that could fight the cartels.

Now it’s just getting folded back in in order to guarantee central control by the president. So we’re looking at the tools of violence of the state being consolidated under one party, and we’re looking at the judiciary being consolidated into one party and using elections. That one party has already dominated most of the political conversations of the country.

Now, this was done without a coup. This was done through the ballot box. One of the downsides of the Mexican economic model is it’s grossly in equal. And because the country’s so difficult to manage, because it’s so difficult to build, it’s a mountainous issue. Most of the country is mountainous in the north. It’s desert, mountainous in the south, it’s jungle mountainous, and in the middle it’s just mountainous.

And so you get a lot of oligarchs who basically take control of their local cities. And this is how it’s been since independence back in the 1800s. And so Lopez Obrador, to his credit, sees this to the degree as a problem. And he wants to wrest power away from these local oligarchs, or could be used, if you want to use the Spanish term and give power to the people.

And so instead of having the most economically unequal state in the world, which is how Mexico was when he came in, he’s been redistributing, resources from the states to the federal government. Then the federal government has been giving them primarily to the poor. And that has one of the reasons, primary reason why Lopez Obrador, despite, wrecking the country, is leaving on a high point, because you have a lot of people who’ve never read and would speak for them.

The challenge moving forward is we’re now looking at a situation where the security situation in Mexico is going to degrade massively. We’ve got a civil war going on among the Sinaloa cartel, which used to be the most powerful one in the country, and we have now. Security in the country is the responsibility of the military, which is corrupt.

And for the last five years, Lopez Obrador has refused to move against the drug cartels. So they’ve basically taken over many, many aspects of everyday life, including in the Mexico City Central region as well. So Shane Bond has her work cut out for her, and we will find out whether this relatively pragmatic governor is going to be able to ditch the ideology and rule like a normal person, or whether she’s going to make it even worse.

The Civil War of the Sinaloa Cartel

The Sinaloa Cartel, once the dominant organized crime group in Mexico, is turning on itself. This is just another notch along the downward spiral of the Sinaloa Cartel since the arrest of El Chapo years back.

The most recent fighting started after “El Mayo”, a top cartel figure, was betrayed by one of El Chapo’s son and arrested in the US. This newly vacated position caused a power struggle and each of the cartel’s factions is hoping to grab control. The fighting is currently the worst in the Sinaloa state, but is expected to spread throughout Mexico and even spill into the US.

As the fighting ramps up and chaos ensues, we can expect to see disruptions to the distribution network and perhaps the worst news for those who love the white powder…higher prices.

Prefer to read the transcript? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

Hey everybody, Peter Zeihan here. It is the 22nd of September here in Colorado. Well, I guess not just in Colorado. Anyway, the news today is coming out of Sinaloa state in northern Mexico, where there have been at least 100 murders and a whole bunch of abductions as the Sinaloa Cartel is basically devolving into civil war.

Now, the Sinaloa Cartel is rather unique among organized crime groups in that it’s not simply about power or money. It’s run as a business. There was a guy by the name of El Chapo who used to run the place, and he essentially brought together all his chapter leads to compare best practices and figure out how they could run drugs to the United States with less friction and disruption to local law enforcement and local populations.

The concept was pretty straightforward: “Don’t shit where you sleep.” The goal was to maintain good relations with the people where they operated, so they wouldn’t turn on the cartel or go to the government for help. This strategy allowed Sinaloa to become the largest organized crime group in Mexico by far.

However, they were so successful that the United States made El Chapo public enemy number one. Eventually, the U.S. was able to capture and extradite him. He’s now serving multiple life sentences in the American prison system, where he’ll never see the light of day again.

That left his organization in the hands of others who aren’t as competent as he was. El Chapo was, without a doubt, a murderous thug, but he was a murderous thug with a business degree and some managerial skills. Since his capture, the factions he used to control have started to go their own way.

Things really started to unravel back in July, when Ismael Zambada, also known as El Mayo, who used to be the accountant and has taken over most of the operations, was lured to Texas by one of El Chapo’s sons. The second he landed, American law enforcement arrested him. It appears that El Chapo’s son betrayed El Mayo and turned him over to the authorities.

Now, El Chapo has more than one son, and each of them controls a faction of the organization. With El Mayo out of the picture, they’re now fighting among themselves for his share of the cartel.

Cartels aren’t monolithic, especially in a place like Mexico where internal transportation is difficult. The cartel is made up of several dozen groups, mostly locally defined, where local chapters might even use different names, have different organizational structures, and only give lip service to the central leadership. It’s like Canadian politics, but with a lot less politeness.

As long as there’s a strong leader who’s skilled with words and has a firm hand, this system can work and hold together. But when the leader is in prison, his deputy is in prison, and his kids are fighting over what’s left, things fall apart quickly.

Now we’re seeing the largest organized crime group in Mexico break down, and Sinaloa, the heart of the organization, is where the splits are occurring. Over the next few weeks, we can expect to see this violence expand, not just beyond Sinaloa into the rest of Mexico, but also north of the border.

El Chapo’s business-minded approach didn’t just make Sinaloa the largest drug-running group in Mexico—it made them the largest organized crime group on the planet, including in the United States. As the leadership fights among themselves, we’ll see similar breakdowns in their local distribution and retail operations, especially in the U.S., where many of their operations are carried out by local gangs.

This will likely lead to higher drug prices due to distribution disruptions and more violence as the organization fractures at the regional and local levels. Whether that’s good or bad, I’m not sure.