Talks of the Trade with James Fraser & J.P. Morgan

I recently had the opportunity to sit down with J.P. Morgan Payments’ Global Head of Trade and Working Capital, James Fraser, for episode 2 of “Talks of the Trade.”

In this episode, we discussed how global markets and cross-border trade flows are vulnerable to geopolitical risks; these factors can have oversized impacts on costs, access to capital, and overall economic stability. We do a deep dive on a handful of these factors, including deglobalization, international tensions and crises, world financial markets, urbanization, manufacturing, and supply chain risks.

Click the link below to watch other episodes or to learn more about Trade and Working Capital at J.P. Morgan Payments…

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.

The Collapse of Global Maritime Shipping

Cargo ship with containers

No matter how much bubble wrap and caution tape we slap onto global maritime shipping, the industry has found itself in quite a predicament.

Despite the Ukraine War, a drought impacting the Panama Canal, Houthi attacks in Yemen, widespread piracy, and mounting geopolitical tensions in the South China Sea (yes, that is a lot of disruptions), the maritime shipping system has not cracked yet. However, it is very, very, very fragile.

The main thing propping up shipping in these more problematic regions is the emergence of ‘ghost fleets’ with alternative insurance policies. This insurance system is untested and unreliable, and as soon as one of the dominos falls, the entirety of the shipping system will follow.

The looming threat of a shipping collapse should terrify you. In case you need a supply chain refresher, manufacturing and global shipping is more interconnected than ever…so if the global shipping system fails, we’re in for a world of hurt.

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.

TranscripT

Hey everybody. Peter Zeihan here. Coming to you from a chilly day in Delray Beach, Florida, while chilly for Florida. It’s like 50. Today we’re going to talk about what’s going on in the world of maritime shipping and why we should be thankful that nothing has gone horribly wrong yet and why we should count on that. Continuing. Just a quick recap of what’s gone down in just the last couple of months.

We’ve got Ukraine taking accurate potshots at Russian energy facilities on the Baltic Sea at a place called Ust-Luga and on the Black Sea, a place called to Tuapse. And they’re reviewing up for an overseas hit. Now we’ve got a drought in Panama, which, based on goose numbers you’re using and whether you’re going by value or tonnage, has reduced the throughput of the Panama Canal by somewhere between one third and two thirds.

We’ve got Houthis in Yemen who are taking potshots at pretty much every other vessel that happens to go by them, which has reduced shipping through the Red Sea by about 10% for energy and cargo. we’ve got fresh piracy in places like Somalia. This really gone away in places like the Gulf of Guinea or the Strait of Malacca.

And we’ve got the Chinese making ever louder noises about wanting to change the security environment in their own neighborhood, even as the Russians are actively making roughly two thirds of the Black Sea a no go zone. It’s a long list. It’s getting longer by the day. But, but, but, but, but, but to this point, there has not been a meaningful break in the old system.

A big part of that is because of the insurance structure where every vessel who’s sailing anywhere has to get some sort of policy to insure both their whole and their cargo. And while with the ever tightening sanctions on the Russians because of Ukraine or to this point, that system has not been broken. It has been denied Russian shipping.

But Indian, Chinese and Russian state companies have stepped in to offer policies. And so far, none of the ships that have had problems anywhere have been under one of those policies. So what has happened is we’ve got this dual system where we have the the normal world where the Americans and especially the Europeans are providing the insurance for most of the shipping.

When you’ve got this ghost fleet that’s developed, mostly older vessels that were about to be decommissioned, that have been brought back and given a new lease on life as second rate cargo haulers, especially for liquids where they have a Chinese Indian or Russian insurance policy. This ghost fleet, based on whose numbers you’re using, that may be as much as 10% of the global tanker fleet.

And there’s also a few brokers and maybe, maybe, maybe even a few container ships that are kind of joining its ranks now to anything that the Russians can do to keep things under the table from the point of view of global record keeping and shipping. Now, what that means is that the risk has been deferred and absorbed by this shadow organization that has kind of popped up.

We’re now in a situation where we’re kind of in a holding pattern where we’re kind of waiting for like a real actual disruption to happen. But so far, no real country has targeted any sort of shipping. It’s not like the Japanese and the Chinese have started trying to block each other. The U.S. is still using its naval power to patrol the oceans where it can, and the biggest beneficiary of that system is none other than China.

And we don’t have the Russians or NAITO deliberately targeting each other’s commercial shipping yet. In fact, everyone is very will be closely sticking to the old structures. They’re just kind of trying to maneuver their own ways to get national and regional advantages. Now, this isn’t going to be long for the world. This is a very unstable sort of equilibrium that we have reached in early 2024.

And the that this is crazy that goes fleet is the reason why it’s all still working. It’s kind of a testament to the strategic inertia of the system. But now the buffer, the ghost lead is something that is largely documented, largely under the table. And if one of these ships gets into trouble, it’s an open question of whether or not the U.S. Navy will step in to help.

All of these are unknowns, which means as soon as that happens, a ghost fleet ship gets into trouble or a real country starts taking shots at another country’s shipping. We don’t just lose that buffer. We lose all of the insulation that we’ve managed to build up in the last two years, and we get a very quick breakdown much faster than we would have otherwise.

Now, based on what happens geopolitically, this could all go any number of directions. If the United States decides to take a shot at what the Iranians are doing in the Gulf, you know, that obviously takes us one direction. The Chinese decide to do something in the South China Sea that takes us another. If Ukraine accidentally hits an actual third party vessel in some of its anti-Russian operations and goes another, if the Russians are bored and captured, somebody go into a Ukrainian forward that takes another.

We’re on the edge. There’s a lot of guns aimed at our heads right now. And it honestly from my normal point of view, it doesn’t really matter which way this goes. It all leads to the same in place where long range shipping is simply no longer viable and shipping in general through dangerous areas is simply no longer viable.

And the two biggest places in the world that benefit from the current system are, ironically, Russian sanctions busting oil exports, which have to sail all the way around Eurasia and Chinese merchant US exports, who have to do the same thing. Those are the longest haul plays out there, all going through dangerous zones. So when this cracks, we see those two things get hurt first, but they will be far from alone.

Remember, East Asia is home to half of all manufacturing supply chain steps. There is no version of manufacturing in the world, especially when it comes to things like computing and electronics, where it works without that setup. And that requires global shipping to be safe. So we need to be prepared for the not too distant future when all of this just stops working.

And we have to figure out a fundamentally new model that’s probably going to be more based on regional trade rather than global. Okay, that’s plenty for the day. Take care.

Shipping and the Red Sea

The Accidental Superpower: Ten Years On

With a new “10 years later” epilogue for every chapter, comes an eye-opening assessment of American power and deglobalization in the bestselling tradition of The World is Flat and The Next 100 Years.

If any of the gifts you ordered have to go through the Red Sea, it might be time to buy a backup. If you haven’t heard, there has been a series of attacks carried out by Yemeni militants on commercial shipping.

Most of the major shipping companies have suspended operations in the region; no surprise there. However, if you’re not a shipping savant, these attacks in the Red Sea could disrupt nearly 30% of all global container traffic.

Some countries will feel the heat a bit more than the rest of us. Chinese exports to Europe will require longer routes, crude shipments from the Persian Gulf could be disrupted, and don’t get me started on Russian crude exports. This is a complex issue that, if left unattended, could have major consequences down the road.

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.

TranscripT

Hey everybody. Peter Zeihan here. Coming to you from chilly Colorado. And the news we have in the last few days is that militants within the militants in Yemen are launching a combination of low grade ballistic missiles and drones, commercial shipping in the Red Sea. And that’s led the ten major shipping companies of the world to basically suspend operations in that area and either tell their ships to wait at the openings to the Red Sea until the threat passes or simply sail around the Red Sea completely, which means going all the way around Africa for the Asia Europe run.

Now, first, let’s get the caveats out of the way. This is not a state making a determined effort to shut down shipping in the area. That is something that has happened before in the aftermath of the 1973 war between the Arab states and Israel, the Israelis found themselves occupying the eastern side of the Suez Canal. And so they did just that in order to destroy one of Egypt’s main sources of foreign currency and force them to the negotiating table.

That’s what it’s play here. We have basically a bunch of drug addled militants, some of the world’s least competent ones, operating from some of the world’s least valuable land in Yemen, probably at the instigation of the Iranians who are their primary supporter, because this is a little conflict that is a needle on the side of Saudi Arabia, cost them very little to do it.

They’re using some of the same weapons systems that they’re selling to the Russians. And it’s plausible deniability just causes a lot of heartburn. So this is not a formal shutting down of trade. This is more of a heavy annoyance that has the opportunity maybe get worse. But at the moment, the warheads in play here are, you know, no more than a few pounds to a few dozen pounds each.

Nothing that can take out a tanker, nothing that can take out a container ship. The reason everyone’s so touchy about it is the way insurance law works on the seas is if you sail into a zone where someone is shooting the commercial shipping, your insurance policy is null and void. And so if anything happens like you need a tow, you’re on your own, or God forbid, that you actually get a leak either from the attack or from something else, you’re on your own.

So out of an abundance of caution, everyone’s just avoiding the area altogether. Now, who gets affected by this? Three big things to keep an eye on. First of all, this is roughly 30% of all global containerized traffic. And the biggest single chunk of that is Chinese exports to the European Union. These routes now need to go around the bulk of the African continent, which, based on where this stuff is being sold to, increases the sailing distance by one third to two thirds.

And that means you need one third to two thirds more container ships to maintain the same flows. So we’re going to see a lot of pinches in the supply chains for finished goods. These aren’t intermediate products for the most part. These are finished goods coming from the Chinese, which is obviously going to hit their bottom line in an environment where consumption is basically seized up in China and all they have left are exports.

It’s also going to make it a little bit easier for the Europeans to put trade sanctions on the Chinese for product dumping, for example, on the eve space. The Europeans are always looking for protectionist methods to apply. And if the Chinese are proving unreliable in their deliveries, that’ll make that case that much easier. The second thing is crude oil coming from the Persian Gulf, mostly Saudi crude that is going the north through the Red Sea and Suez.

There are a couple of bypass pipelines for Suez that go through Egypt as well, which go into the Mediterranean basin and of course, Europe in the aftermath of the Ukraine war. This route has gotten a lot more traffic because the Europeans are no longer taking Russian crude. So the Persian Gulf has stepped in. This is about 12% of global energy shipments.

Now, if this proves to be any more than a momentary problem, what the Europeans are going to be forced to do, what the Saudis are going to be forced to do is to do what happened the last time this was closed down in 1973, the supertanker was developed. The traditional oil tanker only carries about 500,000 barrels, whereas a supertanker can carry a little bit over 2 million.

It takes a larger tanker to make the trip all the way around Africa economically viable. And of course, the Saudis know a few people who have supertankers. So expect to see larger and larger vessels plying this route, which is going to put pressure on anyone else who is trying to bring in crude from a longer distance. Which brings us to the third problem and where we’re probably going to see the most pain in the market, and that’s Russian crude exports.

Now, when the Ukraine war started, the Europeans basically stopped using Russian crude and then they gobbled up all of the crude that was available within arm’s reach. Some from the United States shale fields, some from North Africa, some from West Africa, and the rest from the Persian Gulf. That meant that because of a lack of infrastructure, Russian crude had to be exported through the same port points on the black and the Baltic Sea.

But it had to be then shipped through the Mediterranean, through Suez, through the Red Sea, across the Arabian Sea, to India, Southeast Asia and China. Well, that is barely an economically viable route now, which is one of the reasons why the Russians are typically selling their crude at a 20 to a $30 a barrel discount. But if Suez is closed, then they can no longer send these small tankers through it.

And these small tankers don’t have the reach to go all the way around Africa, in addition to all the way around Asia. So you’re looking at something like 1.5 to 2 million barrels a day of Russian crude that might finally actually be stranded if this isn’t solved pretty quickly. Now, the Russians do have one thing going for them here.

The insurance rules that I kind of laid out there are how insurance has been working since the 1980s. But since the Ukraine was started and Western insurers have been bypassing Russian ships completely. You have some Russian players, some Indian players and some Chinese players who have started to offer indemnification insurance. So we might get this really colorful situation where the real shipping companies would stop using Suez and the Red Sea.

But these shadow companies that have never had to pay out start using it. And then we get to find out what happens if an Iranian backed militant force hits a Chinese, Indian or Russian ship and goes down there. So this is an interesting little story. This is not the panic in shipping that I’m anticipating because there’s no real sovereign behind it.

No one’s actually trying to break the shipping routes, but it does raise some interesting mixes of motivations that are probably going to shake out in the next week or two. So stay tuned. I know I’ll be watching, but.

Why the Port of Savannah Is Poised for Success

Savannah is awesome!

Not only is it home to my favorite bar and one of my favorite food scenes, but it is also the site of the largest containerport in North America. For the people of Savannah, a lot of the hard work has already been done. They are well positioned to thrive no matter what happens with the global environment or how Americans do or do not take advantage of the changes.

Also, the best shrimp and grits on the planet.

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.

TranscripT

Hey everybody. Peter Zeihan here coming to you from Savannah, one of my favorite cities in North America. And one of the reasons is the bars, and one of the reasons are the restaurants and the other one, it is home to the largest container port in the continental United States, been operating for a few years now. They keep expanding it.

You’re looking at here one of the Merce medium size ships. The supers do come through here. They just have a problem getting through that bridge there. All right, It’s raining. We’re gonna do the rest of this inside. All right. Got some shelter. The Savannah super container port is definitely the newest in North America, and it’s the only one that was really designed for the the post-June TechEd world that we’ve got.

So the Jones Act restricts shipping within the United States, saying that no foreign vessel, no matter what kind, can dock at two consecutive ports. If they come in, then they have to leave the country to come back. And that’s made it really hard to have a domestic waterborne manufacturing system in the country. But it wasn’t until the Savannah port came on operation in the last decade that we actually had a place in the United States could really handle the very, very large container ships.

I mean, yes, you got Long Beach, California, such a special case in so many ways. Usually what happens is they dock in a place like Kingston, Jamaica, and then the cargo is broken up into smaller vessels who can just do a single run because the idea of doing a circuit where you go to New York and Boston and more Fulgham and Savannah and Miami, a foreign ship can’t do that.

It can come in, dump its cargo and leave, has it in the country before it comes back. So those shuttle tankers take most of the traffic except for, again, at the mega port of Long Beach. Oh, the question is, moving forward as the United States re industrialized is because we have to of which sorts of ports are actually going to be able to continue operation.

Now, in the case of Savannah, it probably is looks pretty good because you’re not going to build a huge amount of manufacturing in Atlanta or in Miami. And so you can still have the super container ships coming in and docking and disgorging to serve a huge area because Savannah has excellent rail connections, which is how most of this stuff is shipped about.

But when you’re talking about areas where manufacturing can move back, eastern Virginia, for example, or Texas, then all of a sudden the ability to take really, really large cargo ships really doesn’t matter. And so it’s only going to be the small stuff that can continue to go. I’m particularly concerned about places like Long Beach because despite all of the negative things that everyone always says about California, most of that stuff is coming from China.

If the Chinese face stability issues, they’re going to have to find a different business model. Other ports, like say Tacoma, are a little bit different because they handle so many commodities exports, but places that specialize in containers really haven’t put in the infrastructure to adapt to the changing world. And I really don’t see it happening on the time scale that is necessary for this transformation the U.S. is going to be going through in the next 5 to 7 years.

Savannah seems to be in the sweet spot. It’s all keepers. I think.

Reviving Water Transport in the United States

The US is blessed with one of the most prolific water networks in the world, yet it operates at sub-optimal levels. You’ve all heard my thoughts on the Jones Act, so you can probably guess where the blame falls once again.

Something will have to change as the US reshores its industry and attempts to build out its manufacturing footprint. Thankfully, reviving water transport in the US is a low-hanging fruit. All it requires is some amendments to the Jones Act and its regulations on waterborne commerce.

If we can manage that, we’ll all enjoy some nice economic growth thanks to reduced product transport costs and a boost to US manufacturing.

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.

Transcript

Hey everybody. Peter Zeihan here. Coming to you from Milwaukee, where I’m doing a little street hiking along the Kinnickinnic river, which is, you know, say that five times fast. This used to be one of the great industrial heartlands of the United States. Big into steel. Big into heavy manufacturing. And the reason was because of what’s right here next to me.

Moving things on water is about 1/12. The cost of moving them by land and courtesy of in the Air and the nearby Lake Michigan. Milwaukee, just like Chicago, just like Oshkosh and Green Bay, were part of a broader transport network that included the entirety of the Upper Midwest, of the United States and the New England States and the Mid Atlantic states.

Basically from here in Chicago. You can take your local rivers and canals out to the Great Lakes, go through the Great Lakes until you get to Erie, and then you’ve got two choices. You can either take the Mohawk River, Erie Canal and Hudson to New York direct, or you can go the long way, which goes through Quebec and Ontario in order to reach the Atlantic Ocean.

That’ll loop back around. From New York, you go south through the barrier islands system all the way to Miami from Miami. You can go through the barrier island systems all the way to Matamoros or you can hit New Orleans and go up the Mississippi River and go all the way back up to Chicago via canal that links into the Illinois River.

It’s the great circle of North America and it has long been one of the great manufacturing zones of the world until about 1920. And then in 1920 as part of it, discretionary, protectionist system, the United States put in place a law called the Jones Act, which says that any cargo transported on any vessel that goes between any two American ports has to be on a vessel that is American owned, captain, crewed and built.

And over the course of the next century, we saw cargo transport on America’s waterways drop by 97, 98%, something like that. Anyway, so we basically taken what has been the world’s most beneficial old natural geographic feature from an economic point of view and crushed it into irrelevance. Now that we are entering an environment where the United States wants to double the size of its industrial plant in the aftermath or the soon to be aftermath of the European and especially Chinese failures, we need to start thinking a little bit differently, and that means we need to start looking for things that are very, very, very low hanging fruit.

In this case, that means getting the waterways back up and running again. Because when you think about the sort of manufacturing that the United States traditionally is not good at things like electronics, it’s largely because you have different price points for different types of work. The person who does injection molding is not the same as the person who does the coding for the wires and not the same who does the software work.

You need multiple skill sets in different places, and if you can drop the transport costs for getting those intermediate products among those places, well then you’re looking at something pretty special. And we actually have that built into the American heartland itself just requires changing one law, not abolishing change. Part of the Jones Act, the Interstate Commerce Act, if you will, is about regulating commerce among the states on the water.

And some of that we still need we clearly need a national regulator. But the rest of it really, honestly can go away. And if you think that this is a nationalist issue, that, you know, we should have this all in American hands, consider that we don’t do that for truck and we don’t do that for rail and we don’t do that for air only for water, only for the thing where we have a massive geographic advantage.

So if you’re looking for a quick and easy way to stimulate economic growth in Wisconsin, in Illinois, in New York, anywhere in New England, anywhere in the South, anywhere in the Midwest, this is the low hanging fruit. All we have to do is get out of our own way.

Autoworkers Strike: The Union’s Rising Influence in America

If your kids need poster boards for an upcoming school project, you may want to visit the supply store before the autoworkers hit the picket lines. With a strike looming, let’s break down the economic and political consequences.

An autoworker strike – even if it’s short – could disrupt the largest manufacturing sector in the US and potentially send us into a recession. If the economic threat wasn’t significant enough, the unions are also gaining political influence and acting more like swing voters as the availability of labor decreases.

These ongoing negotiations and potential strikes are all part of the evolving political and economic American landscape. Whichever political party can gain the union’s favor will reap the benefits of a boost in overall influence.

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.

Transcript

Hey everybody. Peter Zeihan here coming to you from above Spanish Square in New Orleans. And it is the 13th of September. And the big news that is not a 747. Well, that’s kind of fun. The big news is when you see this tomorrow, we will be within hours of a potential autoworkers strike, the first one of significance in decades and potentially a very economically and especially politically consequential one.

Let’s start with the economics. Manufacturing is not one of the huge sectors. The United States, we’re much more of a services country, but manufacturing of automobiles is the single largest subcomponent. So the autoworkers are threatening to strike if they don’t get their way, which could take the largest section of manufacturing offline, which would have massive economic ramifications if they were to strike for as little as three weeks.

It would be more than enough to throw the United States into a recession from the quarter and considering that this quarter, we’re probably going to see economic growth north of 5%, which is almost unheard of for an advanced country. The economic impact obviously would be huge. The impact on specific types of automotive could be particularly bad. A lot of American automakers are attempting to launch new EV lines, and this was supposed to be the year that all of it hit the market and this would just stop it in its tracks.

So I can’t tell you whether the strike is going to happen. They’re asking for more than a one third increase in pay, but the damage they could do, the economy would be immense. So kind of even odds there. But in terms of, well, it’s there’s some sort of party going over there because, of course, it’s New Orleans. And it doesn’t matter that it’s only Wednesday.

Anyway, let’s talk politics now. For the last several decades, unions have been part of the Democratic coalition, and they’ve kind of been the economic core of that coalition. The people within the coalition who can do math, if that’s an easier way to think of it. However, they feel fairly put upon under Clinton, the Democrats shifted to the right on economic issues, especially especially on issues such as globalization, which led to a steady decline in union membership.

And as NAFTA took hold, a lot of union jobs vanished into Mexico and as manufacturing then expanded in value added terms in the United States. Most of the new jobs in manufacturing and auto went to places that were not union states, most notably Kentucky, Tennessee, Alabama and especially Texas. So when you’re looking at what’s been happening with trade and with the reshoring of trade, unions really haven’t benefited from about at all.

And that’s part of the reason why unions are no longer really functionally part of the Democratic coalition. Donald Trump was very effective at bringing them over to his side during his term. Joe Biden has been partially successful in bringing them back, but it’s best to think of them as swing voters right now. And this is something we’re just going to have to get used to.

The fact that the unions are becoming more of a linchpin in the American political process and not just because they’re in the wind right now, but it’s a lot of votes in the world were evolving into in the country. The United States is evolving into. There are not enough workers. The boomers are the largest generation we’ve ever had.

The extras that are replacing them at the top of the pyramid of worker skills have a lower worker participation rate, and the new generation coming in are the zoomers, and they’re the smallest generation we’ve ever had. So we’re looking at a significant reduction in the availability of labor writ large in the system. And in that sort of environment, you would expect organized labor or just labor in general to have more and more pricing power and more and more political power.

And that’s before you consider that the problems in East Asia and the problems in Western Europe suggest that if the Americans still want stuff, autos or otherwise, we’re going have to double the size of the industrial plant. That’s going to take a lot of workers. That’s going to take a lot of blue collar workers. Exactly the sort of workers that are more likely to unionize than not.

So what we’re going through today, what we’re likely to be going through through the next few weeks as these negotiations drag on. Don’t think of it as aberration. This is now part and parcel of the American economic and political experience, and whichever party the unions ultimately fall in are going to have a significant increase in their overall fall.

But in American life, the end.

The Greatest Reindustrialization Process in US History

Today’s windy video comes to you from just below the Continental Divide.

You know those little ‘Made in China’ stickers on everything you can buy in the US? Well, don’t be surprised when those all say ‘Made in America’ in a few years as the US carries out the greatest reindustrialization process ever…and if you thought the United States’ industrial buildout during WWII was wild…buckle up.

There’s a lot at play here, but we’ll touch on the legacy factors first. The US arguably has the world’s most highly skilled labor force, but we’re hyper-focused on the value-added stuff and outsource the rest. This arrangement can’t last much longer, but the shale revolution and petrochemical production have primed us for all the reshoring coming down the line.

Recently, COVID showed the US (and the world) that our supply chains weren’t as great as we thought. Now we’re having to reshore everything and turn over the power system, driving construction levels and spending through the roof. And the Inflation Reduction Act has helped provide the funding and regulatory structure to make it all happen.

Although inflation will be up there for a while (surprise, you can’t double your industrial plant without that happening), we’re on a solid trajectory to establish a fully regionalized supply chain. And if the US wants to have any sense of security down the line, we’ll just have to suck it up for a bit.

Prefer to read the transcript of the video? 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.
 
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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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TRANSCIPT

Hey, everyone. Peter Zeihan here. Coming to you from Heart Lake, above Boulder, Colorado. Just below the continental divide, which is where I’ll be for the next few days. I suppose some day. Then, before I left, I could do a few videos and this first one is going to be on construction spending in the United States. I know some of you like and I get it.

But remember that we are in the midst of the greatest industrialization process in the United States history, building an industrial infrastructure and factories and refineries and pipelines and roads and all that faster than we did during World War Two. There’s a lot of things in play here, so let me start with kind of the legacy factors, and then we will go into the more the issues of the now.

So first legacies. The United States has the most highly skilled labor force in the world by a significant margin. There are a few countries like Singapore where the overall educational level might be higher. But, you know, Singapore is a country of 5 million people. The US is a country of 330 million. If I didn’t say the German to the French, which might have a little bit more productivity per hour than the United States, you know, we’re talking about the labor force in the United States four or five, six times as much.

And that means there’s not a lot that the United States can’t do far puts its mind to it. Now, historically, since 1945 and especially since 1991, what the U.S. has done is focus on the really, really, really high value added. We basically shipped all of our underwear manufacturing overseas, first to Mexico and then to China and India and instead we designed computers, we designed space station, designed microchips.

Not a lot of the manufacturing happens here because to be perfectly blunt, that’s not sufficiently high value added for the skill set of the American workforce. So that’s always been in the background. Second, the shale revolution courtesy of the shale revolution, the United States is glutted with natural gas, which is not merely a power fuel. It’s also used as an input for chemical components, which then go into all other types of manufacturing, whether or not you’re looking to do electrical work or diapers or anything in between.

The shale revolution made us net independent of natural gas roughly ten years ago. Net oil independent a little bit after we had a few hiccups because of COVID, but we’re back to being that independent in all the factors that matter again. And one of the first things that the shale revolution encouraged the United States to do in terms of industrial build out what we’re fighting, the chemicals and so we now are the world’s largest producer of all the precursor materials that go into all petrochemicals everywhere in the world.

And now we’re using those materials to do the next stage of heavy manufacturing. So this kind of the first big phase of this industrial spending issue isn’t necessarily for building power lines. It’s for building the stuff that allows us to build the stuff. Now on to the more current issues, too big things. First, COVID. We discovered that our international supply chains perhaps weren’t as reliable as we thought they were.

And between China’s centrality and all things manufacturing and China’s own COVID lockdown, we found out that if we wanted stuff, we had to build it ourselves. So we did. And during COVID, we saw total industrial construction spending double above the 50 year average. More recently, in the last two years, we had the Inflation Reduction Act passed by the Biden administration, which has nothing to do with inflation.

There’s more going on here than just aspects of a Green New Deal. It’s turning over the power system and reshoring the production line for everything in the power system. It includes everything that we did with NAFTA and after to you know, I should say a third thing, because after two is a big piece of this, too. But anyway, the I.R.A. put roughly $1,000,000,000 into the system to build out what we need in order to meet the requirements.

And that has doubled the construction spending again. So we were already at record levels three years ago. We’ve now doubled the record and this is going on from there. Now, this does mean we’re going to have some more inflation in the short in the mid-term, because there’s no way you double the size of the industrial plant without that.

But once we get to the back side of this a few years from now, we will have a supply chain system that is local, that is employed by locals, that serves local customers and uses less energy and less water, and has fewer steps and is largely immune to international shocks. This is a really good story. At every step.

We just have to suck up a little bit more inflation while we’re doing the work. Alright. That’s it. I’m going to go put on some gloves, but.

The New Zealand Dairy Industry

Today’s shenanigans come to you from Lake Pukaki in Central Otago, New Zealand.

I think I’ve found my favorite trail snack – Kikorangi Triple Cream Blue from Kapiti – I swear it will turn a 15-mile trek into a brisk walk. It just goes to show that as the world’s top dairy exporter, New Zealand has its s*** figured out, and the Americans need to step up their game.

There are two traditional approaches to the dairy sector: French vs. American. The French way is centered around small towns, with lower throughput, and offering specific products to the local community (oh, and the safety standards are subpar). The American way is to supersize everything for more reliability and a more economical system. And you don’t have to worry about subsidies like the French (and yes, everything is safer).

The issue for the French is that you can’t scale their system. The issue for Americans is that not everyone wants American Cheese. However, the Kiwis found the perfect blend of both. They have low costs thanks to mellow weather, rain, and open land. Since they don’t have many people, they have plenty of leftover products to export….and they know how to create specialized goods that people actually want.

Finding a balance of scale and specificity seems to be the sweet spot for the dairy industry…now we just have to convince Kapiti to start selling this stuff back in the States.

CHECK OUT KĀPITI

They’ve been doing it since 1984, so they know a thing or two about dairy. Although we might not be able to get this in the States, we can still admire from a distance…

LEARN MORE


CHECK OUT ÍSEY

Have you heard of creme brúlée skyr before? You need to try it…

LEARN MORE


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.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

Sooner or Later: Oklahoma’s Time to Shine

That pan-shaped state above Texas offers much more than just tornados and sports. The Sooner State has done most of the heavy lifting in establishing itself as an agricultural, precision manufacturing, and energy state. All that to say, Oklahoma is not only a leader in the US but globally as well.

Oklahoma is like Texas’ little brother…they do a lot of the same things, but trying to compete with the big dog is pointless. However, that doesn’t mean Oklahoma cannot progress along the value-added chain in preparation for the collapse of globalization.

Oklahoma already has a robust refining industry. It wouldn’t take much to start producing the plastics, housewares, and synthetic rubbers that could face supply chain issues in the coming years. They have all the raw goods; they just need to build out the last step…and some better rail lines wouldn’t hurt either.

Prefer to read the transcript of the video? 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.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY


TRANSCIPT

Hey, everybody. Peter Zeihan here coming to you from Oklahoma where the winds are strong and the gasoline is so cheap. Anywho, as I’ve been traveling around the country for work, I’ve been doing little bits like this on where I see these various parts of the country go in and what they need to do to do better and what their strengths and weaknesses are. In the case of Oklahoma, they already have most of the hard work done. This is an agricultural state. This is a precision manufacturing state. And this is an energy state. So a lot of the sectors in which the United States already excels, Oklahoma is a leader not just within the United States, but globally. But there are some opportunities they could take advantage of if they do a little bit more.

So one of the problems that Oklahoma faces is it’s right next door to those damn Texans. And anything that Oklahoma attempts to do, Texas can do at scale with a larger population and better transport modes to the rest of the world. So the best way for Oklahoma to compete is to not. They will never be able to outcompete Texas on the things that Texas does well, however they can feed the beast. So we’ll come back to that in just a second. The whole issue is to move up the value added supply chain. Second, a lot of the processing that happens in raw commodities around the world doesn’t happen in the United States. I mean, we’re the world’s largest refinery. So I probably phrased that wrong. But in terms of our exports, we export a lot of raw commodities, most notably foods and energy. But a lot of this stuff is then taken by other countries with China at the top of the list and then processed locally. And the world we’re moving into, a lot of that is going to break down any sort of security complications in, say, the Indian Ocean or the East China Seas. And you’re going to see the Chinese lose the ability to access that stuff in volume. And that’s going to generate a lot of volatility across the entire commodities space, which means that a lot of that capacity is going to become stranded. And if you’re in a place like Oklahoma that exports a lot of the raw product, you’re not going to have enough people in the outside world to process it anymore. So you might as well do it yourself.

Now, Oklahoma already has a very robust and advanced refining industry, but you can take things a step beyond that. You can not just produce the methanol, you can start producing the plastics. You can produce some of the housewares that come from this sector. You can produce synthetic rubbers. These are all things that exist in terms of the raw form in the Oklahoma system, but they need that next step in order to get value out and go into manufacturing proper.

Oklahoma is also a significant producer of wind power with some great resources, and every fistful of electrons that Oklahoma generates for its own domestic electricity system frees up a handful of molecules for export or use in other projects. Now, Oklahoma has always been a little obsessed with getting into manufacturing and never going to try to talk them out of that.

But they have a problem both in terms of the add on processing and the add on manufacturing when it comes to transport. This is a state that has a robust pipeline infrastructure, most of which goes into Texas, but it doesn’t have good other transport options. And a lot of these products that Oklahoma probably will be very good at in the not too distant future are large and bulky. And right now everything has to be shipped by truck. A better rail system, particularly with an intermodal somewhere in the Oklahoma City, Tulsa area, would be a really good idea because it would then provide the transportation backbone for companies to have confidence to expand into these areas at scale. The alternative is to just keep shipping raw commodities down to Texas and watch the Texans take up this entire product sector.

So from my point of view, all you have to do is build some rail lines. That’s a really easy carry. And Oklahoma’s future, even without that, looks pretty good…with that, it should be fantastic. 

Alright. That’s it for me. Take care.

Will Automation Save the World?

A world caught in deep demographic decline, faced with the loss of consumption and the complications that come with all that…can automation help pull us out of this nose dive?

Here’s the quick and dirty on how we got here….back in the industrial era, birth rates started to decline, then got even worse when globalization came around, and then went to the sh***er once the countries that were a bit behind joined the industrial world.

Now onto how automation fits in. Spoiler alert: automation is not the holy grail it’s been made out to be. Sure, it can be part of the solution in systems that aren’t on their last leg, but we must remember that these are still machines. They take time to build, require lots of upfront capital, and don’t get me started on the consumption piece of this puzzle.

Automation isn’t going to magically reverse the effects of demographic collapse, but for countries with the time and money, it’s not a bad place to start.


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.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY