Colombia Avoids War with the U.S.

the statue of Simón Bolívar standing before Colombia’s National Capitol, with the flag waving

Colombia looked like it was in the hot seat following Maduro’s capture, but tensions seemed to have eased following a call between Trump and President Gustavo Petro.

Colombia has been America’s most reliable partner in Latin America for decades, thanks to shared security interests. So, it’s looking likely that cooperation between the countries will continue.

With the civil war wrapping up and a free trade agreement in place, Colombia is poised to integrate more deeply into the North American economy moving forward. As long as they can resolve the drug violence and infrastructure issues.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from a snow day in Colorado. It is the 8th of January, and the news looks like the United States is not going to invade Colombia, so. Hooray! In the aftermath of the United States moving into Caracas with special forces and snagging Venezuelan President Nicolas Maduro, the Trump administration, Donald Trump himself. 

Rubio, who is the secretary of state, Hegseth, who is the secretary of defense, and several others all started opining openly about what the next steps would be with topics like Cuba coming up. And the president specifically brought up Colombia. Now Colombia’s President Petro and Trump, they, well, they just absolutely loathe one another. They’re both populists, just one from the left and one from the right. 

And Trump has on multiple occasions accused Petro of being a drug lord, which, of course, is ridiculous. But, you know, we have a nonstandard president here and they have an non standard president there. But yesterday, apparently the two of them had a direct phone call for about an hour and it was all smiles. And it ended with Trump actually inviting Petro to the white House to discuss issues of mutual concern. 

And you usually don’t do that for someone you actually hate. Is there room for a deal, to put it in Trump’s parlance? Of course. Colombia has been the country in the Western Hemisphere that the United States has gotten along the best with for the last 60 years. And that’s for a mix of reasons. So let’s start with the, strategic, then go down to the economic. 

So strategically, it abuts Panama. It separates the Caribbean basin in the Atlantic from the Pacific. And as such, any sort of power based in Colombia has the opportunity of mucking around in both basins, just like the United States does. Because of the cocaine situation, the United States has worked with government after government, after government in Bogota to try to contain cocaine situation and tamp it down. 

The folks in Bogota have been thrilled for this because they don’t much care for the cocaine either. The problem is it’s smuggling issue. You see, Colombia is not like a normal country. It doesn’t have a large chunk of flat land that the Colombians are from. Everyone lives on the sides of mountains, so they can be high enough to be out of the tropics, but not so high. 

They’re up in the tundra. When this makes infrastructure very difficult, makes national unification rather difficult. And it means that if you’re in an area that has the climate to grow cocaine like Colombia has, you’re always going to have an undercurrent of rebellion. That rebellion has traditionally identified itself as more leftist or even communist. And so you’ve got cocaine, communists, basically, that have been running around the country since the 1950s. 

And then their primary market is the United States. So Bogota doesn’t like those people. The United States doesn’t like those people. And there’s always been that degree of alignment. Also, because Colombia has lived in a degree of civil war for the bulk of the last three quarters of a century, the population is significantly more conservative on security issues than anyone else in Latin America, because the rest of Latin America hasn’t seen a real war in over a century. 

These are people who understand that guns are sometimes necessary. As a result, they are the odd man out throughout Latin America, where you generally get more pendulum like activities in their politics, swinging between the extreme right and the extreme left. Not in a social sense, like the way we think of it here in the United States. But in a land sense, people who own the land versus those who don’t. 

That pulse is not nearly as strong in Colombia as it is everywhere else. And as a rule, until very recently, it’s been the center right, that has ruled the country. And so, again, tends to get along better with the United States more recently economically. 

As part of a reward, a couple of administrations go under. George W Bush, I believe, decades long cooperation with the United States was rewarded with a free trade agreement. And the Colombians, in bits and pieces, are working on operationalizing that agreement. The reason it’s been so slow is because there was a civil war, and it really only ended about a decade ago. And the country is really in the process now, today of defining what it wants to be in the future. But the fact that the hard work on the negotiations has already been done, and there’s already a free trade agreement in place, bodes very, very well. 

The issue, for both sides and the opportunity is Mexico. Mexico has become so successful over the last 30 years because of NAFTA that it’s moved up the value added scale to the point that the Mexico of today needs a low cost manufacturing partner that looks a lot like Mexico in 1990. And that’s exactly where Colombia is. 

So you’ve got a country with an above average education level and worker quality, for their income level, who now also has a trade deal with the United States. And basically we’re probably going to see if relations don’t blow up in the next decade. Is Colombia being formally or informally folded into the North American trading bloc, which is something that would benefit everybody hugely. 

Are there obstacles? Of course. But if we get the politics right, the obstacles are primarily geographic. Like I said, most of the population of Colombia lives on the sides of mountains. That means building road and rail infrastructure is difficult. But a couple things to keep in mind. One of the few navigable rivers in the Southern hemisphere is actually the Magdalena, which cuts right through the middle of that V. 

So if Colombians can snake down to that river, they have an easy access to it. And they can ship things out to the Caribbean basin and to Houston, Miami, beyond. So there’s a lot to work with. And as the Civil War is now over and we’re entering a new phase of drug interdiction, hopefully the Colombians and the Americans can continue to work together. 

The current picture of the cocaine situation is undoubtedly a little ugly. The issue is that during the Civil War, the government couldn’t fight everybody. So a lot of militias formed up that were loosely allied with the national government, while Fark, that’s that’s leftist communist druggie thing when a different direction and tried to basically run an independent state. Eventually fark was disabled, disarmed, and is no longer really a factor. 

But then those right wing paramilitaries that used to be allied with the government are now basically becoming their own insurgent groups on their own smuggling groups. So it’s ironically allies of Bogota that Bogota once armed, that the United States, once armed, that are now at the core of the drug problem doesn’t mean it can’t be combated, just means it has to be done differently.

Venezuela’s End: Was a Deal Struck?

Two hands shaking in agreement

There’s been speculation that a deal could have been struck between the US and a power like Russia or China that allowed the US to move on Venezuela. Let’s put that one to rest.

What could either of those powers have to offer the US in the Western Hemisphere? Russia is tied up with Ukraine and doesn’t have any meaningful investments in Venezuela. China might have some economic holdings in Venezuela, but they can’t project power far enough to disrupt the US.

So, no. There was no deal. The US acted unilaterally because, well, because it can. And I expect to see the US continue to dismantle Russian and Chinese influence out West in the coming year.

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Transcript

Hey everybody, Peter Zeihan here. Coming from Colorado, it’s, like 60 mile an hour winds outside. So we’re into this one inside. Ever since Nicolas Maduro was captured by the United States over the weekend, I’ve been getting a lot of questions about some of the details. And one that keeps coming up over and over and over is whether this is some sort of deal with the Russians and the Chinese, where the Americans get their way in Venezuela, and in exchange, the Chinese get their way in Taiwan and the Russians get their way in Ukraine. 

Short version is no, that’s not how the United States works. Not that the United States is not willing to make a deal. Not that the Trump administration, of course, likes to make deals. But for it to be a deal, there has to be something that the other side can give you in the in this case, with China and Russia, there isn’t, neither country has the ability to impose any sort of security reality, really, outside of the realm, near abroad, the military’s are very limited. 

The Chinese navy really can’t operate more than a couple hundred miles from her own coast. The Russians may need months in order to surge troops to a place on their border, and they have never demonstrated the ability, even at the height of the Soviet period, to operate outside of hemispheres in meaningful way. So when you look at, say, the Russians like, what is it that they can potentially hand to the United States and Venezuela? 

And the answer is absolutely nothing. I mean, at the height of Soviet power vis-a-vis American power, they were able to put some missiles in Cuba, which generated the Cuban missile Crisis, which is was a massive strategic defeat for Moscow. And they’ve never risen back up to that level again, certainly not in the post-Cold War era. And that’s before you consider that their entire military is now committed to Ukraine, and they just don’t have the ability. 

Now, the Russians did have some investments in Venezuela that is fair, but Venezuela’s oil company was more technically advanced, even after 30 years of degradation and looting than Russia’s oil companies are today. So that investment has gone nowhere. Basically, you had the Russians putting some money in to cover some of the expenses. The Venezuelans or the Americans did the work. 

Chevron specifically. And the Russians got a cut of the profits and some of the oil to some international markets. That’s gone to zero. There is nothing to trade. China sounds like a more productive player in the Western Hemisphere, but everything that they have done is based on investment, basically investing in ports and infrastructure in order to bring raw commodities, whether it’s soy, iron ore out to the coast and then on to East Asia. 

But again, that is something that they can’t do themselves, not that they don’t have the money. Of course they have the money. But the Chinese Navy, well, has almost 600 ships, really can only operate in a very limited distance about 10% of their ships can maybe sail more than 1000km from the coast and operate to a degree that they have been battle tested. 

Very important. But they’ve got foes in Japan and Taiwan and Korea and Indonesian and Singapore. They can’t get past the first island chain. Even if they could, they then be cut off from the whole island. And every ship that did that work would then be destroyed in the Pacific. The Chinese can’t operate in Latin America at all unless the US Navy is providing freedom of the seas for everyone. 

Now, ever since 1992, the US has been moving bit by bit away from that for a mix of military, strategic and political reasons. We haven’t hit the hard break yet where the United States is actively undermining the system. But wow, are we close because we now have the United States going after, say, for example, ships of the shuttle fleet that are working with Iran and Russia and of course, Venezuela. 

So it’s entirely possible that this is the magic year where that all breaks, in which case the entire Chinese position globally goes from being overextended to just be broken. We’re not there yet. That’s a conversation for another day. But for purposes of this question, was there a deal? No, because the United States, now, if it wants to, has proven they can just completely dismantle the entire Chinese position in the hemisphere with minimal military effort. 

And I expect we’re going to see a lot of that over the course of the remainder of this calendar year.

Venezuela Offers Trump an Oil Bribe

oil barrels stacked

Venezuela’s pseudo-newish-kinda leader, Delcy Rodríguez, just offered President Trump 30-50 million barrels of Venezuelan oil. Let’s just call a spade a spade, because this is an overt political bribe.

Rodríguez is trying to earn Trump’s stamp of approval, so her seat at the table is secured (spoiler alert: she’s no different than her predecessors). But this bribe has some logistical motivation as well. You see, the embargo on Venezuelan oil exports has left storage tanks full. And with nowhere else to store the crude, they either have to get rid of it quick or shut down production.

The US has a legal nightmare on its hands, because isn’t this still sanctioned oil? Are the refineries allowed to accept the stuff? Regardless, this oil bribe can either buy Venezuela some time (and secure a new leader’s seat) or mark the end of Venezuela’s status as an oil producer.

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Transcript

Hey, all on here come from Colorado. Today we’re talking about the bribe of the Donald Trump announced last night. I think there’s no other way. There’s no other word for it. Are you one on Truth Social and said that Venezuela was going to give or sell? Details were a little fuzzy. Somewhere between 30 and 50 million barrels of crude to the United States to be sold in the US markets, to be accepted, U.S ports to be processed by U.S refineries, and that he personally would manage the sale and, handle the proceeds personally. 

As the president of United States for the benefit of Venezuela and the United States. Details TBD. 

Two things here. Number one, it’s really weird to have a sitting president be really proud of a bribe. But, you know, here we are. It’s a weird, weird world these days. Second, the mechanics of why this is happening. The new president of Venezuela, Rodriguez, is attempting to flat out bribe the American president. 

This is not the first time she’s tried this. She came back in 2019. Remember? She’s also the oil minister and tried to give money to his election campaign. Didn’t work then. Now seems to be working. But she is trying to get the American stamp of approval that she is the thug in charge. She is not any better than Nicolas Maduro or Hugo Chavez. 

She simply is bending with the political winds. Right now, she’s established a far tighter crackdown in just the last three days. The Nicolas Maduro never did, even at the height of the elections. She wants everyone to realize that she is in charge and she has trumps behind her. For her new reign of tyranny. And of course, she was selected because she was very good at looting the system. 

So it’s a really interesting, political bedfellows, whether it will work or not depends on a thousand different things that I can’t predict right now. But let’s talk about that oil. The way oil systems work is you have a production. Well, it goes into a pipeline, it goes to a refinery, the refinery processes it, and then it goes on you typically by truck, train or some other method of transport to end users. 

And the trick is you have to maintain a flow all through there. Because if you have a hang up at one step, the pipeline will then have to divert its shipments off into, say, a storage tank. And storage tanks can only use so much. And for a country like, say, the United States, where we use something like 17 million barrels a day, you’re talking about a lot of flow through. 

Well, if you’re an exporter, you don’t necessarily refine your crude. It’s even more important then, because there’s no place to offload, there’s no local demand center that is strong enough to absorb a lot of the raw crude. So your only options then are tanks. And that’s the situation that Venezuela is in. Now. You see, a couple weeks ago, the Trump administration announced a full embargo on basically anything that wasn’t Chevron. 

And in doing so, tankers stopped arriving in Venezuela. So they had to start diverting all of their export flows to storage tanks. Now Venezuela has more storage tanks than most exporters, mostly because it’s not the exporter it used to be. They used to export 3 million barrels a day. Now it’s less than one, which means they actually had a fair number of tanks. 

But after two weeks, those have basically become full. And we’re now in the point that in the next day or three, if they can’t release that crude onto tankers to take it away, they’re going to have to shut down production because there’s no place else to put it. That’s the 30 to 50 million barrels. Gives you an idea of how little control the Venezuelans have over the intellectual property of their own system. 

They don’t know if it’s 30 million or 50 million. They just need someone, anyone, to take it in any price. Otherwise they have to shut everything down. And here is Donald Trump. So Rodriguez offers Trump the bribe. Trump seems very grateful. And we will find out in the next 48 hours whether or not the tankers will actually take it and carry it to the United States, and whether U.S refineries will accept crude that the president has very explicitly said is still under sanction. 

There’s a lot of legal questions there. And the people who would help untie those legal questions are the experts and, the people who basically do ethics investigations, the United States government, and they have all been fired. So a lot of people going to have to make a lot of really difficult decisions on legal liability very, very, very soon. But that’s the nuts and bolts of the issue. If this doesn’t work out the way that Rodriguez and Trump have identified, then the tankers don’t come. The oil stays in the tanks, and the entire Venezuelans oil sector basically shuts down, with the exception of what they can refining themselves, which is less than a quarter of a million barrels a day. 

So this could buy them some time to figure out something else. Or we could be at the end of Venezuela as an oil power right now.

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

Zoomed in image of a 0 bill

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

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

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

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Transcript

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

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

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

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

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

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

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

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

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

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

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

US Foreign Policy After Trump

Flags of multiple countries blowing in the wind

Trying to figure out what foreign policy will look like after Trump is a fool’s errand. With no strategic consensus or institutional planning capacity, the US is stuck in a car without brakes, a driver, or a steering wheel.

The US is undergoing a historic demographic transition, but the political realm hasn’t adjusted to this new reality. The bipartisan foreign policy framework that’s been in place since the 40s has collapsed. Trump has dismantled the Republican Party. Democrats lack coherent leadership. Key planning institutions have been gutted. Yikes.

The US is entering a volatile period where foreign policy is driven by instinct or ideology rather than strategy.

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Transcript

Hey all Peter Zeihan here coming from Colorado. Today we’re taking a question from the Patreon page. And it’s specifically, And I quote, foreign policy under the Trump administration is little, what’s going to happen after Trump? I would love to have a clear answer for you, but I don’t, A couple things to keep in mind. Number one, the United States economy is going through a transition as the baby boomers leave and the Zoomers come in. We’re losing our largest workforce ever, and it’s been replaced with our smallest workforce generation ever. 

That’s going to change the complexion of the economy. That’s going to change what we need to do in foreign policy. From an economic point of view, that is very much in flux. This has never happened in American history before. We are making it up as we go along. Tariffs are part of that. Trade deals are part of that. 

And we haven’t had time yet for politics to rearrange around this fact because we’re still in the opening years of the transition. So that’s problem one for why we really don’t know. Problem two is it the bipartisan nature of foreign policy is gone now, from 1945 until very recently, until probably the Obama administration, maybe even through Trump one and Biden. 

But certainly within the last 15 years, it’s broken. We’ve had bipartisan foreign policy because we had an agreement on what we needed to do. The Soviet Union were the bad guys. We needed the alliance in order to contain them. So the United States used its military to basically buy up an alliance. We would protect you. 

We would allow you to sell your products into our market if in exchange, we could control your security policies in order to box in the Soviet Union. Soviet Union’s been gone for 35 years. We never had a conversation on what should replace that policy. And eventually we knew it was going to fall apart. And under Trump, too, it has fallen apart good and hard. 

But we don’t have a replacement system. Trump might think he has a foreign policy for the ages, but he doesn’t have a successor. And the Republican Party has been shorn of its policy arm. Trump destroyed it and basically made the party a just a campaign function with no talent recruitment, no talent gestation, no policy development. And the Democrats are useless, for so many reasons. 

Anyway, bottom line is, when we go into the next presidential cycle, there’s no successor for Trump and the Democrats really don’t have any rising people. And even if you had a personality on both sides who Is liekly to take over things, there really isn’t an institution in either party that is capable of coming up with ideas for what should be next. 

Nor is there in government, the Trump administration has gutted a lot of branches of the US governing system that help with planning. Just to pick two, there’s an office that basically hunts down epidemics on a global level, but it’s based on science. So one of the first things that DHS chief, Robert Kennedy Jr did was gut it so it could never tell him that he was making shit up. 

And in the US military, we had something called the Office of Net Assessment, whose sole job was to look over the horizon and game out what the next conflicts were supposed to look like, but they made Pete Hegseth look like he wasn’t a very bright boy. And so that office was gutted as well. Things like this had happened in commerce and Treasury and all the rest. 

And so the things that the US government used to do to help the presidency prepare for whatever is next, they’re all gone. So we’re kind of flying blind when it comes to thinking about what the challenges and the opportunities of the future are going to be. And because the parties have not been able to step into that gap for various reasons, we have an inability as a country now to prepare. 

And so any policies that we are going to have for the next decade probably are going to be solely based on gut feelings like Donald Trump or blind ideology that is completely uninformed by modern affairs. That is going to get us involved in a lot more conflicts that are going to be a lot bloodier than they need to be, because we’re not doing anything to prepare for any of them. 

We have been here before, in the world before the World wars in particular. Certainly before World War two, the United States didn’t have a dedicated foreign policy arm in the way that we thought about it during the Cold War. And so we basically had a complete overhaul of what our foreign policy used to be, almost every administration. 

We are now going back to that sort of situation. But in a world that is far more interconnected than anything we had in the 19th century. So, yeah, it’s going to be a really rough, really rocky ride until such time as our political system regenerates and we get some decent leadership who can actually think forward. I would love to think that’s going to happen for the next presidential election. 

I have absolutely no confidence it will, because Donald Trump has a vested interest in making sure the Republicans don’t turn the page. And the Democrats are so chaotic right now, it’s really difficult to see them coming together. We will probably have to wait for a third force, somebody either rising up within the parties or forming a new one to basically take the reins and start us over with a new structure. 

Historically speaking, we have done that many times. But it isn’t always an awkward process to live through, and it usually takes about a decade. So for now, the next few years, this is where we are.

Help Wanted – The US Needs More Workers

Sign reading "Help Wanted" in a window

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

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

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Transcript

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

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

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

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

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

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

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

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

Ukraine War Peace Talks

A mural of a ukraine flag with a peace sign in it

Ukraine and Russia peace talks are proceeding furiously, but going nowhere, mostly because the Trump administration is trying to make this a rush job and has neglected all the important details.

Steve Witkoff has been the lead on these negotiations, but with no foreign policy experience, we’re getting the kind of results you would expect. The pattern looks something like this: Witkoff meets with Ukraine or Russia, he’s force-fed propaganda, he regurgitates that back to the White House, a fantastic new deal (aka a one-sided propaganda piece) is written up, the other side rejects it, and the pattern repeats itself.

We’re seeing deals being drafted that completely ignore the redlines established by either side, so it’s quite clear that these peace talks aren’t going anywhere, anytime soon.

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Transcript

Hey all Peter Zeihan here coming from Colorado. And today we’re going to talk about the status of the peace talks with Ukraine and the Russians to end the Ukraine war. We’ve we’ve had really two big problems with any meaningful negotiations so far. Number one, Donald Trump really wants a peace deal, but he really doesn’t care at all about the details. 

So whatever the peace deal of the moment is, it’s on his desk. He’s like, this is wonderful. This is the best deal ever. Let’s do this. And when countries push back, he screams at them and starts to threaten them. Until this point, the country that he’s been screaming at and threatening has usually been Ukraine. And that is because of the second problem, and that is the US chief negotiator, who’s a guy by the name of Steve Wyckoff, would cough, is a real estate mogul from New York, old buddies of Donald Trump. 

And he has said on a number of occasions in a number of venues that he knows nothing about negotiation and nothing about foreign affairs, and he’s proud of that. He has no intention to ever learn anything. So I and others have always thought that Wyckoff was just rabidly pro-Russian because he doesn’t meet with Ukraine. He’s never met with Zelensky, who’s the Ukrainian president. 

Just goes to Moscow, sits down, tilts his head back, and the Russians pour a few gallons of Russian propaganda into him. He comes back to the white House, vomits it forth. Trump says, oh, this is wonderful peace idea. Let’s do this. And when the Ukrainians refuse to agree to demands in from the Russians to basically withdraw their troops and shut down their army and never seek a defensive alliance, the Ukrainians say no. And then Trump goes off the handle. That’s basically been the pattern for this year to this point. 

What changed in the last week is that Steve Wyckoff met with Zelensky for the first time, and guess what happened? He tilted his head back, and Zelensky poured a few gallons of Ukrainian propaganda down his throat. Witcoff came to the white House and vomit it forward. All of a sudden we have a Ukrainian peace plan that ignores all of the Russian demands. Specifically, would allow for an article five style security guarantee with the United States. One of the things that the Russians have refused to even negotiate on is Ukraine ever joining NATO, because they don’t want the other countries, most notably the United States, to get involved in the conflict? 

Remember that for the Russians, it’s not just about Ukraine. It’s about pushing their Western periphery back to an area that they find more defensible, so that that periphery actually matches geography, so that they can use mountains and seas to defend themselves. That means not just conquering all of Ukraine, but also all of Finland and Latvia and Estonia and Lithuania and Moldova and big chunks of Poland and Romania as well. 

So anything that involves foreign troops, the Russians will generally reject. But Trump, having not done the homework, think that’s just means NATO. So the new plan by the Ukrainians is for a NATO style guarantee to not be with the alliance, but be with the United States and Germany and Poland and France and basically every NATO countries signed a bilateral deal instead. 

And Trump, this is the last deal in front of us. Like this is a wonderful idea. And so this is the peace plan. It is still a stupid peace plan. It’s just meets one side’s point as opposed to the other side’s point. What that means for me is I am now gone from thinking that would cause is just rabidly pro-Russian to realizing the word cost is just really fucking stupid and Trump can’t tell. 

So why would an alliance of the structure with Ukraine be as horrible of an idea as every plan that’s come forward to this point? That’s been from the Russian point of view? Well, remember, for the Russians, Ukraine is not the end of the story. It’s the beginning of the story. And so if we are now directly involved in the third Ukraine war, because that was what the next one would be, then the Russians would use all the weapons systems that they have available, including their nukes and their intercontinental ballistic missiles, because all of a sudden they are in a multi theater war. 

And that means that this deal in its current form, pretty much guarantees in exchange, it’s going to sound horrible. But for the United States, the best outcome of these talks is something that fails and continues with NATO and the United States supporting Ukraine and helping them build up an independent defense capacity so they can stand up to the Russians on their own. 

And that means ongoing weapons transfers and ongoing assistance. The alternative is to leave the Ukrainians out to dry, in which case the Russians don’t stop at Ukraine and come right into NATO countries, or to put American troops on the ground to defend the Ukrainians against the next Russian assault, in which case we get that exchange. So this deal is just as bad as everything that has come before. 

What I do find really interesting is we actually have some talk on the specifics, not just in the white House in Congress, but because a bilateral security alliance requires Senate approval and ratification. And we’re already starting that process now, I don’t think that this will happen. I don’t think this should happen. But, you know, Steve, what comes next stop is in Moscow. 

So I’m sure he’s going to change his mind again and come up with a new plan that will go before Trump, and then he will change his mind again and we’ll get back to this cycle. But the real thing that has changed in just the last few days is now an understanding that the details don’t matter to this administration at all. 

And unless and until we get, at a minimum, a new chief negotiator for Ukraine, this is just the cycle that we’re in. A lot of screaming and no real change.

The Death of the US Tech Sector: Part 2

processor and computer parts

Continuing our discussion on the US tech sector, let’s break down how demographics and rising capital costs are stifling innovation.

The tech boom relied upon a few things: a young, highly-skilled workforce concentrated in hubs like Silicon Valley and cheap and abundant capital. I don’t know if you’ve noticed, but the US doesn’t have the young workers or the capital environment to fund long-term tech development.

Combine that with what we discussed yesterday, and you get a tech sector that is going to struggle in the years and decades to come.

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Transcript

All right, Peter Zeihan here. Still in the hoover. Still talking about tech. We’re talking about the second problem now, and that’s on the front end. The tech sector isn’t just about manufacturing. It’s about imagining new products, imagining the future that is primarily done not exclusively, but primarily done in the United States and California. This is a Silicon Valley gig. 

Keep in mind that Silicon Valley does not do it alone. There are other places in the United States that are big on it. Austin, of course, is a big one. The Silicon Hills, Washington, D.C. is another. There’s three others. I can’t remember them off hand. I want to say Boston, but I can’t fact check myself right now. Anyway, what you do when you’re developing the tech sector is two things. 

Number one, you’re designing future products or you’re designing and implementing building software. Both of them basically follow the same process. You get together a bunch of relatively social techno nerds, put them together, network them together wherever they happen to be, preferably in the same room, and tell them to make shit up. And they hypothesize, and then they operationalize, and then they send it off somewhere else to be turned into a manufactured product or coded software. 

As a rule. The US tech age has boomed at the same time that this cadre of people, social tech minded individuals, the millennials, as we like to call them, have been, in their pre childbearing years, if that’s the right way to phrase this. And because the millennials started having kids on average 6 to 7 years after every generation before them, it gave a nice good run from roughly the year, 2005 until very recently. 

The second piece that you need in order to make this all work is just, gods and gods and drops of money. From the point that you rub two millennials together to see if you can get a spark, that doesn’t generate any money. And then they come up with the idea and that doesn’t generate any money, and then they build an operational plan and that doesn’t generate any money. 

Then they design the product, and that too doesn’t generate any money. Then you’re talking about either doing the coding still doesn’t generate money, or designing the products and figuring out how to build it. Still no money. All of those steps cost money. However, millennials don’t come cheap, especially with the skill sets that required for tech development. So you need the cost of capital to be relatively low, and the supply of capital to be as high as you can possibly imagine. 

And again, from roughly the year 2005 until very recently, that describes the United States to a T, the baby boomers were approaching retirement, but had not yet retired, and so they were shoving all the money that they could into the retirement accounts. And that money was being mobilized by whoever wanted to borrow. This is one of the reasons why we had 0% car loans for so long. 

It’s one of the reasons why subprime got so bad. The capital is so cheap, and it’s one of the reasons why the tech sector enjoyed its explosive boom. Everything from meta to AI. Well, folks, those days are over. At this point, over two thirds of the boomers retired. They’ve turned the bulk of their savings from relatively high velocity and applicable products, like stocks and bonds that could be used to lubricate the tech sector into things that are a lot less exciting, like T-bills, because if there is a market crash, they lose and they’re no longer earning income. 

So they don’t have much of a choice. Those that have decided to stay active in the market, well, they’re just stupid because the next time there’s a market crash and there will always be another market crash, they’re going to be broken. They don’t have to move in with their kids. The millennials imagine how that’s going to go anyhow. 

What this means for every industry is that the availability of capital has gone down. The cost of that capital has gone up. We’ve seen it in every industry. We’re roughly 4 to 5 times the cost of capital today that we were five years ago. You should expect that number to rise because remember, a third of the boomers largest generation ever, still haven’t retired. 

And the next generation down my generation, Gen X simply isn’t big enough to fill the coffers. So we’re facing a government fiduciary crisis as the volume of capital goes down, the cost of it goes up. That means debt servicing, for example. But it also means more expensive mortgages, as we’ve already seen, and less ability of the tech sector to tap capital markets on whatever terms they want. 

They’ll still be able to issue stock, raise money that way, general capitalization. But there are fewer players in the market now, so the demand for those stocks overall has to go down So the two big things that have made the tech boom happen are over. The millennials have to, abuse the term grown up a little bit and are more likely to have families now. 

And that means different sorts of jobs, different sorts of interactions. Also, they’re no longer in their 20s. The oldest millennials are now well into their 40s. Different sort of mindset. You want the Young bucks to be the one that are doing the software work, not some old codger. Yes, millennials, I just called some of you old codgers. We’re not going to think about what that means for me anyway. 

Combine that with more expensive money, and it’s difficult to imagine simply being able to build the workforce, much less pay for it over the time horizon that is required to develop these sorts of products. So in summation, the future of tech don’t look great. We’re not going to have nearly as many breakthroughs. They’re not going to come as fast. 

They’re not going to become as gigantic and on the back end. Even if we do get some. 

It’s going to be hard to manufacture them. We are losing the manufacturing capacity here in the United States. That would be part of that process. More of it is now going to Asia because of government policy. 

And when China cracks and it will, we basically lose access to a lot of the East Asian system. And if you think I’m putting this on China, it’s not just China. 

There’s a demographic bomb going off all over East Asia, most notably in North East Asia. The Koreans. 

Are not all that far behind. Neither the Japanese, but the Chinese are the core of it for this decade.

The Death of the US Tech Sector: Part 1

Photo of wires and tech

We’re doing a two-part series on the tech sector. Today, we’ll be looking at the disruption caused by deglobalization and Trump’s policies.

The gadgets and gizmos that fill our homes rely on highly complex supply chains, with most of that work happening in Asian countries. Any disruption to these interconnected networks could send devastating ripple effects down the line. US Tariffs on Asian imports discourage US participation in supply chains and incentivize companies to move production entirely outside of the US.

As tech manufacturing floods out of the US and we continue down this path of deglobalization, the future of American tech production looks worse and worse. Tomorrow, we’ll tack on the issues of demographics and rising capital costs.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here. I am in the Hoover Wilderness, which is one of my favorite spots on the planet. Lots of rock and water. Anyway, today we’re taking another question from the Patreon crowd. And specifically, what’s the future of the tech sector as everything Trump and everything de globalization kicks in? Well, the summation is it’s not pretty. 

There’s a lot going on. So we’re going to break this video into two parts. First we’re going to talk about classic manufacturing. Lots of folks think that all of our tech products and electronics in general come from China, but that’s a bit of a misnomer. China is a place where some of the parts are built. 

Certainly, and where a lot of the final stuff is assembled, but it’s not typically where it’s manufactured. And when you’re talking about tech products, you’re talking about not dozens, but hundreds and maybe even thousands of supply chain steps. For example, your typical laptop or smartphone has somewhere between 1 and 2000 pieces in it, and each of those pieces have their own supply chain. 

What happens in this weird world we live in of globalization is that the parts are made incrementally by different labor forces with different industrial plants, typically in different countries, and then those various components are brought together at a location and assembled into a sub piece. And that sub piece is then shipped off somewhere else, where it’s put into another piece, and on and on and on until you get your finished product. 

So when you’re talking about something like a smartphone, it probably touches 5 to 11 countries. On its way before it even gets to you. Much less before it crosses the Pacific. So East Asia, because of its widely differentiated supply chains and widely differentiated labor structures, is where most of this is done, because the high end is done in places like Korea or Japan. 

So we’re going to pause until the appeal is done. 

All right. Where was I? So the high end stuff. Taiwan, Korea, like Dram chips come from Korea. The GPUs that everyone obsesses about come from Taiwan. But the photo masks that make it possible to make these things. That all comes from Japan. The purified materials might come from the United States. The lasers from California, the etching machines from the Netherlands. 

Injection molding might be done in China. Wiring might be done in Vietnam. You get the idea. It’s a really big network. Any part of the globalization that hits any part of the world is going to break up those chains. And since roughly, 80, 85% of tech manufacturing is Asia centric, we’re looking at basically cascading failures. 

Because, remember, if you have a phone that has a thousand parts and you’re missing one part, you just have a really expensive paperweight. Anyhow, in this way, what’s going on with U.S. trade policy is, borderline suicidal because what it has done is put a tariff barrier between all the Asian countries and the United States, which actively, aggressively disincentivize this American participation in those supply chains. 

Because if you were once reliant on a part from, say, California, and now, shipping the inputs in from Asia to do the value add, has this onerous tariff cost upon it, you’re going to look to move that thing out of California to someplace like Korea or Japan. And so what we’re starting to see in the manufacturing space for tech is a de Americanization. 

Not that we were doing a whole lot of it either. Any way we were doing certain pieces, but there’s now no incentive for those pieces to stay here. So if you look down the road when globalization gets worse and say, when China goes away, we’re going to have very, very little to work from. We’re just not going to have tech products. 

Obviously, I would like to thank everyone sees that as a bit of a problem. If you want to move that stuff here, tariffs are absolutely not the right tool for the job. They do the opposite. That’s problem one. Next time we’ll talk it up. Problem two.

North Carolina’s Silicon Mines: Leverage for the US?

Mining operations with trucks

With how important semiconductors are for the future, can the US use the high-purity silicon quartz mine in North Carolina as leverage for negotiations?

While the quartz from this mine can be used to make semiconductor-grade silicon and the ultra-pure crucibles needed to grow silicon crystals, this isn’t the kind of leverage that’s going to have everyone else bending the knee. The US is already a leader in this space, but given the complexity of semiconductor supply chains, no single country controls a majority.

The US and allies dominate the high-end stuff, but none of this works without all 30,000 inputs and 100,000 steps. So, does it give the US some leverage? Sure. But that doesn’t change the fact that we still depend on a fragile, global supply chain for semiconductors. We’d need about $20 trillion and 40 years if we wanted to do it on our own…

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Transcript

Well, it’s definitely officially winter here in Colorado. Peter Zeihan here. Today we’re taking a question from the Patreon page, specifically about semiconductors. This person says that he recently learned about a mine in North Carolina that produces high end silicon quartz. 

And it’s essential in semiconductor fabrication. So could the US use this in trade negotiations in order to cut a deal with countries around the world? Certainly. Quartz is used for two things. Number one, it is the source of the silicon dioxide that eventually goes into the crystals that are grown in a vats to the size of cars, to be sliced into the wafers that are the core of every semiconductor. 

And so product from this mine can be used for that. But what this mine is really good for is the ultra, ultra, ultra pure silicon dioxide, which you use not for the semiconductors themselves, but you use to make crucibles that are used to melt and purify other silicon dioxide. So you need really pure stuff in order to make the crystals, and you need super duper pure stuff in order to make the crucibles and the US is a world provider of both. 

So yes, U.S could absolutely use this as leverage. But that implies that the United States is looking for leverage, that we need leverage that we don’t have leverage. And that’s just not true. You see, one of the things that people forget is that there are so many pieces of the semiconductor supply chain, 30,000 independent inputs, 100,000 supply chain steps, and no country controls a majority of any of them. 

The United States does things that no one else can do. And when it comes to the material side of the equation, we have a lot more going on than one silicon dioxide mine. You see, what happens is you need things like indium and gallium and copper and arsenic and bismuth and all these other things. And yes, the Chinese dominate the processing. 

All of those materials, but only up to the point because the Chinese tech base is, well, it’s still a developing country by most measures. And so they can’t get to the purity that’s required to make mid-grade semiconductors much less high end. So what happens typically is, say, copper. The raw copper ore comes from Chile. It’s partially processed in something called red copper. 

Where all but 2% of the sulfur has been cooked off. Then it gets sent to China, where they cook off the rest and purified as much as they can. And that’s good enough for, say, you know, the wires in most electronics, but it’s not good enough. So for semiconductors. So the copper then comes to another country, typically the United States or Germany, Japan and Korea, where it’s turned into something called eight and copper or nine and ten and 11 and, and that’s the number of nines of purity. 

So an eight and copper is 99.999999% pure. 11 would be three more nines. Parts per billion in terms of contaminants can sometimes be too much. And the Chinese can’t do any of that. So yes, they dominate the low end processing. They do the grunt, they do the dirty work, but they can’t do the high end. So all of these materials round trip multiple times from the country where the ore comes to China to do the primary processing somewhere else to the finish processing, and then the Chinese re-import the ultra purified components that are the basis of their semiconductor industry. 

So yes, silicon dioxide out of North Carolina is a major geopolitical pressure point. It is something that gives a lot of leverage, but it implies it’s the only thing. And there are dozens of points on just the material side of the equation, where the United States or its allies have a de facto monopoly and the Chinese have nothing. 

That’s before you consider the real high end work that deals with design, or the mid work that deals with packaging. 

The Chinese are doing their best to catch up, but they literally have to catch up in over 2000 subfields and they’re not closed in very many of, them at all. The most advanced one, of course, are the etching machines themselves, the extreme ultraviolet machines that come out of the Dutch from ASML. 

But ASML itself has over several thousand suppliers around the world, the single largest component of which are in the United States. So anyone who tells you that the Chinese can overtake us in this industry is ridiculous. But also anyone who tells you that we could do it ourselves is ridiculous. This is the most sophisticated supply chain system that humanity has ever created, and if we decided we want to do every part of it in the United States, that is easily a $20 trillion project that will take 40 years to complete. 

Don’t let anyone tell you otherwise.