Rebuilding the American Industrial Base, Rare Earths Edition

Photo of rare earth minerals: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium. Photo by Wikimedia: https://en.wikipedia.org/wiki/Rare-earth_element#/media/File:Rareearthoxides.jpg

American reindustrialization was always going to be painful process, but there were several ways to soften that blow; the biggest of which was our trade relationship with China. At least, it was.

The tariff situation that began in April soured our relationship with the Chinese. Since then, they’ve halted exports of rare earth magnets, a crucial component in…well, basically everything important. A quick disclaimer/history lesson: rare earths aren’t all that rare, they’re just difficult and time-consuming to extract. The Chinese subsidized the sector beginning back in the 80s and made it illogical for anyone else to try and compete. Hence China’s dominance in this field.

Now, the Chinese are dangling that rare earth carrot in front of Trump. Unfortunately, the American industrial base must be rebuilt for a whole lot more than just rare earths. Something that a little strategic foresight would have helped with.

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Transcript

Peter Zeihan here, coming to you from Colorado. Today we’re going to talk about the status of the US-China trade talks and where the United States is with its re industrialization. And the short version is things going really badly. If you remember back to the first week of April, the Trump administration put a 55% tariff on everything coming from China. 

And then we got into a shouting match with the Chinese, and that number went up and up and up and up until I think we had 185%. And then a couple of months later, we had a bit of a truce and the numbers went back down to 55%. What’s the best way to go through this? So the issue at the moment, right now is that China is refusing to export rare earth products, most notably magnets, to the United States. 

And these magnets are used in any number of electronics, aerospace, and especially automotive parts. Rare earths are a group of materials that are relatively difficult to source not because they’re rare, but because they’re not present and particularly high concentrations. So if anyone says that there’s a rare earth mine coming online, that’s a good indication that you should just completely ignore that person because there is no such thing rare earths are produced as a byproduct of other metals purification and refining. 

So you have a silver mine, you extract the silver, you then use the tailings and go through and extract the rare earths. And the same thing for copper and gold and bauxite and all kinds of other things. There’s like a dozen rare earths anyway, extracting them and purifying them is not particularly difficult. It’s just that the concentrations are low. 

So it requires several steps, several hundred steps. And the rare earth materials themselves share a lot of chemical properties. So you have to basically separate them from one another as well, which is where most of the time takes. So you take these tailings, you grind them down, you add some chemicals to dissolve everything, and then you basically boil the whole thing in acid. 

And that separates a little bit out. And then you take that and you put it into the next batch of acid, and you do it again, and then up and again and again. And you do that a few hundred times. And at the end of the day, after usually 6 to 8 months of separation and acid treatments and starting with several tons of material, you get a couple of ounces of rare earth metals and a little goes a long way, for most uses, these things are really just doped rather than the core production level. 

So, you know, all the rare earths that are used by the entire world could probably sit in a garage, every year. Anyway. It’s expensive, from a minerals processing point of view. And it’s dirty because of all the material that is used because of all the acid and because the radioactivity that naturally comes from a lot of mining activity. 

So what happened was back in the 1980s, most of this stuff was done in the United States or in Europe. But the Chinese, who were early in their economic development, had decided that anything that you could throw cash at and anything where they could ignore environmental regulations, they would have an advantage in. So they threw a lot of money at this industry in order to dominate production. 

And in doing so, because of the subsidies, they ended up producing the rare earths for significantly lower price point than anyone else could. And because of that, we were able to use rare earths and things like rare earth magnets in order to make what we call computers today, specifically solid state drives. For those of you who are older and you remember the old spinning hard drives. 

Yeah, they didn’t use many rare earths, but the solid state drives did so the whole point was, now that we have this available, we’re going to move to a type of technology that uses much less electricity generated by far less heat, and sets the stage for the processing and computing revolution that we’ve known throughout the 90s and the 2000. 

For example, smartphones wouldn’t have happened without this. So the Chinese have honestly done this a solid. However, over the 2000s and especially into the 20 tens, the Chinese got into rare earth material manufacturing, which is a significantly more sophisticated step, and simply purifying the rare earths. And that’s where the magnet stuff comes into play. And over the last 15 years, they’ve basically dominated that space and they’re refusing to export the metals to everybody else so that they can do the manufacturing. 

And now they’ve dominated the manufacturing and they’re refusing to export the manufactured product. So this is a very real crimp, in the trading system and a very real point of leverage for the Chinese. Now, nothing that I have just told you is a mystery in the sector, whether that is computing or automotive or mining or metals purification. 

But it is all news to the Trump administration. Remember that normally when a president comes in, he brings somewhere between 1300 and 3000 people in with him to stock the senior government. Trump’s brought no one. He just fired all the people who were there before, because he really doesn’t like anyone to remind him, even indirectly, that he might not be the smartest person in the room on every single topic. 

So if anything that I just told you was news, that’s because you’re not an expert in metals refining a computer manufacturer. Neither am I, but I talk to a lot of people I know what I don’t know, and I seek out that information. And Trump is not a person like that. So what happened with the trade talks is Trump on April 2nd made these big announcements with those big game show boards and then just assumed that everything would magically happen the way he had dictated, regardless of what the situation on the ground was or the interests of other parties. 

It was very Obama asked. Honestly, the two of them are very similar from their management style. Anyway. What this means is that even though the United States holds probably 90% of the cards in any meaningful trade talk, the Trump team is so small and is so siloed in what they do now. And then, of course, is hobbled by their boss that they can’t develop the staff. 

It’s necessary to keep them informed on things like this. And so the Chinese system, even though they hold very few cards, they know where those cards are and they’ve played them very effectively against the Trump administration and basically brought American auto manufacturers to the brink of collapse by metering out this one little product, which is a point of leverage that they have. 

The smart play is if you’re going to pick a trade fight, the first thing you do is start building up the alternative infrastructure that you need. When stuff on the other side goes away. And so in this case, luckily some of that work has already been done. So about 15 years ago now, the Chinese tried a similar trick with restricting rare earth exports to Japan when they were having a spat over something, and the Japanese figured out over the course of the next nine months how to use three quarters fewer rare earths. 

Because, you know, for the last 20 years, the Chinese have been dumping it on the market below cost. So everyone just kind of gorged on it and no one really worried about using less. While the Chinese figured out ways to use less, they did the same thing with the Russians when it came to Palladium anyway. 

Well, the Japanese were doing that. Everyone else realized that there could be a supply shock here. And so they built out a lot of the physical infrastructure that was necessary to process rare earths. We did it here in the United States. The Australians did it, the Malaysians did it, the French did it. And what’s happening now is some of that infrastructure is spinning back up because this is now an issue of the day. 

Again, we didn’t operate it until now, because the Chinese were subsidizing it. So there was no point now that it’s a national security issue, that the math has changed and people are turning all that old infrastructure on. But the next step is going to take a little bit more work. Turning the finished material into manufactured intermediate products like the magnets. 

That will probably be a little bit more involved than simply turning on some metals refining. I can’t give you a timeframe for how long that will take, because this is not something that has been done in the United States in a while. And unlike the, metals refining, where it’s an issue of no more than a year, we don’t know what the time horizon will be for bringing it on online, but this is one of probably 3 or 4 dozen things where the Chinese have done some version of this that needs to be rectified. 

If the United States is going to prepare for whatever is next. If you’re one of those people who would like to think that the trade situation is going to revert to how we were 15 years ago, I mean, I think you’re wrong, but we would need this in order to prevent any sort of regression or long term fights with any partner, most notably China. 

And if you’re like me, you’re pretty sure that the globalized system is never coming back. Then we need to do this regardless if we’re going to have stuff like, I don’t know, cars or we need to invent technology to get along without the rare earths one of the two. Anyway, this is all stuff that should have been done before we picked a trade fight and before the Trump administration demonstrated that they really don’t have a good grip on the core issues that are necessary to invent the next world, whatever that happens to look like.

The Revolution in Military Affairs: Ditching Artillery

Military vehicle shooting artillery

Next up in our series on the changes in military tech, we’re looking at artillery.

Gone are the days of endless artillery barrages. The Russians have relied on this tactic for years, but drones and acoustic detection are changing that. When a cheap drone is capable of quickly spotting, targeting, and eliminating artillery, something clearly needs to change. And no, a “shoot and scoot” strategy isn’t sustainable.

There’s still a case to be made for artillery, but it is quickly waning. In future conflicts, new systems that prioritize speed, precision, and decentralization will be essential.

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Transcript

Okay. Peter Zeihan coming to you from Arches. We’re continuing the Revolution military affairs series, and today we’re going to talk about artillery. Artillery has been one of the three most important military breakthroughs of the last couple of centuries because it allows, a force to assault another force from literally miles away. The artillery that the Russians, for example, areas in Ukraine generally has a range, between 10 and 20 miles based on what piece of hardware they’re using. 

But you throw drones into the mix where a single first person pilot a drone costs less than an artillery shell. You change the math. So I am no artillery expert here. And the technology is changed very quickly. So the purposes of today’s video is basically just to talk out loud through what we’ve seen and where it might lead. 

Countries that rely on artillery really do fire on it. The joke in the military is that Russia is an artillery force. It just happens to have some tanks. Hold on. 

Okay. Where were we? Right. Russia. So in the Napoleonic Wars, France, which had the most technologically advanced military at the moment, invaded Russia, made it all the way to Moscow. And the Russians kind of got their asses handed to them. And if it wasn’t for some very stubborn defense and Partizan attacks, and especially a very, very rough winter, Moscow probably would have fallen. 

And the Russian lesson from that was that they needed to do an upgrade for their military. However, this is a country that was basically entirely serfs. There were no technical skills among the population. They didn’t have much of a intelligentsia from a technical point of view. And so they settled on artillery because aside from the guy who was like pointing and aiming, everything else was just kind of like looking around. 

And that Russian serfs could do and that the Russian, Crown would trust them with. Because artillery is really not the best weaponry for. So, you know, taking on Red square. Anyway, so they invested heavily in that and that is basically dominated Russian and then Soviet military planning ever since. Very low value added soldier base and just focus on obliterating anything in front of you from miles away. And don’t advance until there’s nothing but rubble. 

So the problem the Russians are facing now is that it’s not that the artillery is irrelevant. It’s just it’s incredibly vulnerable. And they basically have to do something that called shoot and scoot, because between, acoustic detection and radar, they really can only get one shot off before counter battery fire starts. 

The Ukrainians, in order to detect drones coming in, basically built an acoustic detection system around the perimeter of the country and all over the front lines so that as soon as the drones are coming in, they can translate the sounds for what kind of drones are coming on, what vectors, so they know what air defense to activate. 

It works for us as artillery too. So it used to be that once an artillery shot fell, you’d use radar to basically track it back and then shoot back. But now with the acoustics, they can figure out when it fires and so the kind of battery fire can actually happen before the shell is even hit. So artillery an order of magnitude less useful than it used to be. 

So the Ukrainians and the Russians are discovering that what they were trained on during the Soviet periods is no longer how war works, because the technology has left the artillery piece behind for the most part. This won’t necessarily be true everywhere. When you consider things like the Paladin system, for example, that the US has, not only is it self mobile, but it can fire multiple shots at different angles and then hit the same target at the same time. 

It’s kind of cool, mobile being the key thing there. But for most artillery, you know, it’s in the past, it’s no longer cost effective for what it can do. Which brings us to a different sort of problem. So a big attraction, for artillery, for the Russians. Was that anyone, any idiot, any village idiot could operate? 

Most of it because it’s just lugging stuff from point to point with drones. It’s first person shooter. You basically have to fly it manually and direct it, and that’s all. Well and good. And that doesn’t require a huge amount of skill either. Outside of, you know, the Tendo, the problem is in manufacturing, you can produce, artillery shells and artillery back in your industrial plant and then send to the front line. 

And you need a limited source because, you only make a few of the tubes and you make a lot of ammo. Well, with drones, the Russians and Ukrainians are both using thousands of these things a day. So it’s a very different workforce. It is much more technically skilled. It needs to be an a lot larger number. In Ukraine, which was the heart of the old aerospace industry back during Soviet times, this has not been too heavy of a pull. 

And based on whose numbers you’re using, the Ukrainians have gone from producing about 5 to 20% of the parts for their drones at home to now 70 to 90% based on the style. The Russians are nowhere near that good, because the Russians don’t have anywhere near that sort of technical skill within the country. And most of the people with those skills left, either in the 1990s or the 2000 or more recently to avoid the draft. 

So they’re bringing in talent and technical skill from places like Iran and North Korea, and especially China, where you can use the Chinese industrial plant to produce the parts that then flow into Russia and then make it to the front line. Anyway, bottom line of all of this is this is very much a work in progress. We’re only three years into the war. 

have a secondary power. Russia fighting a tertiary power, Ukraine. And the rules are changing every week, every month. So to think that we have a firm idea of how this is going to play out is silly, but to think that the weapon systems that we’re used to seeing on the battlefield are the weapons of the future is also silly.

The Revolution in Military Affairs: USS Nimitz

The aircraft carrier USS Nimitz. Photo from Wikimedia: https://en.wikipedia.org/wiki/USS_Nimitz#/media/File:USS_Nimitz_(CVN-68).jpg

This video was recorded back in April of this year, hence the snow.

The Nimitz is making its final voyage (with a recent detour to the Middle East), before it’s set to be decommissioned and replaced by the more advanced Ford-class carriers. However, a shiny new toy isn’t enough for the US to maintain global influence.

While these massive carriers are a significant component of US power projection, the true strategic advantage lies in the global alliance network. This network provides basing rights all around the world, enabling the US to get around quickly and affordably. If the US continues this current trajectory, the logistical backbone of US power projection would go limp.

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Transcript

Hey all, Peter Zeihan here coming to you from snowy Colorado. And today we’re going to talk about a major change that is going to come to the U.S. armed forces and most notably the Navy in the years to come. It all has to do with the USS Nimitz, which was the first of the Nimitz class, a super carriers, of which ultimately we have ten and have been the backbone of American military power projecting throughout the world for really since the 1960s. 

But it’s been a hot minute, Anyway, at last, Bremerton, Washington, on the 28th of March for what is intended to be its last sail. The Nimitz are being replaced by a new carrier class, the Ford class, which are larger, can carry more, planes, can launch and recover them faster. All that jazz? Definitely superior platform. 

Not that the Nimitz is anything to sneeze at. Anyway, the whole idea is these things have been in service for well over a half a century, and it’s time to start taking them out of circulation. As technologies change, and we can move to a military force that is more lethal and faster, and that is not going to happen. 

One of the things that people forget when they start talking about how we don’t need this country or that country is arguing the single greatest advantage that the United States has right now is its alliance network, and not necessarily because in a fight, we get to take over their armies and navies and control them ourselves, although we do have that, and that is a big deal. 

But it’s basing rights. The United States is one country, and part of our security comes from the fact that we have oceans between us and everyone else. But that means if we want to influence things somewhere outside of North America, we have to get there first. And that means a long logistical chain linking up, not just soldiers and sailors and ships, but tanks and men and ammunition and supplies and diesel all around the world. 

And with the basing network that we have right now, there are very, very few spots on the planet that we can’t reach in a very short period of time with a lot of firepower, but if the United States leaves NATO like it sounds like it’s going to if the U.S. breaks the alliances with the Japanese and the Koreans, which it looks like it’s going to, then America alone has a very different force posture. 

And one in which it can’t get much of anywhere. So what we’re going to see is, on a very large scale, the recreation of a tactic that the United States use during the early months on the war on terror. We needed to get to Afghanistan, but we didn’t trust the Russians and we didn’t trust the Pakistanis. So what we ended up having to do is take one of our older carriers, the USS Kittyhawk, and park it off the Pakistani coast and use it as a mobile base. 

It was by far the most expensive way we could have possibly done it. But in the early days after nine over 11, it was considered worth the cost. Well, with the direction that the Trump administration’s foreign policy is taking us now, any time we want to deploy anywhere, we’re going to have to do something like that. And that easily cost ten times as much as simply having an ally with a patch of ground that we can squat on. 

When you lose your alliances, you lose the ability to project power cheaply. And yes, we spend a lot on our military, but it’s nothing compared to the budget line. Items were going to be seen in the future, as we have to take things like the Nimitz and repurpose them from being some of the world’s best warfighting assets and basically being floating rafts.

The US Strikes Iran’s Nuclear Facilities

United States Air Force posted rare photos of a GBU-57A/B Massive Ordnance Penetrator (MOP) bunker buster bomb being transported at Whiteman Air Force Base. Photo by wikimedia: https://en.wikipedia.org/wiki/United_States_strikes_on_Iranian_nuclear_sites#/media/File:Deleted_GBU-57_MOP_photo_(2).jpg

Over the weekend, the US launched a major airstrike on Iran, targeting critical nuclear sites. We don’t know the extent of the damage as of yet.

While the US strike will cause setbacks in Iran’s nuclear program, it didn’t destroy everything. So, we’ll have to wait and see if Iran rebuilds or escalates through other avenues.

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Transcript

Hey, all. Peter Zeihan here comes to you from Colorado. This video is a little late getting to you, because I was hoping we were to get some more information on what happened when the United States dropped some bunker buster bombs on Iran over the weekend, but it does not seem like anything has clarified. So I’ll give you an idea of what’s happened and now what we’re waiting for. 

So, number one, United States dropped a couple dozen major bombs on the Iranian nuclear facilities, specifically a place called Fordo, which is basically under a mountain, Natanz, which is where they do a lot of their centrifuge work to enrich uranium. Some of which of the facilities are heavily reinforced and underground and is from, which is a facility where they do most of the machining and the physical construction. 

The first two sites got hit with by bunker busters, most notably Fordo, where as it’s from was primarily hit by Tomahawk cruise missiles launched from submarines in the Persian Gulf. We do not have damage assessments from any of these places, which is part of the reason that I was kind of waiting. And we’re probably not going to get anytime soon. 

Donald Trump has said, of course, at every facility, the United States has been blown up and to smithereens, and there’s no danger whatsoever. The Joint Chiefs are like, no, we really don’t know. And until somebody does an inspection, there’s no way to know. The truth, obviously, is closer to the, the general position than Trump’s. But what’s new there? 

Iran doesn’t have a conventional military. They can’t reach out and touch someone with tanks and planes in the way that you might expect a country of 80 million people to do, their military is designed to occupy their own populations. 

It’s a civil patrol force. They have normally reached out to touch people through sectarian groups that get hopped up on weapons and drugs and basically send out to cause carnage, groups like Hezbollah, for example. But groups like Hezbollah have basically been neutered. The Gazans are in no shape to do anything. And even if they were, you know, Americans are no, we’re close to them. 

And the U.S. military footprint in the region is down to less than a quarter of what it was at its peak and continues to trend down. So the the more normal military option is really off the table and they’re more normal paramilitary operation is off the table. And that just leaves things like terror attacks, for example, dirty bombs, which might work, but they take time to put together and time to ship in into place and they can be intercepted. 

And so it could be a big splash, but then it would be an attack on, say, the United States, which United States would definitely respond with something more than some bunker busters. Okay. What do we know? Or what are we waiting for? The bunker busters, the GBU 57. I think that’s the acronym. Anyway, this is the first time the United States has ever used them against an actual target as opposed to testing. 

And we dropped 20 for the suckers. These are the 30,000 pound bombs. If anything can blow up a place like Fordo, it’s probably these guys. But again, it’s the first time we’ve ever used them. We don’t know. So in many ways, this is a test case for the United States, as well as a question for Iranian actions. 

And what everyone oh my God, what everyone wants to talk about is whether this is going to make it more likely be a deal or less likely. Folks, there is never going to be a deal. Iran has never signed and implemented a security deal with anyone. In fact, the only thing that even comes close is the 1987 ceasefire in the Iran-Iraq War, which was never turned into a peace agreement. 

They haven’t signed a deal with Iraq or with Turkey or with Pakistan or with anyone. We’ve got some cooperation, deals on economics and say nuclear sharing with the Russians and the Chinese, and that’s about it. So if you’re obsessed with a deal on oil or technology or security, you just waste your time obsessing about something else. This is not how Persian society works. 

I would love to be wrong, but I’ve been right since 1979, when I was five. Oh my God. Oh. Anyway, so this is what a holding pattern in the Middle East looks like. People throw weapons at one another, things explode. But we’re waiting for someone to fundamentally change the nature of the relationship. And I just don’t see that happening on the Iranian side anytime soon. 

Oh, one more thing. The Israelis have proven that while they can take out, Iran’s air defense, and while they can’t operate with impunity above Iranian skies, they lack the deep strike capability that is necessary to take out something like the Iranian nuclear program. Now. So now it’s an open question whether the United States lacks that capacity, and not just because of the size of the bombs. 

The Iranians have been preparing in some form, for this sort of attack for decades, and that means that while these are the three most important sites that the Iranians have, they have dozens of others now, collectively, they’re not as important as these three. So while this undoubtedly has set setback, that it because the program quite a bit it’s certainly not over. 

And the question now is whether the Iranians try to spin the paramilitary forces back up, spin their nuclear system back up, or try something new. We’re not going to learn that in the next two days.

The Revolution in Military Affairs: Series Intro

Photo of a solider throwing a drone into the air

Today, we’re launching into our new series on the future of military affairs. Before we get into what is coming, let’s first discuss what past revolutions in warfare have looked like.

The industrial era brought about the first major shift, with the rise of mass-produced weapons, railroads, and field hospitals. The second shift was seen in the late 20th century as digitization led to the introduction of precision-guided weapons and satellite systems. Now, we’re entering a third revolution.

With breakthroughs in digitization, energy transfer, and materials science, we’re seeing things like drones change the way wars are fought. Without adaptation and changes to traditional infantry and armor, these forces will soon be obsolete.

Some are better positioned for this coming revolution; take the US for example, they have money, industrial infrastructure, and they’re not in a major conflict. Other countries, like Ukraine, will be the guinea pigs for this coming technological shift. However, this new era of warfare will sneak up on everyone eventually…

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Nashville, Tennessee, right outside the Country Music Hall of Fame. Today we’re launching a fresh series on the future of military technology and specifically how it’s going to change strategic efforts by various countries, and the policy that goes along with it. And before we can go forward, we need to take a big step back and understand the last couple of major revolutions in military affairs. 

The first one really begins with the dawn of the industrial era, and how the advancement of things like gunpowder and steel and electricity started to interface with the way we ran the military and the conflicts in question, or the Crimean War of the 1850s and the American Civil War of the 1860s. 

Both of these conflicts, we saw technologies that had been percolating for decades suddenly come into their own very real way, where they could be mass produced as opposed to individually crafted. 

And it changed the nature of war ever since. These include things like rifling muskets to give them better range and faster reloads and lower breech chance. This includes the, early efforts with the telegraph for mass communication and sending information to and for very quickly, the railroads for the rapid distribution of troops, field hospitals to prevent casualties from turning into fatalities. 

And of course, things like the ironclad, which gave rise to modern navies and all of these cases, if you were using a pre-industrial military force, if you came up against these forces, you were pretty much wiped out. The ratios were absolutely horrific and the more militarized of the countries did better. So this is not just having a little technological edge. 

This is operating in a fundamentally different technological era, Stone age versus Bronze Age versus Iron Age versus sedentary agriculture versus industrialization. It was one of those kind of seminal jumps that redefined what was possible. The Crimean War, I think, is particularly instructive because you saw the early industrial powers, most notably the Brits and the French, going against a completely, industrialized power, primarily Russia. 

And they laid a few miles of rail track and set up a couple of field hospitals. And that alone was enough to absolutely gut the Russians. The Russians simply could not maneuver fast enough to keep up with what the Brits could do. Via rail on the Crimean peninsula. That’s phase one. The phase two of the revolution. And military affairs happened much more recently, in the 1980s and then into the early 1990s, which digitization, basically taking the computer and applying it to military technology, started out in the Gulf War in a very big way with things that we call Jams now, joint direct attack munitions, where you take a relatively dumb bomb, put a fin kit on it, and a GPS locator can hit within about ten meters of its target. We’ve obviously gotten better since then. That against the Iraqi army. The Iraqis had no chance. And then you throw in things like not just satellite reconnaissance, but satellite communications, and you get cruise missiles and all the fun things that come from that direction. 

And that is now kind of the leading edge of what is possible with the US military today. And again, when we hit this point at the end of the Cold War, there was no competitor. And so every country that the United States came across was two, maybe even three generations of weapons behind. And there really hasn’t been a fair fight since. 

Unless the United States is in a situation where its advantages are denied it, like, say, in a long term occupation in a place like Iraq or Afghanistan, we are now at the verge of something new. In the last five years, we’ve had ever mounting breakthroughs in a number of sectors that are not related to military technology, most notably digitization, energy transfer and materials science. 

And those three building revolutions are combining to generate an entirely new form of warfare, of which drones are only the very leading edge. We don’t know where this is going to go. We don’t know what the military technologies are going to look like in ten, 20, 40 years. But we do know from previous periods that when the old technology comes up against the new technology, things get really exciting really quickly because either the new stuff crashes and burns because it’s inappropriate, not ready, or the old stuff is destroyed and everyone has to rip up the playbook. 

It appears at this moment that it’s going to be some version of the latter in the Ukraine war. To this point, about two thirds of the fatalities that the Russians have suffered have been because of first person drones, which is not even a particularly sophisticated technology that combines digitization, material science and energy transfer. It hasn’t gone into the second generation of technology yet. 

We’re still and basically mass producing cheap things with a small explosives on. Once the kinks get worked out, it is difficult to see any military, most notably infantry and armor, surviving in the new environment unless they can develop their own countermeasures, which will mean an additional technological revolution. So we’re nearing the point now where we need to start having the conversation as a country, as a culture, as a military, as to what it is that we want, what we’re willing to pay to get it, and how big of a technological jump we’re willing to take to try. 

Now, in this, the United States has a couple of advantages. Number one, cache. Number two, a existing military industrial complex that can always be retooled. But third, and most importantly, at the moment, we are not in a hot conflict. And the countries that we are most likely to be facing down Russia, China, Iran are already in this technological shift. 

So we get to watch what they do and learn a few things in this. The Ukraine war is going to be most instructive, because the Ukrainians have been at the vanguard of this entire transition process and are coming up against a much larger conventional military being supplied by the Chinese who are providing the bulk. And yet they’re still there. 

And that should tell us a lot of what we need to know about the technological changes that are going to be sticking with us for the years to come. 

Bottom line. The human race is about to experience a higher form of war. That means, of course, new weapons. But from that comes new everything else.

Should the US Military Invade Mexico?

A military scout on overwatch

With rising violence in Mexico, is it time that the US military steps in? To quote Michael Scott, “No God please no!”

The spike in violence can be attributed to the rise of fentanyl, an easy to produce synthetic drug. This has led to the fragmentation of cartels into smaller and more violent actors. On top of that, the Sinaloa cartel has splintered due to US-led efforts in dismantling its leadership, causing further instability in the region. And the relatively new kid on the block, Jalisco New Generation, likes to lead with an iron fist. So, Mexico’s security landscape is in shambles.

But does that mean the US military needs to step in? There are a few ways to answer that question, but the bottom line is that the US needs to stop doing drugs!

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Transcript

Hey, all. Peter Zeihan here coming to you from above Telephone Canyon and Zion National Park. Today we’re taking a question from the Patreon crowd, specifically considering that over the last year, Mexico has just gotten more and more violent, is now the time to consider some sort of U.S. military action across the border? The short version is. Oh, God….Please. No. But it it’s a real question. I don’t mean to dismiss it. We do need to break this down. First things first. We need to understand why the violence has gotten so much worse. And it has really nothing to do with policy in Mexico. It has to do with the nature of the drug war itself. 

For the longest time, the drug war was about cocaine. So that was a mechanic that we understood. There was a supply chain that we knew was an agricultural product. It was produced in the Andean region of South America, and then it was shuttled by plane or boat, north to Central America or southern Mexico, where it then got into the hands of what we now know was cartels and moved its way north to the US border, where it was then distributed by the gangs. 

Over time, this structure has evolved. Central America is a relatively new addition to the trafficking route because we got better at interdicting things at seas. And we went from having one giant cartel to regional cartels and then ultimately, ultimately local cartels. There are more coalitions now than hierarchical organizations. 

Anyway, that’s how it was in the last few years, fentanyl has exploded upon the scene, and fentanyl is not an agricultural product. It is a synthetic. It is made in the lab. And it takes very few people with very little experience to cook up hundreds of thousands of doses in a very short period of time. So all you have to do is basically get some synthetic, components, cook them together in your garage, literally, and then cut them into powder and mix them tablets. 

So if you do a gram of cocaine and don’t do cocaine, it represents somewhere between 4 and 8 man hours of effort from the point of view of the plantain to the bailey and to the processing, to the shuttling, to the smuggling, where is if you take a hit of fentanyl and don’t do fentanyl either. 

It represents just a few man seconds of work because it’s so much easier to produce. Well, what this has done is change the cartel landscape. 

So two things have changed. First of all, the organization that is today, the Sinaloa Cartel, a large cartel, largest drug trafficking organization on the planet, under the Obama administration, we captured, El Chapo and basically beheaded the organization. And it’s been basically experiencing a slow motion, disintegration from an organizational point of view, ever since its fracturing. 

And those factions are becoming, violent with one another. That was accelerate in the last couple of years when the United States and Mexico, working together, managed to get a few other, senior lieutenants. In the meantime, the replacement cartel called Wholesale New Generation, is an order of magnitude more violent. And not nearly, as corporate, in terms of its activities, and they see intimidation as a much more potent tool for shaping local behaviors than bribes. 

So that’s part of the violence. The other part is the fentanyl side, because any mom and pop can basically cook up $1 million of the stuff in their garage over a couple of weeks. 

We now, instead of having three broad cartel alliances, have literally hundreds of small organizations that can basically print cash with fentanyl in a short period of time, and they don’t see the reason why they need to be part of the cartel structures. 

And so most of them have basically gone into business for themselves. Think of it as the digital economy where everyone has a gig, except for the gig is fentanyl. You put all that together and you now have, instead of some large cartels that kind of hold together like Sinaloa used to. 

You know, how hundreds of small, crime organizations out for themselves? These two things together have basically made Mexico a bit of a shit show from a security point of view. Now we can start talking about what the United States can do. Basically, there’s five options. Only one of them doesn’t suck. The first option, use drones, monitor the border, maybe even do some targeted strikes. 

We’re kind of halfway into this already. The Mexicans tried to talk us out of doing border monitoring. But Trump administration didn’t care. We haven’t started using the drones in an armed capacity to strike on the other side of the border. And honestly, this doesn’t do a whole lot. I mean, yes, you can see the border and go deeper, but consider the volumes involved. 

If you have 20 pounds of cocaine in a backpack, that’s a quarter of $1 million. If you have 20 pounds of fentanyl, pure fentanyl, and you want to bring it across the border and cut into pills, that could be up to $10 million. So you’re not going to pick that up with a drone, that can be smuggled in your glove compartment. 

It just it’s not an effective tool against that type of activity. It’s not that it does nothing. It just doesn’t do much. So that’s one number two, we’re at the point we’re starting to discuss this. Start sending special forces across the border, and going after the cartels themselves. Now, this is something we’ve actually already started, kind of doing. 

There is a task force based out of El Paso, as it’s been explained to me, that is Mexican citizens, but they use American equipment, American Intel, they have American distribution. They use they use American intelligence. They’re paid for by the United States. They’re just Mexican citizens, but they go every day south of the border and basically bust heads in the cartels. 

But because they’re Mexican citizens, it’s not considered an invasion. Now, this has been going on for well over a decade. And while I don’t want to say that it hasn’t achieved anything, it really hasn’t moved the needle very much. So if all of a sudden you’re gonna start throw some Rangers and Seals into this, all that does is ramp up the angst probably doesn’t change much because as we have seen with El Chapo and his sons, the torpedoes and other leaders of the cartels, when you take out the guys at the top, the rest of the organization doesn’t fall apart in the traditional sense. 

It just goes at its own throat as there’s a fight for succession and it breaks into smaller and smaller and smaller pieces that are more and more and more violent. So it feels good to get the guys, sure, but it doesn’t actually change the math on the ground except make it more violent and have more independent producers and trans transporters of the drugs. 

Option number three, which I have not seen seriously considered but has been floated out there, cross the border with the army and encircle and administer, take over, invade, take over, conquer all the border cities, places like Juarez, and Tijuana. 

20 pounds of cocaine is a quarter of $1 million. 20 pounds of fentanyl is $10 million. Even if you move the border, there’s still a way through, especially if you’re going to have a commercial relationship with a country like Mexico that is our largest trading partner in every economic sector manufacturing, agriculture and, energy. So putting Americans in charge of security south of the border, you know, to be perfectly blunt, we tried this for 20 years in Afghanistan, in Iraq, countries where we did not care and were not exposed to the local economies. 

In Mexico, we are. So if you were to do something that breaks down those corporate relationships, then you’re talking about having a recession in the United States, it is at a minimum four times as bad as what we went through back in 2007 to 2009. I would recommend against that. The final one is, even more dramatic, but might not be quite as bad economically. 

Draw a line in Mexico that roughly goes from Monterrey to Durango, and just take everything north of that line. Basically have a second Mexican-American War, where you, the United States, basically annexes the northern states that are most tightly integrated with the United States, establish a security line south of that, where you basically build a new wall that as much shorter and perhaps more effective than the stupid one that we’ve got on the northern border right now, because all that one did was build a bunch of construction lines and roads across the desert and made it easy to cross. 

Dumbest thing we’ve seen in a long time basically increase the economics of illegal migration. But if you do it further south would be shorter and keep all of the industrial plant that is integrated into the United States north of that line and basically just swallow annex parts of Mexico and make them part of the United States. The economic case for that is more robust. 

The security case for that is more robust. You’re simply invading, conquering, 30 to 35 million people and trying to make them Americans. Now again, we tried a version of this in Iraq and Afghanistan, just because I think it’s a less horrific option than just grabbing the border cities, does not mean it gets the zillion stamp of approval. 

But unless you’re willing to consider something like that, there is no military option here that makes any sense. Which brings us to the fifth option. We could stop using fentanyl, cocaine.

Finally, Some Clarity on US-China Relations

Donald Trump and Xi Jinping at the G20 Summit

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

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

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

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Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

America’s Processing Crisis: Racing China’s Decline

Photo of workers in a manufacturing shop

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

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

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

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Transcript

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

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

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

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

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

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

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

Aging Populations and Which Countries Look the Worst

Note: This video was recorded during Peter’s last hiking trip

Many countries are on the brink of crisis. No, I’m not talking about political issues or potential wars. Instead, I’m looking at the aging population crisis facing a number of countries around the globe. Let’s start with Japan.

Japan is the oldest country globally, with 10% of its population over 80, yet they’ve managed to mitigate the impact this has had. The Japanese have adopted policies that extend working lives, improve health care, and encourage younger generations to have children…and there are plenty of other countries who could take some lessons out of Japan’s playbook.

Italy and Germany are aging more rapidly and could put some strain on the European monetary union. China could very well face a civilization crashing event due to its inability to handle its older population with poor social security and weak health care system. Korea is also aging quickly, but I’m optimistic about their ability to innovate their way out of this pickle.

While there’s not a lot of positive in this one, those countries that are bit behind in the aging process will at least have some guinea pigs. And If anyone is looking for a career with solid job security, I suggest pursuing something in hospice or elderly care…

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Transcript

Hey, everybody. Hello from Lewis Creek. Today we’re going to talk about demographics, specifically old people. The stereotypical case is Japan, where today 10% of the population is over 80 and fully one quarter of the population is either retired or qualifies for retirement. They are by far the oldest country in the world. However, they saw this coming back in the 1980s after having a birth rate that had been really low for nearly a century. 

And so they started extending working lives, better health care to make people keep their minds rather than fall into dementia, better child care. So the people who do want to have kids can try, and above all, ways to keep older folks at least engage part time within the workforce. All of that has allowed them to extend the useful working life of your average citizen, while also increasing the birth rate to a degree that they are no longer the fastest aging society in the world. 

There are now, like 20 other countries that are aging faster, including Thailand, Korea, China, Italy, Germany, Spain, Poland. It’s not that these countries are past the point of no return, but it’s time for them to start thinking about what happens next. Because while they may have seen this coming decades ago. They haven’t done squat about it. A couple of countries to keep your eyes on. 

Number one Italy. Here is a large country with an ancient population that’s getting older by the second. The oldest in Europe, and they’re in a monetary union with the rest of the Europeans. At some point, the additional outlays that are required to maintain an elderly population are going to crack the European system apart. Germany is just a couple of years behind Italy. 

So we’re going to see the Germans go from a minute payer of Europe to a net pay. That changes everything about what makes Europe work. Another country to watch is China. Every time they update their data, it gets worse and they may well now have a demographic structure that’s not too far behind Italy. And this is a country that doesn’t have a social security or pension system worth knowing, or a decent health care system. 

So when this goes, you basically had the Chinese lose their entire workforce in a very short period of time. I would expect that to be a civilization crashing event. And then finally there’s Korea, which is also aging very, very quickly. Maybe even just a touch faster than Italy. The reason I would say Watch Korea is if any country can figure out how to adapt to this, it’s the Koreans. 

This is the country that when they decided to get into the supertanker business, didn’t bother building a supertanker drydock. First they built the supertanker in two halves, in two different drydock and then welded together. The Koreans have a habit of defying physics to make things happen. And if anyone can find a path out of this, it’s them.

The Fire Hose of Chaos: The “Deal” With the Chinese

Trade tensions are taking their toll on an already fragile Chinese system. The US is dealing with self-sufficiency problems, but for China, it is an existential question. Will this new deal change that?

The Chinese economy relies on cheap capital to keep people employed and distracted; the idea is that social stability will keep people busy enough to avoid unrest. Surprise, surprise, that system is unsustainable. Throw in all the other issues plaguing China and you get a sticky situation. Now, enter Trump.

Round after round of extreme tariffs might be hurting American consumers, but that’s nothing compared to the death blow it is dealing to China. The entire Chinese model depends on exports, especially to the US, and the rest of the world can’t make up for that. But this new deal that’s emerged has walked back tariffs a bit (even if it’s largely symbolic).

This temporary relief from the tariffs will buy China a little time, but the fundamental issues haven’t changed. Oh, and the US is still going to get hit with a recession. Sorry to burst your bubbles.

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Transcript

Hey, all. Peter Zeihan here coming to you from the car. The snow is gone. So that means it’s hiking season. 

The first stop is, Utah. Anyway, we’ll be doing some more pieces as the trip continues. But right now, we need to get back to China. So we have seen a number of policy shifts out of the Trump administration in its first few months in office. 

And by far the most significant one is, of course, in trade. And we’ve spent the last couple of weeks going through the impacts of that on the US economy, and now we’re going to shift to the second largest economy in the world, which is the People’s Republic. The situation here is not minor. I mean, in the United States, we have been on the edge about industrial production and import self-sufficiency and all those good things that are worth having conversations about. 

But for China, the situation is far more existential. You see, the Chinese economic system is based on political stability. The, bribing the population. Basically, anyone who has cash, whether it’s a central bank or a mom and pop operation, that cash is forced into certain investment vehicles so that there can be cheep, cheep, cheep, cheep, subsidized cheap capital available for any entity that is capable of employing anyone. 

The theory is pretty straightforward. China has a history of being part of the region’s coming, their way of rebellions, and since the system has never had a way to transfer power from one generation to another, that has really worked. The best way to make sure that everything holds is to make sure that everyone is gainfully employed and it doesn’t have to be a real job. 

It just has to be something that keeps people doing something for most of the week so that they don’t get together in large groups and go on long walks together. Something the Chinese government is very familiar with because that’s exactly how they got their jobs anyway. So the capital structure is deliberately tilted towards this sort of robust, artificially cheap capital system. 

It means that the rate of returns on capital are very low, which means the entire system is kind of creaking along everyone’s style. But it means everybody’s got a job. The thing is, is if you invest a bottomless supply of someone else’s money into an industrial plant, it’s not going to be particularly efficient. And B is going to produce a lot of stuff that is not geared towards the local economy. 

And C, the local economy doesn’t have the capital that it would be needed to purchase it anyway. And that’s before you consider China’s demographic problems. Now, that they have more people over age 53 than under 53. Simply having consumption at all is kind of hilarious and so no shock. 

We’ve actually seen consumption go down in the last six years. One of the fun things about Covid is it kind of put everything on hiatus for a few years in China, because of the lockdowns, and none of the statistics really matched up with what we had before. And it’s only in the last 18 months that that’s far enough in the rearview mirror that we have some idea of what the numbers actually look like in China, and they’re all really bad. 

So along comes Trump and puts up a series of tariffs that basically function as an embargo, 185% was the peak in that sort of environment. Trade between the United States and China basically arrests. And while that is a problem in the United States, from a consumer point of view, it will absolutely trigger a recession in China. It’s the kiss of death, because the United States is China’s number one consumer of Chinese exports. 

Exports that they can’t consume themselves, which means that China has to be export lead no matter what else, because it can’t consume the stuff itself. Now they will they have they will continue to try to dump that product on other markets to get the income. But the rest of the world combined simply doesn’t have enough spare consumption to absorb what once went to the United States. 

And that’s before you consider that a lot of these countries are becoming more protectionist anyway as the world globalized. So you dump the product, they start putting up their own tariffs. We saw that last year with the electric vehicle craze, where the United States was one of the first countries to put up barriers, but then the Europeans followed the Canadian style. 

Basically, anyone who has an auto industry at all, including the Brazilians and the Indonesians and the Russians, and we basically just saw China cut out of all of the markets, and they started chopping up the cars to get the battery packs to put into other things. We’re gonna look at something like that on a much larger scale this year, and we’re already hearing reports of companies closing, factories shutting down, warehouses already being full across the length and the breadth of the Chinese system. 

Not so much in electronics, because the Trump administration issued a waiver for that specific subcategory. But that’s only about a fifth to a quarter of the products that the Chinese used to produce. So there is no version of the deal that the Trump administration would accept that addresses the issue as Trump defines it. And that’s a trade deficit issue that would also allow the Chinese to solve their problems in the way that they define it, which is a mass employment and export problem. 

So we really do have the irresistible force meeting a unmovable object here, and there’s no clean way forward. And yet and yet and yet a couple of days ago, we got a deal. Well, let me explain what that deal was. The deal is to dial back most of the tariffs to roughly where they were the day before Trump announced Liberation Day. 

And that’s the entire. Oh, and this is exactly what we should expect from the American side, because the Trump administration still wants it hasn’t staffed up. And your typical real trade deal with a country that does not have an agricultural sector or anything particularly sensitive, which to say that China takes about 18 months and we’re only getting started on this process. 

What the Chinese are hoping for is they can do some version of a repeat of the phase one trade deal that was done by the Trump administration the first time around, and in that deal, there were product quotas. There were changes to intellectual property laws. There’s a long list of things that the Americans considered irritants in the relationship that the Chinese agreed to. 

And so they signed a deal and then ignored it completely because the Trump administration had no bandwidth to actually enforce the deal. And things just went on their way this time around, the Trump administration doesn’t have 5% of the senior staff that it had last time. One of the reasons it’s taking us so long, just to get to the point where they’ve agreed to talk, is that there’s no one on the US side to even answer the phone, and so real talks maybe will now begin. 

And if the real talks follow the pattern last time, it’ll be a year before we get the phase one trade deal that the Chinese will then proceed to ignore. The Chinese are betting that the Trump administration is bad with so slow out of the political environment at home is so toxic that the Trump administration will simply be tangled up in other things, and they can go back to some version of what they would consider normal, which is where they were on April 1st. 

Now, does this save the Chinese system? God, no. Everything about the Chinese system is terminal. The demographics alone suggest that this is a country with, at best, eight years to run. And we’ve already had a number of trade policies out of the Trump administration targeting China. We are now in our 128. Oh my God, a trade policy. All for all for this administration. 

So the rules are changing. Investment is stalled in the United States because nobody knows what to do. But as far as the Chinese are concerned, this does give them a little bit more bandwidth, allows them to stall and perhaps a little bit more. If the 145% tariffs would have stuck, we would’ve been looking at for maybe five years. 

Tops of the Chinese system could exist before the employment system simply imploded on them. They needed something, and the Trump administration has given them something. The question is, how long will it last until we have our next hiccup at the white House? 

Oh, and one more thing. This doesn’t deflect the, forecast that I have of a recession in the United States at all. Assuming that Trump means what he said with the return to some version of normal tariffs that we had a few weeks ago, and assuming that everyone in China gets right back to work immediately, and assuming that all of the ships that haven’t crossed the Pacific are still there waiting. 

And remember, we’ve had three times as many ship cancellations on the Trans-Pacific route so far as we did during all of Covid times. Three assuming everything goes back to normal. The first product that leaves China now isn’t going to actually hit shelves throughout the United States until the first week of October. So we have at least been where we have a problem with inflation, where we have a problem with lack of growth. 

And that’s before you consider all the other factors that are going on, because it’s just this is just one thing, that has changed a little bit and everything else is going full bore.