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.
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.
