China has been the global manufacturing hub for decades, but what happens if that goes away? If and when China experiences a significant collapse, someone will have some big shoes to fill, but who can do it?
There’s a few requirements that help narrow down our list – proximity to a consumer base, a young workforce, and existing infrastructure. Argentina shows promise, but political instability limits the country from realizing its potential. North America – specifically the US and Mexico – have the opportunity to claim a piece of this pie. However, the region that is most likely to benefit most from a shift in global manufacturing is Southeast Asia.
Countries like Vietnam and Indonesia are particularly noteworthy, thanks to their large, youthful populations, expanding infrastructure, and ability to handle manufacturing along the entirety of the value-added scale.
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Hey, everybody. Peter Zeihan here. Coming to you from the Gulf Shores. Today I’m taking an inquiry from the Ask Peter Forum. And it’s if my estimation for the mass collapse of China comes true, where is the manufacturing going to go? Well, first things first. If you remove a billion people from the global pool, you people are stopped. So yes, we’re still talking about tens of trillions of dollars of capital investment that needs to happen, but maybe not quite as much as we think.
Now, once you’ve gotten past that, you’re basically looking at three factors that shape where the stuff is going to go. Number one, a place that is either has itself or is proximate to a significant consumer base to justify the infrastructure development in the first place. Number two solution number of people under 50, not just to consume, but actually to do the work that is necessary.
And then third, you would prefer somewhere where they’re not starting from scratch. there’s $35 trillion of leased and industrial plant in China. And even if we only need to relocate half of that, which would be overly optimistic, I would argue, having to do that in a place that doesn’t have a road and rail system would be a much heavier carrier than a place that does.
So this rules out any number of locations. Africa doesn’t look too good because it doesn’t have the infrastructure, and it’s too dependent on numerous oil imports to make it system function. Europe doesn’t look that good because it all has the infrastructure. It doesn’t have the consumption base. Japan kind of falls into the same category. So when I think of this, I think of three regions.
So in ascending order at the bottom is Argentina. good infrastructure, great educational system, positive demographics, probably. They’re arguably the best one in the world for a country at its point of economic development. Of course, the downside is that it’s full of, Argentina foreign policy and. Yes, yes, yes, Malay, the new president is, doing reasonably well, but one president does not make a pattern.
So we will see. But if if Argentina is successful at reinventing itself, it will easily become the manufacturing hub and player, not just for itself, but for the broader Southern Cone region. Brazil can’t compete in this. The infrastructure isn’t there, the education system is there and the country is aging rapidly. So you can see a world evolving where Argentina gets a lot of these pieces and then just treats Brazil as a captive market.
Okay, that’s number one. number two is North America. the United States obviously has the consumption base, but so too does Mexico. It’s a pretty young country, demographically speaking, and, well, most of North America has already been absorbed into the NAFTA system. Central and southern Mexico really haven’t. So there’s a lot of low hanging fruit there, not just from a consumption point of view, but more worker point of view.
And then, of course, the United States is the world’s largest consumer market with top rate infrastructure. so we’ll grab some chunks to, the third section. And the part that I think in relative terms is going to do the best is Southeast Asia. Here you’ve got a cluster of countries that have partially integrate. We partially globalized and partially industrialized, but almost all of them still have significant, reserves.
They can grow up under labor. And as the place does better and better and better, the consumption situation is going to look better. the two countries that I’m arguably most, interested in, in relative terms are Vietnam and Indonesia. Both have large populations who are at a beach. Both have large populations in excess of 100 million people.
High almost quarter billion in the case of Indonesia. Their infrastructure is okay, not great, but it’s rapidly expanding. And there’s some very clear population centers where this is all really serving as nodes for greater regional distribution. They’re also proximate to China. So this is a place where Chinese companies are already investing. These are countries who get along with the United States.
They’re places where the Americans are invested. These are places, the people of Japan. So the Japanese are investing. And most importantly, they’re all at different stages of production. So it’s easy to imagine a supply chain system where the Vietnamese do the really high end stuff, then come down the Thais and Malaysians for the middle manufacturing and then lower end stuff in places like Indonesia.
Vietnam is the one I’m most interested in because they’re trying to jump stages of production, and already 40% of the college grads are Stem graduates. So it’s easy to see them becoming the next Malaysia. But with a population that’s roughly four times as large. that becomes significant very, very quickly. So. So I get everything. Yeah, I think that’s everything.
All right. I wanna have a good one.
