If you’re getting worried about Chinese investments into infrastructure in Mexico, it might be time to switch the TV off and take a walk…because that narrative is a complete fabrication.
This should help ease your mind: China doesn’t even crack the top ten list of foreign investors in Mexico, there are regulations for the origins of goods outlined in NAFTA 2 that China can’t bypass (and the person who negotiated these rules will likely be in Trump’s cabinet), and any major investments by China would be outed by business leaders in Mexico (so we don’t need to stress about stuff happening beneath our noses).
And if that wasn’t enough, the Chinese system is in decline, and so is their global influence. If they do somehow manage to make investments in the region, it’s only going to help the North American industrial base prepare for the collapse of China. At least this is a good thought experiment to remind us that the US needs to focus on building out its own industrial capacity.
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Hey everybody, Peter Zeihan here, coming to you from Massey Draw above the Denver metroplex. Today we’re gonna talk about something that has been on a lot of people’s minds during my work trips the last couple of weeks.
Two weeks ago, I was in Mexico, and one of the first questions that everybody asked me was what I thought about the Chinese effort to build industrial plants in Mexico to get around NAFTA regulations and ship stuff into the United States.
Last week, I was in Canada, and that same question popped up. I decided to turn on the television for 15 seconds for the first time in a year and wow, wow, wow. It doesn’t matter who you are—left, right, center, economics, socialist, whatever. Whatever you’re watching, this is a hot topic. It pleases me to say, as somebody who just looks at the data, it’s a complete fabrication.
China doesn’t even make the top ten list for foreign direct investment—that’s investment in physical plants—in Mexico. In fact, it doesn’t even show up in government statistics; it’s so low down the scale.
And, you know, honestly, folks, let’s be honest here. The soul-searching… this kind of stuff is really hard to hide. I mean, an industrial plant that’s going to be big enough to process—even if it’s just to stamp “Made in Mexico” onto a previously made Chinese product and ship it to the United States—
That’s not small. That’s not quiet. We don’t have stealth fields, and there isn’t a single facility doing this anywhere in the northern Mexican states. The infrastructure into central Mexican states is insufficient for the task anyway.
This is something that we have dreamed up ourselves in our post-truth environment that just happens to have taken on a life of its own.
It reminds me a little bit of when everyone was panicking a couple of years ago about the Chinese purchasing farmland. And again, the Chinese weren’t even in the top ten list. Now, that doesn’t mean there aren’t foreign entities looking to do something like this, but it’s not China—it’s Canada.
Canada is the number one owner of farmland in the United States outside of Americans. It’s also the number one investor into Mexico after the United States. And yes, yes, we should be concerned about Canada, though with the rule of law, their politeness, and their heavy coats… I mean, Canada, I’m watching you.
Anyway, should things change—should this become a real thing—three things to keep in mind.
Number one: NAFTA 2, which was renegotiated by Donald Trump in his first term, has very clear rules of origin laws that say a certain percentage of goods have to be made in the NAFTA states. This hypothetical scenario where the Chinese are trying to get around that is already covered by US law, and the US already has tools within the NAFTA system to deal with it economically, politically, and to block the products should it become a problem.
That authority already exists.
In addition, the most likely person to take over trade policy in a second Trump term is Robert Lighthizer, who is the guy who wrote these clauses and negotiated NAFTA 2 in the first Trump situation. So I have no doubt that if there’s any inkling this is going to go down, Lighthizer will take personal responsibility for this. And he is by far the most competent person who was on Trump’s first team.
And if he accepts Trump’s offer, he’ll be the most competent and capable person on Trump’s team. So put that to the side.
Second concern: If something like this does go up, it will not be quiet. When the Chinese build industrial plants in third countries, they bring in their own workers. They house them on-site, and it generally generates a lot of labor protests for the host country to deal with.
And Mexico now has a healthier press environment than the United States does. Mexican workers will not be shy. Mexican business leaders will not be shy about shining a light on something like this should it go down. Keep in mind that most of the business leaders in northern Mexico are relatively oligarchic—a little bit Elon Musk—and they really don’t like it when things don’t go their way. They’re not going to be quiet.
So we have a really good alarm system built in should this happen.
Third, and finally: The Chinese system is failing due to demographic collapse. Before you consider trade tensions, before you consider the possibility of a conflict in the world that would interrupt raw material supplies, energy supplies, or merchandise exports, we need to prepare for a post-Chinese world.
Which means here in North America, we need to roughly double the size of the industrial plant.
And if the Chinese do decide to come in to build industrial plants in North America, think about what that means. They are spending some of their limited capital resources, technology, and labor in order to help us get ready for a world without them.
So even in the worst-case scenario, where I’m completely wrong and this is about to happen at scale, the worst-case scenario is still pretty good.
