Peter Zeihan: Mapping the Collapse of Globalization (Transcript)

If you have questions for our speaker or moderator today, please put them in the YouTube chat box. All questions will be shared with Quentin during the program.

Today’s talk is emblematic of why I personally love the Commonwealth Club and why Jackson Square Partners is so pleased to host and promote thought leaders like Peter. This is an important enough book that all those who pre-registered will receive a copy of Peter’s book.

With that, I turn the program over to Quentin Hardy, editorial director of Google Cloud and a frequent moderator for the club. Quentin, over to you.

QUENTIN HARDY: Well, Ken, thank you very much for that warm and thoughtful introduction and thanks again for your support. Hello, everyone, and good afternoon. As Ken noted, my name is Quentin Hardy and I’m the editorial director at Google Cloud. I’m pleased to welcome you to today’s Commonwealth Club program.

We’re here to discuss Peter Zeihan’s thought-provoking new book, The End of the World is Just the Beginning: Mapping the Collapse of Globalization, which is about the future of globalization and what we might do to protect ourselves from its possible collapse. I think Peter Zeihan will tell you possible isn’t really an option at this point. It’s pretty much a dumb thing.

Well, this program is obviously virtual, but the Commonwealth Club is returning more to in-person programs at its San Francisco headquarters. You can learn more about upcoming programs and special events for members at the club’s website at www.commonwealthclub.org.

One quick final note before we jump into the program. If you have a question, as Ken said, if you have a question for Peter and me, please put it in the YouTube chat box. Those questions will be forwarded to me during the program, and I’ll try to get to them as many of them as I can.

Okay, so on to the program.

Well, like Ken said, Peter Zeihan views the world for the past 70 or so years as living in a kind of extraordinary period of order, growth, and development. And today, we’re on the exit ramp out of it at an increasingly fast rate. The reasons for this recessional from a golden age include a failure of political leadership, demographic change, debt, resource scarcity, and, of course, a changing climate. Just before we came on, he said things are happening even faster than he thought, and we’ll talk about that a bit.

So good times, right? Well, he does also talk about several steps we may take to soften the blow, opportunities companies and individuals are seeing, and ways that we can adjust to a few decades of disorder before a new and very interesting new order will emerge. So let’s definitely spend some time on that.

Peter, welcome to the Commonwealth Club.

PETER ZEIHAN: Great to be here.

QUENTIN HARDY: All right, well, many people turn this period of the post-World War II into the present age, the Pax Americana, when U.S. power and values dominated, and that kind of percolated around the world, creating globalization. Do you think that was at the core of the good times, and what happened?

PETER ZEIHAN: Yes-ish. So what distinguishes Pax Americana from Pax Britannia and what came before is, unlike all of the Paxes of the past, the American period was not an empire. When you’re an empire, you use your military force to force your way upon the world and extract economic concessions. You establish customs units. You skim off the top. The United States didn’t do it that way, because the United States wasn’t interested in the economic side of dominating the world. We saw it as a security problem.

At the end of World War II, we found ourselves facing down the Red Army a continental way. And we knew, in order to contain it and beat it back, that we needed to have a deep roster of allies who were willing to be cannon fodder in the case that there was a new war. And so we bribed them. We created globalization and used our navy so that any of them could go anywhere at any time and interface with any partner and access any market. We basically paid them to be on our sides.

In compensation, we got to write their security policies. And that is the Cold War order. That is the Bretton Woods system. That is the order, as I call it. And it lasted until the Soviet Union died. But then in 92, we voted down the guy who wanted to reform it. And we had a succession of ever more populist and isolationist leaders culminating with Joe Biden. And now we have the most economically populist foreign policy that we have seen in this country in well over a century. And the Americans just are not holding up the ceiling anymore.

QUENTIN HARDY: So you’re saying this decline, this change of order could have been avoided?

PETER ZEIHAN: It’s possible. We had a moment back with George Herbert Walker Bush. You remember 1,000 Points of Light and the New World Order, that conversation, where he tried to get us to have a national conversation about what we wanted out of the world now that the Cold War was over. What did we want to leave for our children? And we voted him out of office for trying to have that conversation.

QUENTIN HARDY: Right. So all orders change. All things pass. Were we doomed to fail here? Because you do talk about the demographic and resource changes that the world has undergone during this period of American order.

PETER ZEIHAN: Without a serious overhaul, it was always going to fail. Because when this was established in the 1940s, the United States was a larger economy than everyone else in the world put together by all meaningful measures. But year by year by year, the United States basically encouraged everyone else to grow. We used our military capacity and our access to our market to underwrite the entire alliance. You do that for 75 years. And collectively, the rest of the world got more powerful and more powerful economically to the point that the United States, even if it wanted to continue de facto subsidizing everything, couldn’t.

There’s a military aspect. Post-Soviet period, we changed the way our Navy works. We concentrated all of our power in the supercarriers. We don’t have a lot of destroyers anymore. We couldn’t patrol the global oceans now even if we wanted to. And part of it is demographic. After 75 years of industrialization and urbanization, the very population structure of the world changed. And in most of the world now, especially in the advanced world, there are more people in their 60s than their 50s and their 40s and their 30s and their 20s than their teens. And we now have such a top-heavy demographic that’s full of people who produce, who are now on the verge of retirement, that there aren’t enough people to sell to. The U.S. market is really the only one of size that still has a lot of young people. All those millennials that we keep maligning, they’ve got something going for them that their cohorts around the world don’t. They exist.

And there’s no longer sufficient consumption on a global basis to support the productive capacity that’s out there. So approach this strategically and militarily, or approach it demographically and economically, it doesn’t have much time left.

QUENTIN HARDY: Right. So to restate that just a little bit, at the end of World War II, the most destructive war in human history, 50 million people died, the U.S. was kind of the last man standing. And we filled that out by mirroring, in many countries, democratic capitalism, and elsewhere, suppressing challenges to a democratic capitalist order. Democratic capitalism, more than most, is based on consumer-led growth. As the population ages, it consumes less.

We did not, I see a paradox here in a sense. If we kept having children, and kept growing the population, you get resource exhaustion. If we didn’t have children, which we kind of didn’t, we haven’t kept up with a new young cohort to become consumers and fill out the tax base, we’re also kind of doomed. Were the paradoxes always going to trip us up, or is there something else we might have done?

PETER ZEIHAN: There are a lot of countries out there that have followed different demographic patterns. I mean, everybody has started living longer, and everyone has had a lower birth rate, but there’s a lot of variation within the themes. The Mexicans didn’t start going through this transition until the 90s, the Germans started it before World War II, some did it slow, some did it fast.

I don’t think there’s much of a paradox here, because unless we did it as a planet all at the same rate, it’s really hard to draw an ideological argument as to how we might have done it different or better. The problem is that once the birth rate started to drop with like half a dozen exceptions globally, none of them ever picked up. You urbanize, you have fewer kids. There are very few exceptions to that trend. The prominent one is in the United States where we had the suburbs. Suburbs in the United States mean something different than suburbs in most other countries.

In most other countries, the suburbs are slums. Here, single family homes rule. And if you have a yard, you can have more kids. So there’s a cultural and geographic element here that I think a lot of the ideologies that debate the consumption issue miss. And that’s one of the reasons why the United States is actually reasonably well-positioned here. I mean, like I said, the Millennials exist. There isn’t the equivalent of Millennials in Britain or in Germany or in Italy or Korea or Japan or China. And for the next 40 years, that is going to make all the difference.

QUENTIN HARDY: So in that sense, for Americans who are probably most of the people watching this right now, you never had it so good is going to move to you never had it so good compared to everybody else.

PETER ZEIHAN: Yes and no. I mean, we’re not going to suffer nearly as much on the slide down as everyone else because we’re not dealing with the collapses in finance and consumption or military security that a lot of other places are. But at the same time, we’re looking in the next few years at the Chinese and the German systems dissolving as economic players. That means that if we want to have manufactured goods in North America, we have to build them here, which means we need to roughly double the size of the industrial plant. Will that be inflationary? Oh, yeah. But it will also be the greatest economic growth story in the history of Canada, Mexico, and the United States. Record growth is not something that scares me.

QUENTIN HARDY: I can’t figure out if you’re positive or negative. It’s so great.

PETER ZEIHAN: That’s fair.

QUENTIN HARDY: You can’t either. We’re already getting quite a few questions and I’ll turn to them in just a minute, but I want to turn to them by way of having you look at a few of the sectors because your design of this book looks at various important building blocks of globalization, global growth, global health, finance, transport, energy, agriculture, manufacturing. I don’t want to go too far into the weeds. People can read the book for themselves, but what are some of the most important of those aspects and which ones will have the greatest shocks to the system, you think?

PETER ZEIHAN: Well, agriculture, manufacturing, those are ones that I think most people understand the concept that you can only do something good, certain things in certain places that there’s concentrations of activity. So if you change the balance of the game, where you do that moves around. So for example, in the agricultural sector, a lot of the fertilizer production comes from the former Soviet world. That’s in the process of falling offline. So if you have a soil type like in Brazil that just requires more fertilizer in order to grow anything, you’re in trouble.

I think that plays to people’s mental bandwidth. I think the more important issues are the things that kind of operate under the hood that we don’t necessarily think of every day because we assume that there’s no problem. Transport is a great example. The concept of being able to move anything at scale anywhere in the world at a very low cost reliably with no security costs whatsoever, historically speaking, that is a laughable concept, but it’s indelibly woven into how we think of the world today. You don’t have to go back. Sorry?

QUENTIN HARDY: It’s our connective tissue.

PETER ZEIHAN: Exactly. I mean, you only have to go back a century and a half to get to a period when it was cheaper to move things from London to Massachusetts as opposed to moving them from Massachusetts to New York on a road. And we’re moving into a world where international transport is not going to be safe. And in that sort of a world, everything about our current manufacturing, energy, agriculture, everything else breaks down and transport becomes a local and a regional concern instead of a national one. That forces a complete re-imagined of how the world works. Same thing in finance.

QUENTIN HARDY: Just to touch on that because earlier you talked about the retooling of the American Navy towards supercarriers and away from destroyers and this change in guarantees of naval safety, which you just came to again. Do you see rampant high seas piracy ahead for the world?

PETER ZEIHAN: Privacy, state piracy, and pirating, and yeah, and full on, I’m sorry, piracy, state piracy, and privateering. All three of them I see coming back in a very big way.

QUENTIN HARDY: Aside from the Horn of Africa, is this going on right now? I mean, we hear about Somali pirates and that kind of thing, but if you’re –

PETER ZEIHAN: At the moment, we’re seeing piracy in places that are kind of in the no man’s land between the major economic zones. So if you think today of the major zones at the Brazilian coast, the American coast, the European system, the Chinese system, the Indian system, and the Persian Gulf system, those areas have negligible piracy at all. And we have very few zones that are in between where the rule of law on the sea exists, or where it doesn’t exist. And that’s where we see piracy.

What I’m saying is that when you break down some of these bigger blocks, and they can no longer function, and the ridge of the state is no longer able to provide regional security, then we have more of those zones. And the more of them that we have, the more countries will have a vested interest in disrupting trade for their own reasons.

I would argue that the country to watch the most robustly as the United States kind of backs away from things is India, because of the first major country out of the Persian Gulf, and there is no way in hell they will let themselves have an energy crisis if they can avoid it.

QUENTIN HARDY: That’s interesting. Let’s move to a lot of these questions, or take a break for a few anyway.

The first one is about energy, specifically oil. It says, earlier Peter predicted Russian oil exports would be nil by now due to a loss of Western parts and technology and inability to export when it pumps fast enough to maintain pipe flow. Yet oil flows on. How is that possible?

PETER ZEIHAN: So the specifics of the forecast is that we were going to have a disruption either due to war or to the sanctions that were going to force the Russians to basically export less. And as pressure builds up in the pipe back to the permafrost, that the wells themselves would freeze shut because the water that comes as a byproduct would freeze within the pipes and bust them from the inside.

The reason that hasn’t happened is that original pulse that slowed the exports was not sufficient in size. The Russians were able to shut in wells in non-permafrost zones, specifically Tatarstan and Bashkortostan. And so they only shut in about a million barrels a day for about six to eight weeks. And then we’re able to kick that back up again.

I would argue that this is still going to happen. It’s just going to take a little bit longer. The specific issue to watch for is on January 1, the sanctions regime on maritime insurance expands from any Russian flagged vessel to any vessel carrying any Russian cargo. That combined with the oil price cap that the Europeans are about to adopt is probably going to lock in at least two or three million barrels a day. And that’s more than enough to cause that pump freeze. And once that happens, that stuff is offline for decades.

QUENTIN HARDY: Okay. Next question. Do you think Iran is going to escalate the drone attacks on the Persian Gulf? And if so, how soon? This actually opens up a whole area because-

PETER ZEIHAN: Oh yeah, it’s like they have a whole world of sense there.

QUENTIN HARDY: Well, warfare, robotics. We don’t staff wars with lots of young men, perhaps because we don’t have them, perhaps because they don’t want to fight, but war has become cyber, robotic, drone-based in the form of robots. Start with Iran and talk about the changing nature of warfare as you can.

PETER ZEIHAN: Well, I would start saying that the Ukraine war is proving that boots in the mud are still absolutely critical. It’s just that there’s more pieces in motion right now of which drones are part of the landscape. So don’t write off Iran’s ability to actually throw people at a problem here.

However, I would argue that if we do get to the point where the Iranians feel this is a good idea, keep in mind that with the United States largely not present in the Gulf anymore, the onus will not be on the United States to do something. The onus will be on the Saudis to do something. And since the Saudis have the capacity to export crude to west to the Red Sea instead of having to go through Hormuz, the country here that’s likely to lose a lot of its oil export capacity is Iran.

So if they start playing that game in the absence of the United States, I have no doubt that the Saudi Arabians have the military capacity necessary to utterly destroy all Iranian oil export capacity.

QUENTIN HARDY: My Iranian friends here in the States believe these current protests are quite real and will spell the end of the mullahs and their government. Do you agree, you think Iran can tough it out or are they out of control?

PETER ZEIHAN: How about this, I don’t disagree, I would just say that we’re not there yet. The Iranian military is designed to occupy its own country. I mean, you guys remember the movie 300 to 1,000 Nations of Persia, that’s actually pretty accurate. Even today, after 4,000 years of cultural unification, Iran is only 50% Persian. And the way that you keep all these various mountain peoples from rebelling is you occupy your own country. That’s why they have a million man army.

We have not yet gotten to the point where I think that the mullahs feel a serious level of threat. And remember, this isn’t China where it’s a one man rule and this isn’t Russia where it’s a hundred man rule. This is a rule of a religious class that has over 10,000 members. The degree of resistance that would have to boil up to wipe this government away is extreme. So extreme that we’ve only seen it once in the last few centuries. And that was when the Shah fell and the Shah didn’t have a 10,000 deep bench. So I don’t want to say this can’t expand to that. It very well may. But right now I do not see a lot of lights flashing yellow, much less red.

QUENTIN HARDY: I’m going to try and group these questions a bit. So I’ve got another energy one here. What about the natural gas fields in the Netherlands? Couldn’t opening those fields up solve the German energy challenge?

PETER ZEIHAN: According to the Dutch, if you take much more natural gas out of that, they’re going to have flooding. And remember that the majority of the Netherlands is below sea level already. So that is a non-trivial concern. So earthquakes, flooding…

QUENTIN HARDY: They basically float on a gas bubble.

PETER ZEIHAN: Right, so they’re very nervous for a number of reasons about playing that card. Now, the North Sea overall is a better play and the Norwegians are doing everything they can to increase output as much as they can. But even if you open the Dutch fields all the way, you’re probably only going to solve about five to 10% of the problem. I mean, every little bit helps, but that’s marginal.

QUENTIN HARDY: And let me make a case here. Are renewables, alternative energy sources, wind and nuclear and solar interesting as part of the overall energy picture in a way they weren’t before?

PETER ZEIHAN: There’s a loaded question. I’m a big fan of solar and wind in places that are sunny and windy. There are not a lot of those in Europe.

QUENTIN HARDY: Okay, that’s done then. They’re going to need oil. They’re –

PETER ZEIHAN: Not just oil, because oil, people forget that oil and natural gas are the internationally traded fossil fuels, the ones that are relatively low carbon. What we’re seeing Europe doing is going in mass back to wood and coal. In fact, about 70% of the electricity that was generated in Germany this last month was coal and lignite. And we think of wood as a supplement, but it is as carbon intensive as a lignite if you’re burning it for either power or heat. And we are seeing the Europeans go to that at a pace that we have not seen since the dawn of the early industrial age when people were making charcoal en masse.

QUENTIN HARDY: Boy, we’re really in the teeth of a Hobson’s choice here between carbon emissions, global warming and staying warm in the winter, aren’t we?

PETER ZEIHAN: Yeah, and we can’t have them all. One of the biggest concerns, whether it’s environmentally or economically that I have at the moment, I don’t see a way that this gets fixed, is the Germans have become so addicted to inexpensive, reliable natural gas supplies out of Russia that they based their entire economic system on it. So the natural gas doesn’t just provide them with power. It’s the base material for the entire petrochemical sector. And then that petrochemical stuff is, for the most part, net exported. It’s the base of their entire manufacturing model.

Well, without the natural gas, and it’s not coming back, the infrastructure has been destroyed, and some of the backup stuff all go through to the conflict zone. So it’s not coming back at all. And even if they bring it in an LNG form, it’ll be six times the cost of the old stuff. So what you’re looking at is not just a collapse of their electricity sector and their petrochemical sector, but the entire German industrial model is going to be gone within two years. And that takes with it Belgium, the Netherlands, Poland, Czech Republic, Slovakia, Hungary, Romania, and Bulgaria, and Austria.

QUENTIN HARDY: And that doesn’t sound good.

PETER ZEIHAN: No, it’s not good. Whenever the Germans get a little nervous about-

QUENTIN HARDY: Maybe that was asking.

PETER ZEIHAN: Yeah. Now, whenever the Germans get nervous about economics and energy, shit gets real in Europe really fast. I’m not saying they’re going to march on Moscow, but for Germany to survive as a modern economy, it will have to have a radical political shift. That rarely goes well.

QUENTIN HARDY: Okay. I’m loving this. Let’s change gears just a little bit and go into the technology sector. Please discuss your views of the transformative influence of US-driven technology developments on globalization. Let me tweak that a bit. Do you think the US will have technology leadership five and 10 years out?

PETER ZEIHAN: Technology leadership compared to the rest of the world?

QUENTIN HARDY: Well, that wouldn’t make you a leader, I guess.

PETER ZEIHAN: Okay, I just want to make sure that’s where we were going. Yes. The bottom line is the American educational system is broadly okay. And while we are facing a financial crunch from the retirement of the baby boomers, we have a replacement generation coming in. So the volume of the capital that is available to pursue technological leads still exists, even if it’s going to be constrained and more expensive.

The bigger problem in the United States is that the millennials are aging out. The millennials are now entering their mid-40s. And you need a lot of people in their 20s who are unattached, who can network together with a lot of capital. That’s how you get broad-based technological advancement. And we’re losing pressure on both of those factors, but they’re being obliterated everywhere else.

So I would expect the overall pace of technological advancement globally to slow considerably. And the technologies that we do pursue are going to be ones that are pretty close to being operationalized and prototyped already. We’re just not going to have the capacity to go for the broad base anymore. And we’re already seeing that in Silicon Valley with the liquidation of a lot of the staffs and most of these big tech companies.

But compared to everyone else, we’re still by far the tallest of the midgets, if you will. And the millennial class in the United States is larger than the millennial class in the rest of the free world combined. And even though the boomers are retiring, we have the least distorted demographic structure of all of the free world. And so we will still have more capital available.

So a slower pace, fewer breakthroughs, less broad based progress, but it’s all going to be concentrated here.

QUENTIN HARDY: Now, we have seen somewhat in the past administration and even more in this one, an effort to bring semiconductor manufacturing back. Do you think that is significant? Do you think that is a harbinger of technology manufacturing and manufacturing in general coming back into the United States?

PETER ZEIHAN: It is significant. I don’t see it as a harbinger because it’s actually a unique case, which makes it worse than normal manufacturing. So let me kind of rattle through this.

Not all semiconductors are created equal. The semiconductor you put in your smart light bulb is not the same thing that is in your cell phone. Cell phones, satellites, large-scale power management systems, servers, computers, those are the high end. And we do that better than anyone else. By value, we produce more semiconductors than everyone else in the world put together. And the competitors in that space are Japan, South Korea, and Taiwan.

So when you see the Biden administration with things like the CHIPS Act, encouraging fab facilities to pop up in the United States, we are competing with our partners. The mid-level chips, where the shortages have been because of COVID, that’s aerospace, that’s automotive. We don’t make those, but neither do the Chinese. Those are made in Thailand and Malaysia. China makes the Internet of Things, your smart fridge or your dryer chips or your smart light bulbs. But China can only make them with equipment that is important, with tools that are important, with software that’s important, with managers who are important.

And one of the many things that the Trump — excuse me, one of the many things that the Biden administration has done in recent weeks is basically say you can’t import the high-end chips, the mid-level chips, the equipment to make the low-level chips or the tools or the software, and any American working in the sector has to choose between their job or their citizenship.

And every American working in the sector was either transferred abroad or quit within 24 hours. So the Chinese tech story is already over. The American tech story is perhaps working on the wrong thing, because where we’re building out the fabs is not where we have the shortages. What we really need is an expansion of English technical capacity in a place like Mexico in order to build more of the low to mid-quality fabs. And that in the best case scenario is still several years away.

QUENTIN HARDY: You know, necessity forces changes in behavior. And I want to throw out too, we have a question from the audience. Don’t you think at some point, this gas crisis based in Germany, which is spreading across Europe, will force Europe to exploit shale gas rather than having an economic meltdown?

PETER ZEIHAN: I’m sure that they’re going to tinker with it. The problem that we’ve seen is, let me back up. So back in 2013, when I wrote, 2014, when I wrote The Absent Superpower, which was the shale-based book, I had a map that showed where all the world’s petroleum-rich shales were, and they are all over the place. And the concern at that point was like, the best shales that were in Europe were under population centers, whereas the best shales in the United States were in North Dakota and West Texas.

So for us, they were proximate to population centers. So transport wasn’t too big of an issue, but neither was annoying the neighbors. You’re not going to frack at the Louvre. Now, you have an energy crisis, everyone goes back and re-evaluates. The problem is, in the 10 years since that book came out, people have poked sticks in the ground to see whether this stuff is commercially viable or not. And in most cases, it’s not.

The shales are deeper, they’re smaller, they’re thinner, and they’re not as petroleum-dense. So if you took the amount of money that it’s taken to get the United States where it is right now and spend exactly the same amount in Europe, assuming they have the cash, which they don’t, you would probably only get one-sixth as much petroleum out. And it might help, but not by much.

QUENTIN HARDY: It must also be stated that projects like this, deepwater ports, assembling navies, they take finance, they take project management, they take regulatory approval. Then you gotta run pipes, then you gotta dig holes, then you gotta, it’s years, it’s years to get to that. If they decided to drill the Louvre tomorrow, it would still be three or four years, which you consider a fairly critical time.

PETER ZEIHAN: Yeah, now, necessity is the mother of invention, and when you’re under pressure and the lights start going out, you will break your own rules in order to make sure that people don’t starve in the dark. But there’s still physical limitations, even if the permitting goes away.

QUENTIN HARDY: Right, now, the other half of necessity I wanted to touch was migration. I realize I’m speaking to a Canadian who lives in Colorado… Oh, I’m sorry.

PETER ZEIHAN: Oh, I’m from Iowa, it’s even worse.

QUENTIN HARDY: Okay, you’re still a foreigner. No, you’re heartland. I’m sorry, that was my mistake. Do you feel migration will solve some of America’s problems by bringing in a younger population? And by that, on a similar note, do you feel Europe is about to face a wave of migration for poorer countries suffering from climate disruption?

PETER ZEIHAN: Yes and no. Let’s start with the United States because it’s a messier answer. We go through phases where we’re open and where we’re close to migration. We’re obviously in a more nativist period right now. The problem is that our electoral system strongly encourages big tent parties because we’re first past the post and you vote for a person rather than a party. So our parties tend to be weak and that means they have to have as many factions within them in order to win office.

Well, those factions move around based on issues in demographics and economics and geopolitics. And in the last 30 years, we’ve had a lot of change. The rise of globalization, the fall of globalization, the rise of China, the fall of China, the Ukraine war now, the information revolution. Makes sense that the factions are going to move around and we’re going to treat our politics different.

Well, the faction right now is in the middle of a tug of war between the two parties as organized labor. And the issue that they care about the most is immigration. So no one at the national level for either party is going to breathe a word about immigration reform until such time as we know where organized labor lands. So we’ve got this wonderful opportunity right now to open the doors and bring in just scads of skilled labor from the world over. And we are incapable of doing that right now. I would guess that we won’t be capable of having that conversation at a national level until 2028. And unfortunately, that’s when a lot of this damage will already be felt by.

In the past, our immigration policy was to pretend that we didn’t have an immigration policy, but have a de facto open border to welcome in Mexicans. But Mexico started industrializing very seriously 30 years ago with the NAFTA Accords. And the birth rate halved as everybody moved into the towns to take the industrial jobs. So there’s no longer a volume of Mexicans to come north. And then CAFTA was adopted five years later. So the Central American wave we’re currently experiencing only has a few more years to run before that is gone too. And then everyone else that might come to the United States can’t walk. They have to be on a ship or fly, which means they have to come from the Eastern Hemisphere. And that has to be a stated firm national policy and that requires Congress.

QUENTIN HARDY: Fascinating. And climate migration, do you think that will be a thing?

PETER ZEIHAN: That’s a more difficult one. I think it’s far more likely to be agriculture migration. We’re moving into a world where transport is going to be more difficult. And the inputs that allow for modern agriculture to happen on a global basis are going to be constrained. We’re going to see that next year. We’re very close to that. And at that point, people are going to move because there simply isn’t going to be enough food.

Now in the Western Hemisphere, I don’t think this is going to be a really big issue because let’s say it completely destroys Brazil as an agricultural producer. I don’t think it’s going to be that bad. But Brazil is still going to be able to feed itself. We won’t have out migration from Brazil. Most of Brazil’s agricultural sales go to the Eastern Hemisphere. So this is an Eastern Hemispheric problem.

And if you are in China or Southeast Asia, there are too big of mountains and too big of deserts and too big of jungles between you and anywhere you might walk. So you can remove East Asia from that math as well. What we’re really talking about here is Central Asia and Africa. And all of those people would go to the Russian space and to the European space. And say what you will about the Europeans, they have been very creative with finding ways to stop those movements.

So do I think it’s going to be an ongoing issue? Yes, but I don’t think it’s going to define the politics of these countries.

QUENTIN HARDY: Okay, let’s turn to China, which could easily fill an hour on its own. You see it already in crisis, already on the decline, already in bordering on a kind of catastrophe. Is that a safe assumption?

PETER ZEIHAN: Yes.

QUENTIN HARDY: Okay, let’s do that. Why do you think? Why do you think?

PETER ZEIHAN: Sure, so the demographic situation is the worst in world history. And the Chinese are in the process of updating their data. And they’re now admitting, since the book came out, they’re admitting that they overcounted their population by in excess of 100 million people, all of whom would have been born since the one child policy was adopted 40 years ago.

Yeah, so we’re already looking at the demographic structure that’s not even in decline. It’s in full collapse. And there will not be enough people aged 40 and under in China by 2030 to maintain any version of any economic system that we have yet to dream up in our heads. We don’t even have a theory for what this might look like.

Closer to home, we expect the energy flows from the Russian space to be disrupted. The Chinese are the ones that they’re at the end of that chain. So they’re probably going to have to suck up the entirety of the shortage. That is more than enough to trigger something far worse than the 1970s oil crises, but specifically for China.

Third, Xi has become the strongest cult of personality in human history. And he’s consolidated more power to himself than any human in history, including Caligula. It’s impossible now for him to get information because people won’t bring it to him because they’re scared of what he’ll do because they don’t know whether or not it’s going to make him happy or sad. So he’s completely isolated.

And so all he’s doing basically is drinking Kool-Aid. He’s drinking the Russian Kool-Aid and believing them on energy policy. He’s drinking Chinese policy and he’s believing China’s propaganda on tech policy. And on COVID, we’re seeing the whole thing starting to fall apart. What people forget about managing a system is it requires a lot of fingers and eyes. And the strength of the American system is its noise. We have a federal government, state governments, local governments, a business community, a civic community, academic community. They all have their own sources of power and they all have their own sources of legitimacy.

And the glory and the horror of the American system is how they rub against each other and clash. That noise that oftentimes Americans think of as a negative is actually a huge positive. Because it means if one of them completely collapses, the others don’t. And we still have a governing system that keeps the system moving forward.

Well, China has one person. It’s not even the CCP anymore. They’ve become a cult of personality. It’s one guy. The policies stop with him. And even if he was the smartest human in history and he was not willing to shoot the messenger regularly, which he is, there is just too much going on for one guy to manage, especially in a country with over a billion people.

And so with this COVID thing now, we were seeing protests, large protests involving thousands of people in every major city. They conflate accurately opposition to the COVID policies with Xi. And so we’re seeing the Winnie the Pooh with the blank piece of paper protests. That’s a real problem because every protest is automatically about Xi personally. And this is going to go one of two ways.

Option A, the protests continue. They spin out of control because they’re protesting now literally everything. And that is national dissolution. Option B, Xi reasserts control. And we get a lockdown. This looks a lot more like Tiananmen than what we’ve seen so far at the same time that we’ve now had hundreds of super spreader events in the last eight days. And the lockdowns they’re going to have to do for COVID are going to look like what happened in Shanghai a couple of months, but almost everywhere.

QUENTIN HARDY: A whole lot of under-vaccinated old people. It probably won’t go very well.

PETER ZEIHAN: Well, remember that the Chinese vaccines don’t work at all against Omicron. So it’s not just the old people that are in danger.

QUENTIN HARDY: All right. But they will suffer the greatest mortality if the rest of the world is any guide. And that will be visible.

PETER ZEIHAN: What does that mean for American companies that are counting on China for manufacturing or as a market?

QUENTIN HARDY: It means they’ve waited too long. We’ve seen a significant exodus out of the Chinese system since the last year of the Obama administration. It’s accelerated every year for different reasons. But not everybody has started that process. Apple’s by far the one that it’s been the slowest and is dragging its feet and has taken every example of trade disputes or genocides and just ignored them and doubled down. And now they’re screwed.

QUENTIN HARDY: You say we missed an opportunity to avoid this 10 years ago. You do lay this on the Obama and Trump administrations pretty heavily. What might they have done? And why is it too late to do it now?

PETER ZEIHAN: Which of this are you specifically referring to?

QUENTIN HARDY: Generalized systemic collapse. Let’s start there.

PETER ZEIHAN: Okay. I would argue you can even go back a little bit further. Herbert Walker Bush was the last president that tried to get Americans to have a conversation about the shape of the world we wanted to see in the post-Cold War environment. And we punished him for it. Clinton had his pros in his mind and his negatives, so did W. Bush, but both of them were governors and they actually governed. We may disagree with their ideology and some of their choices, but they both actually attempted to be president.

Obama did not. Obama, he was kind of a one-man show. His first meeting with the Joint Chiefs, he told them bluntly that I’m smarter than all of you and that I can do all of your jobs better than you. And let’s assume for the moment that he was true, that was true. He couldn’t do all of their jobs in his own. And so he ended up doing no one’s.

QUENTIN HARDY: Why would you want to tell that to people anyway?

PETER ZEIHAN: Sorry?

QUENTIN HARDY: Why would you want to tell that to people anyway?

PETER ZEIHAN: Yeah, well, I mean, this is a guy who had never managed anything in his life. He had managed a 12-man campaign office as he was going for junior senator. That was his first grown-up job, period. And then he became president. He had no idea how to manage an organization with over [300 million] people and it showed. And so he basically locked himself in the Oval Office for eight years. In eight years, we got one law, Obamacare, and the White House didn’t write it. He had Congress do it, which is part of why it’s such a mess.

Then we got Trump. I think people are a little bit more familiar with what happened under the Trump administration. Not exactly what I would call outcome-based policy. I’m sorry?

QUENTIN HARDY: I said chaotic is an appropriate word, perhaps.

PETER ZEIHAN: I think that’s fair. Say what you will about Biden, you can disagree with everything that he does. Dude’s trying. And we haven’t had that for the previous 12 years. So while there’s a lot of things about Biden I’m not thrilled with, I would say that the jury’s still out on whether he’s going to be a decent president. I would say right now, however, he is a president, which is something we didn’t have for 12 years.

QUENTIN HARDY: You know, Nick Gingrich, who’s no fan, said you gotta admit the guy has a lot of wins.

PETER ZEIHAN: He does.

QUENTIN HARDY: Okay. Let’s take this to a somewhat personal dimension. Before we came on, you told me that so far this year, you’ve had, tell the audience, how many meetings, how many-

PETER ZEIHAN: I gave my 175th presentation this morning.

QUENTIN HARDY: And for the most part, you are, it’s a colorful life. For the most part, these are to businesses, business people, planners, opportunistic capitalists, what have you, correct? Some academics-

PETER ZEIHAN: About half of them are business associations of some form, and about a third are specific companies.

QUENTIN HARDY: Okay, well then, that’s my wheelhouse there. They have to make bets. They have to be optimists by trade. They have to think there’s going to be growth. How do they take this news and where do they take it once they’ve all gone pale and then recovered?

PETER ZEIHAN: Sure. I actually would say that for most American businesses, this is a really good story. Part of what made globalization work is that the Americans sublimated their own geographic advantages and we basically have the best part of the continent all to ourselves and metabolizing that land has been the American story from Reconstruction until World War II. That didn’t end because of World War II.

So we entered World War II as by far the most powerful country in human history. And when the war was ended, all the meaningful competitors were smashed. So we were unassailable. And we decided to use that power disconnect to rebuild parts of the world and put them in an advantage to us. Didn’t matter what their geography was. They were allowed to access the world as if they had won because our Navy insured it. They were able to access our market as if they had won because we saw that as a way to bring them up to speed to help fight the Cold War.

So we took everything that we had going for us and pushed it to the side to help everyone else grow. Assuming we’re complete pricks about this and we withdraw all that assistance, the growth story is immense because all of a sudden geography and demography is going to be working for us again. And if we decide we want partners in this process, then we can still have economies of scale as well.

So we’re looking at most likely Southeast Asia, Japan, Mexico, Canada, and then parts of Western Europe that are going to be brought along for the ride. So we get kind of the best of all worlds. We have the millennials for the youth, we have the boomers for the capital, we have our partners for economies of scale and differentiation, and we have to double the size of the industrial plant to replace the parts of the world that aren’t going to be brought along. This is going to be the fastest growth story in American history, and it’s going to last for a decade.

And at the tail end of that, we will have supply chains that are shorter, simpler, cleaner, employing locals, selling to locals, and largely immune to international stresses. This is a really positive story.

QUENTIN HARDY: Aside from the fact that we don’t suffer like others do, I like this story very much because it’s deep history meets the market in the here and now. Basically, there’s a lot of arbitrage here. There’s a lot of disruption to the orders, and opportunists jump in and fill that out in new ways. And that’s kind of the scenario.

And we’ve seen that in history a lot. And this takes me to another question from the audience that I would like to take the first bite at because I have some background in this. If the democratic bust from the Black Plague was good, won’t these demographic busts ahead be a good thing? And the plague is really interesting because a third of Europe gets wiped out. Agricultural labor gets an advantage the way it didn’t get until the end of World War II. Pricing power like they had after 50 million people died in World War II. The forests in Europe grow back because there’s less use of land. But the really interesting thing is there’s the armament from the loss of life. Suddenly there’s like all this loose armor that the dead knight isn’t using and it gets sold into another town. Or there are shifts of power and that means there are more weddings and you have to make more silk and import that.

But for people who are from the old order, there also is this immense period of mourning and missing what happened. You’ve got Petrarch writing in 1350 and 60 about like, we just don’t hear anything from the East anymore. Like after Egypt, we don’t know. Like they had been in touch with the Mongols. They had known basically all the way to China in some form and they got isolated and they got cut off and it was dark. But in that disruption, there were new power players and merchants rose up and yeah, that’s how you got to the Renaissance eventually. But it’s a rough ride. Are we headed to something perhaps not that stark, but akin to that?

PETER ZEIHAN: In terms of the world writ large, absolutely. In terms of the American central, in terms of the metric words, in terms of the Amero-centric system, I think that isolation is a good way to think of it. This is really getting into the book number three, Disunited Nations, which talks about the countries of the future that we think of, you know, the China’s, the Russia’s, the Brazil’s and why they won’t be and why a different set of countries is going to rise up and kind of take command of their own destiny in their own regions, the France’s, the Argentina’s, the Turkey’s.

And there’s a lot of dead space between the power centers of the future that are going to have a feel like the old Roman marches where population density drops off, where industry stops, and it’s a bit of a no man’s land.

QUENTIN HARDY: Well, let’s get a little weird here. What makes you think the nation state sustains? It was a creation in the 18th century, essentially. Is it exhausted as well, or is it still a good model because it controls violence better than other systems?

PETER ZEIHAN: I like both answers to that. On the yes, the countries that are actually going to do well in a more disorderly world are all in part powerful because they are nation states. And if anything, I see their authority strengthening. And of the major ones, the only one that has a heterogeneous makeup is the United States. And I don’t think that’s going to change.

So our view of the nation state in the United States, I think is solid. And for the Francis and the Turkeys and the Argentinians of the world, I think their nation state identity is also very solid. But the places that are going to break down, I totally agree. Because for demographic reasons, we’re actually seeing the disintegration of a lot of ethnicities in real time.

And if you break that, then you can’t have a nation state without the nation. And that is going to force new economic models. Now, we don’t get that in 10 years. We probably don’t get that in 30 years. But we are definitely seeing the stage set for whatever is next.

QUENTIN HARDY: Yes. New question from the audience. With that in mind, is there anyone you think will challenge the US in the next 50 years? Challenge the dominant power. What might it look like?

PETER ZEIHAN: Sure, I would have said Japan because it was the only power that is both naval and has a zone of interest that overlap and potentially clash with the United States. But when Shinzo Abe –

QUENTIN HARDY: Not throwing you a rope.

PETER ZEIHAN: Fair enough. But, you know, giant fighting robots. This is Japan. Shinzo Abe realized, like his predecessors, that from a demographic and an economic point of view, if the Japanese people were going to have economic growth and security, it had to be hand in glove with the United States. So he came to the United States. He cut a humiliating trade deal with Donald Trump. And then his successor told Biden that the trade deal stands. We don’t want to renegotiate it.

So Japan is the only country who has seen this coming and who has anticipated what needed to be done. And they found a way to make friends on both sides of the American political aisle. So Japan has chosen to not be a challenger, but to work alongside the United States. That is the only significant power that I see for the next 30 years that could theoretically challenge the United States and they’re now part of the family.

QUENTIN HARDY: Okay, let’s move to the current events part of the program. Specifically to start with inflation, debt, interest rates going up. How does international capital, this is a question from the audience. How does international capital availability inflows, outflows, impact your predictions for the building of a new US industrial base?

PETER ZEIHAN: Sure, so let me hit this from two angles. First of all, with the baby boomers retiring, we know that the volume of domestically available capital is going to crater. It’s going to drop by at least half. You’re the wealthiest and you have the most free capital in your system in the final decade before you retire. On average, the baby boomers retire at the end of this year. So we’re there, there’s nothing we can do about that.

However, the greater the shock to any individual country, the more money becomes mobile and seeks a home in a place where there’s a rule of law and private property rights. And so we’re already seeing absolutely mammoth volumes of capital moving out of Europe and the Chinese system specific to the United States. So for example, BASF, the world’s largest chemical company, they’re in the process of basically dismantling everything in Germany and moving it to Louisiana because it’s their only chance to stay in business. They hope that will allow them to export enough Petrochem back to Germany to keep Germany alive, but that would require an industrial build out faster than what the Nazis did during World War II. I don’t think they’re going to be able to pull it off, but they’re going to try.

Toyota, build where you sell. Basically, we are seeing that mantra carried out by almost every European and Asian company because they realize you either move where there’s markets or you die.

QUENTIN HARDY: Yes, and given the supply chain disruptions of the COVID period and given the difficulties of not having a blue water order on the high seas, you’re going to see a lot more regional supply chains. And those are going to get-

PETER ZEIHAN: You can’t simplify your supply chains in our current environment. Yeah, there’s no other-

QUENTIN HARDY: And they will be regionally oriented, possibly North-South with attendant ports and transport built towards that as well. There’s a lot of investments that can take place.

PETER ZEIHAN: Now, we can do it better. We could, for example, amend the Jones Act to improve our own internal transport system. We can help the Mexicans with a better rail network. There are things that we can do to speed this up and integrate new players. But overall, we are looking at Western- Excuse me, we are looking at Europe breaking down, basically, in terms of a major manufacturing power. And China, honestly, it’s become a bit of a race.

QUENTIN HARDY: Yeah, I mean, that’s the problem with the future, in a sense. It’s going to show up consisting mostly out of the past, and you can’t really drag it too fast unless there’s a crisis.

PETER ZEIHAN: Oh, we’re going to have a lot of those.

QUENTIN HARDY: I’m getting that idea from you. You know that? Further in current events, well, let’s go to the debt for just a moment, because there has been an enormous amount of debt taken on during these years of free money on an almost global basis. That’s a rather substantial Holstein we have to move through the Python, isn’t it? How do we get rid of all this overhang?

PETER ZEIHAN: Well, let me give you two examples, one good, one bad. First the bad. The baby boomers are not a purely American phenomenon. They exist in most of the advanced world for similar reasons. After World War II, soldiers came home, got on with the business of their lives, had a lot of kids, and other German boomers and Korean boomers and so on. Where was I going with this?

QUENTIN HARDY: The debt overhang.

PETER ZEIHAN: The debt overhang. Yeah, okay. So we’ve always known that as the boomers retire globally, that they’re taking their capital with them. At the same time, they’re going to demand more capital from the system for healthcare and pensions. So this is a global tsunami, and it is going to be crushing.

Now in the United States, we’ve got the millennials to help pay for things. We have a replacement generation. So in relative terms,  we know that the carry here is about a third less than what it is everywhere else.

Second problem, or second good news, is that for the United States, the debt doesn’t matter nearly as much. When you’re the global currency, you can do things that no one else can do. One of the things we’ve seen specifically with the Ukraine war is that the Russians are realizing they’re actually more dependent upon the US dollar now than they were before, which is hilarious, because they went and they shoved a half a trillion dollars into Yuan, and then when they tried to get it out, the Chinese were like, no, we don’t want to buy that back. And they just lost a half a trillion dollars. There’s no liquidity.

So their option is dollars or euros in physical currency that they move in bricks or barter. So their efforts to move away from the American dominated system has made them closer to the American dominated system. And that’s just a riot. Apply this now to every currency in the world. The euro and the yen is part of the sanctions basically signed up to be subordinate to the US dollar. So the US dollar is more powerful than it has ever been before. And if you consider that only the United States has millennials, and it’s only the United States now that has demand moving forward. And so it can use normal monetary policy tools like raising interest rates. And there is nowhere for the dollar to go but up for decades to come.

And the less the US trades with the world, the more attractive the US dollar is as a method of exchange for everyone else because you are less concerned that the US is going to manipulate it now. And that’s just the world we’re moving into. I mean, it took the world over a century and a half and two world wars to ditch the pound because it was so advantageous. And as few people out there that love the United States, we are far more popular in the world today than the Brits were during the 1850s to 1940s.

QUENTIN HARDY: Fair, fair. Another question from the audience and then I’m going to move to my last question. How would you amend the Jones Act if you had a magic wand? I heard you allude to it earlier, but more comprehensively.

PETER ZEIHAN: Sure, so the Jones Act is a law that dates back to the 1920s and says that no cargo can be transported on any vessel between any two American ports unless the vessel is American built, owned, captained, and crewed. So you can loosen those four restrictions. You could say, you know, 50%, for example. If you do something like that, you start getting a lot of foreign money, most notably Japanese money into the American transport network.

And for the cost of about $300 billion, which is one year of spending on our interstate highway system, you could basically replace every piece of physical infrastructure on the entire waterway network. And if we only tripled the flow of goods on the waterways, we would probably drop internal transport costs by half in the United States. And the waterway could probably support a 20-fold increase in traffic flows. So there’s a lot of room here for improvement. But the simplest way to do it is to allow foreign companies to actually own some of the transport companies that are already in the United States and allow them to use their capital and technology and shipbuilding capacity in order to build out what we already have naturally.

QUENTIN HARDY: What holds us back?

PETER ZEIHAN: Remember that political question? That the United States-

QUENTIN HARDY: There we are again, okay.

PETER ZEIHAN: Exactly, they’re all union jobs right now.

QUENTIN HARDY: Let me go to my last question, which is both personal and as macro as anything we’ve covered today, which is a lot. You finished this book more or less January last year, then Mr. Putin moved on Ukraine, and I gotta say you did a heroic job putting Ukraine into it, but what are the lessons? There are so many lessons from the Ukraine war, but what are some of the key ones for you as you watch it unfold over this year?

PETER ZEIHAN: From my point of view, the biggest surprise is the fragility of the Russians. When you look at states that have survived as long as Russia has been around, you assume there’s a certain durability, but here we have a country that keeps threatening and launching wars that when someone pushed it back, we discovered that it’s a paper tiger. Not from any stretch of the imagination, but utterly incapable of learning the lessons of the Crimean campaign, much less the world wars. Russia has regressed in terms of military capacity over 150 years since the Cold War ended, and it makes you wonder who else out there is not nearly as strong as we think they are. This is not a productive prediction, I don’t know, but it makes me really, really wonder just how fast China can collapse.

QUENTIN HARDY: You remember the 80s, the CIA kept predicting how strong the Soviet Union was, and you’d give them about a C plus to a C minus on the overall verdict, because it just cascaded apart in 89.

PETER ZEIHAN: Yeah, and I’m not immune to this. So I was probably one of the people in my field that was most bullish on Ukraine, and I thought this would be completely over with Ukraine completely broken and occupied within six months. And so all of us were laughably wrong.

QUENTIN HARDY: Yes, the nature of the war is very interesting too, as a media event, how much of this is based on ridicule, networking people, creating a kind of nationalist sense in a virtual level in Ukraine, which is possibly the topic for another day. And we are at time.

PETER ZEIHAN: Well, we are still in the nation state system. The Ukrainians are proving that it’s not dead yet.

QUENTIN HARDY: That’s a good note. That’s very true.

Peter, that’s all the time we have for today’s program. I want to thank everyone who joined us online for this important and delightful Commonwealth Club program. We encourage you to purchase Peter Zayin’s new book, The End of the World is Just the Beginning: Mapping the Collapse of Globalization. Many of you will be receiving this book at home. It bears study.

This program and others like it will soon be found on the Commonwealth Club’s website at www.commonwealthclub.org. I’m Quentin Hardy and this Commonwealth Club program is now adjourned. Thank you, Peter.

PETER ZEIHAN: Take care, everyone.

For Further Reading:

‘Does Israel Have The Right To Exist?’: Benjamin Netanyahu (Transcript)

Capitalism vs. Socialism: A Soho Forum Debate (Full Transcript)

The Natural Order of Money: Roy Sebag (Transcript)

AI, Man & God: Prof. John Lennox (Full Transcript)

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