Peter Zeihan and James Fraser on Talks of the Trade: A Continued Conversation on Globalization

[Music] [Applause] [Music] welcome to talks of the trade I'm your host James Fraser in a rapidly evolving Global landscape changes in manufacturing security priorities and emerging Technologies are reshaping international trade from our previous episode my conversation with GE political strategist Peter Zion continues they have to ask about AI sure and gen AI what is your view on the impact of that technology well let let's start with the obstacles to technology in general um having a robust Tech sector no matter what you're doing requires a lot of very very smart well-educated young people to imagine the future and then to figure out the process for from the idea to operationalization to mass manufacturer and that's been the environment that we've been in demographically in the United States for the last 25 years I mean you basically that that is the millennial Cadre uh but then you also need a huge amount of capital because none of that makes any money until you're at the tail end of it we've been in that environment for the last 20 years because of the Baby Boomers having approaching retirement but not yet retired well in the last five years that both flipped the older Millennials are now mid-40s they're no no longer the Young Bucks the Next Generation down gen Z is very small and the Baby Boomers are liquidating their savings so the capital Supply isn't there so even if nothing else breaks for a technology to be on the verge of mass application it has to already be through prototyping and maybe AI is proving right now with things like large language models that it is on that threshold so maybe it can happen and if it does the applications are nearly endless I'd say that the big four uh automation for manufacturing which could help us in any number of ways um digitization of Agriculture which could potentially double yields the defense applications are massive and then in the financial space it's all going to be about efficiency so you know those are the big four that could work problem AI requires the most advanced semiconductor chips that we as a species are capable of making and 90% of those CH chips come from one town in Taiwan and that makes it sound better than it is because it takes thousands of companies to keep those fabrication facilities running those companies are scattered around the world and half of them only produce one product for one end user and they have no International competition so you peel off any country from the globalized order and we just can't make the chips at all so we're going to have to do something something that we really hate doing we're going to have to choose do we use AI for finance or defense or manufacturing or egg because we're going to have to basically choose one and we're only going to have enough chips for one big application and everything else we're going to have to find another way in the era of globalization we saw a steady shift of manufacturing capacity within Global Supply chains we saw specific countries particularly in the last 20 years begin to emerge with specialized manufacturing capacity the likes of South Korea Taiwan China come to mind in the era of an increased focus on National Security what does that shift and prioritization mean for those countries everyone's going to have a little bit of reshuffling they need to do so demographics of course are core to this because when you have a a traditional pre-industrial demographic you've got lots of children very few retirees it kind of buildt into pyramid as you go up and age but as you develop it opens up into a chimney and if you keep aging it turns into inverted pyramid now during that process you can have a lot of really interesting things going on because when you turn into a chimney you got a lot of people who are generating capital in their 40s and 50s youve got a lot of young workers in their 20s and 30s it's a dynamite combination for growth especially industrial growth and when it opens up more you get Workers 40 to 60 who have Decades of experience in highly productive Ive and that's where the Koreans are for example right and during these demographic moments in time uh you can get incredibly productive workers with a lot of capital wired into a security environment that's pretty safe but it's not sustainable over the long run because those Advanced workers turn into retirees and so you've get a system that has basically rebuilt the culture around an industrial process that they can't sustain then you add the National Security component it's like the big advantage that the Chinese have had when they belly up to the bar with their Workforce scale we're have to find a way to do that because their Workforce is no longer cost competitive it's going to look different and if National Security issues push this forward that means we need to figure out a way to do it at scale with a Workforce it's a completely different price point and completely different labor structure technology can help with that but all of this costs money and we need to do it relatively quickly because we don't have 30 years like it took to build the industrial plant in East Asia so we have to figure out how to do specialization at scale in dozens of sub sectors within five years in an environment of shrinking capital and labor supplies it's going to be a wild ride so we we recognize that investment needs to be made in New Markets which may in fact be old markets so we've seen foreign direct investment in Mexico and in the United States really have a parabolic move absolutely in the last two years which I think links exactly to your point what is the capacity of the United States and Mexico to absorb that shift in production we need to double the size of the industrial plant within North America by the end of the decade and not everyone can play at the same scale Mexico probably needs to triple if not quadruple its industrial base and there's no way you do that on the model of NAFTA because the NAFTA relationship to be perfectly honest it's the northern Mexican states and Texas that's the reality of NAFTA we need to diversify that and to include Central Mexico and then going up into California in the midwest that requires a multi- trillion dollar infrastructure buildout before we can start the industrial buildout the scale of that is something we have never attempted as a country much less a continent according your thesis over the looking forward for the next 10 years is demographics how what do the demographics look like in the United States and Mexico and how do we think about that on a relative basis compared to the rest of the world the United States is one of those uh open chimney economies right now where we're aging but much more gently we have this transition period that's going to be tight but the Millennials have made sure by their existence that we will get through it uh you don't have that in most of East Asia you certainly don't have that in most of Western Europe and so we're looking at the end of those systems and that industrial plan the parts that we feel that we need we're going to have to rebuild here Mexico very late to the game they really only began industrializing in 1990 and so their population structure is the youngest uh of the major countries in the world uh if they keep aging at their current rate they're not going to face a crisis of German proportions until at least 2080 that's a lot of time to figure out a new model it's a lot of time to figure out how to increase your birth rate and they will have plenty of examples of what to do and what not to do over the next 50 years so I'm I'm pretty bullish there it also means that because they fixed their educational system before they industrialized on a productivity basis they're arguably the most efficient Workforce in the world uh their workers now are about twice as skilled as China's and they work for onethird the cost so there the potential here for expansion is immense the challenge is infrastructure linking in central Mexico into the NAFTA Network that's if we can do that the rest of it'll happen organically but we have to do that first as we enter this new era where there's a trend of De globalization we've seen particularly in the last two years these tectonic shifts in crossb trade where increasingly it looks like the East will trade with the east and the West is trading with the West however there are countries which have emerged with a far more neutral stance which seem to be positioning themselves to take advantage of that shift India comes to mind Saudi Arabia comes to mind where do you see those two countries two radically different examples there okay let's start with India because from my point of view that's actually pretty straightforward uh India has to do the same thing that we need to do in North America need to expand their industrial plant if they still want Manu ufactured Goods because the Chinese aren't going to be there all that much longer the difference between India and the United States is that the United States has Partners in that process uh we have NAFTA already Mexico is already our number one trading partner position they're not going to give up in our lifetimes uh and that allows us a differentiated system that we can hit the value at at multiple points of the process India is arguably among the most trade protectionist countries out there so any participation in broader Supply chains is going to be starkly limited and unstable a they're going to have to do it themselves for themselves now this is a country with a billion and a half people it has a differentiated labor market linking those parts and the sub regions together is going to be an immense task but just like it will be here it's it's a growth story inflationary of course but a growth story uh and I have no doubt that 20 years from now uh India will have succeeded because the alternative is just not to have finished goods so the market is going to push this the question is whether governments can assist it in some way and since that's largely an infrastructure problem I'm pretty bullish on that Saudi Arabia you take all of the countries of the Persian Gulf combined they have a less of an industrial plant than the country of the Philippines there's nothing there to work with they've got great infrastructure most of the skilled labor force is is imported from other continents and the Saudis of late have decided that they don't want immigrants from certain countries and so they've done a purge uh that's going to prevent them from being a manufacturing power in any meaningful way so they can do oil they can do refining they can do chemicals that's not nothing but anything beyond that they need a partnership with someone Beyond and that's probably not going to be the United States and since the Shale revolution occurred there's not even an energy equation that is relevant to us we're we're now the world's largest processed energy exporter so it's going to be someone else there are some candidates Britain France turkey maybe Japan uh none of them are clean fits though and the Saudis one of the reasons that they're trying all these weird Financial methods of selling their crude is to find a partner that they can attract in to take the place of the United States as their security guarantor and Main trading support and it's not clear that they're going to be able to figure that out in an easy process Peter when we look at these shifts that need to occur in production which Supply chains are have the greatest risk of issue well the punch line is with today's technology we can't really even try you know by 2030 we need to Triple the amount of copper we need 10 times as much nickel we need 18 times as much graphite 20 times as much lithium four times as much chromium it's a list of like 20 different materials and as a species we've never doubled our output of an industrial material that was already in use in a 10y year period ever and we need to do double in more for 20 different materials no no can't happen all of that has to be replaced somewhere else for us to just attempt so again we're going to have to do we're going to have to make some choices thank you Peter it's been a great conversation appreciate your time and look forward to seeing you again soon until next time

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Id: xt4581iZn1g

Length: 13min 6sec (786 seconds)

Published: Tue Jun 04 2024