Peter Zeihan Joins James Fraser as Special Guest on Episode 2 of Talks of the Trade | J.P. Morgan

[Music] [Applause] [Music] welcome to talks of the trade I'm your host James Fraser around the world markets and crossb trade flows are increasingly vulnerable to geopolitical risk from emerging Regional conflicts to Global Health crises to new regulatory regimes M these factors can send shock waves through markets impacting cost and access to Capital as well as overall economic stability my guest today is Peter Zion geopolitical strategist thinker and futurist Peter welcome to the show thank you I've been um a fan of your work for going back to your days at stratfor oh so you're the one yes you know when we look at sort of the post World War II era right we had multi-decade run of increased global ization we saw the industrialization of China and India and you know clearly we're now in a period of heightened geopolitical tensions we are seeing you know a trend of deglobalization begin to emerge what was the Catalyst that transitioned us out of that period of globalization to where we are today well if you're looking for the ultimate cause you have to go back to the beginning when we started the globalized period people moved off the farm and into the cities and when you do that kids go from being free labor to an expense so we had fewer of them you play that forward 70 years and it's not that most of the advanced world is running out of children that happened 30 40 years ago this is the decade we're running out of working aged adults and that process didn't just happen in the rich World it happened in the developing world too and it happened more quickly so we're running out of the young people that drive consumption in labor markets and we're running out of the more mature adults that drive Capital markets and we flip on all those measures this decade we no longer have the population structure that's necessary to support a global trading system and so it all breaks down this decade okay so demographics obviously play a key role particularly as we look forward what are the countries where you see the the where the problem is most acute uh I would say the big four Korea China Italy and Germany uh these are the places where the urbanization process was most aggressive and happened most quickly and most holistically and so these are places that there's no longer even theoretically enough people under age 40 to generate the Next Generation so the process that in North America has taken us 200 years of lower birth rates to get to where we are now Brazil did in 40 China did in 25 and that gets you huge growth as you urbanize but you only urbanize once and now we're getting to the other side of that equation and we're discovering that for all of our failings in the developed world the developing world is aging so much faster and so the first major country to face National Oblivion will probably be the People's Republic of China so we've not seen this before and the the demographic situation we have never seen uh when we industrialized one of the many many many impacts was Healthcare and so lifespans doubled which means populations doubled even though birth rates collapsed and so we're now on the other side of that where populations are moving into Mass retirement and there's just nothing below to support it we've never seen anything even remotely like that it's challenging to pick up a newspaper and not read about the emergence of challenges to the United States dollar when we look at International Trade data it suggests the share of dollar based trade is actually increased in the last two years what's your view on that Trend going forward for the next five years most of the diversification in currency markets has been away from the Euro for the last 20 years people are actually looking at the Yen as a store of value and so we've got this weird Obsession in the United States that the end is nigh it's part of what drives American culture is feeling that we're in the very edge but the reality is just radically different the United States is the largest consumption-driven system in the world it's the least involved in international trade of the major economies and if you want a trade currency you want one that is not going to be manipulated by its government on a regular basis there is no Pretender to the throne the euro is functionally gone the Chinese yuan is not tradable and never will be the next country down in terms of size that is a viable option is the Canadian dollar when we look at some of the required production particularly on Commodities ranging from copper to lithium to support transition goals what is your view on our capacity to meet those production targets the smart play would be to take the Technologies we have today and look at the geographies where they work so wind turbines in the great ples solar in the southwest and then run high voltage lines from those production zones to where we actually live that's not enough to hit anywhere near Net Zero but it's not nothing and with the technology we have today that's where we should focus in an environment of limited materials limited labor limited Capital now whether the political system will allow that is another issue one of the things that people have missed it's not just that the green transition is expensive it's that it all has to be financed when you have a natural gas or a coal plant about 80% of the full cycle life uh is the fuel and so it's a pay as you go subscription model but if you're going to do a wind farm you know the advantage of wind is there's no fuel but 2third of the cost you have to pay before you get your first electron and so that Hall has to be financed we've seen Capital Cost Triple in the last three years they're going to Triple again in the next three years so the math that people have done to figure out how to finance all of this is already broken and we're seeing projects abandoned because of it the only way you can get that money to go in is for the government to step in and subsidize it if the government subsidizing that they're not subsidizing other things because we're in an environment of limited Capital we have to choose as we look out and obviously we now have a high conflict in the Middle East um so what's old is is new again where where should we be looking next not necessarily the next War but where do you see the risk no matter how the Ukraine war evolves it is going to involve more players either Ukraine's going to fall and the next tier of countries involves a number of NATO countries including Poland or Russia Falls and the war goes east and Crosses into Russia proper so we're only at the very beginnings of the process here which means that anything that straddles that zone in terms of material processing or raw M material exports of which um natural gas and oil are the top two but it also includes Timber also includ includes neon it also includes um the plaum group or the Platinum Group Metals uh it's a long list all of that is in chronic danger in the Middle East the war was nudged a little bit by the Iranians because they saw normalization between the Israelis and the Saudis as being on the horizon and if that would have worked the whole Arab world would have basically been in a single block against Iran Iran for Iran that's the nightmare we're getting very close to the point where the Iranians are going to have to pull out a more conventional military card to prevent that sort of alignment and that means a war on the Persian Gulf well that's the world's single largest source of internationally traded crude not a big problem for the United States we're independent everyone else that's a bit of a disaster you give a lot of advice to the investor Community we spent spend a lot of time with our corporate client base many of which have multinational operations therefore must constantly be focused on risk to their supply chain in light of that forward view at least the risks within that forward view what would your advice be to multinational corporates in terms of multinational corporates it's got to be the China angle I mean even if we nail relationss and we go back to kind of a co- Dominion if that's the right word where Beijing and Washington agree to disagree and build a more productive economic relationship that's a real reach by the way it still doesn't address the the demographic problem at all so anything that you're dependent upon China for you know you have to count on that disappearing over the course of the next 3 to 10 years and I'm already seen from a lot of Industries how they're already on a four-year wait list for things like Transformers every day that China doesn't break now is a gift because it gives us a day to metabolize some of their industrial capacity for us to prepare for what's next it's like we're doing the 1990s and the 2000s in Reverse it used to be that the Chinese would buy equipment in order to build out their industrial system now we're going the other direction and the more we frontload the easier this is going to be we've seen the US and Mexico industrial buildout to take production onshore Nearshore are there other countries particularly in East Asia that have the capacity to to absorb some of that oh certainly uh well let's start really close to home so obviously Northern Mexico is already heavily integrated Central Mexico is now the the relatively low hanging fruit there's progress being made there faster would always be better but we've started the progress we're seeing in places like the Prairies is actually really impressive and things like food processing which it doesn't sound very sexy Until you realize it's probably going to save 100 million people um Ontario is in the process of retooling a lot of their Auto sector as that sector changes so the Canadians really are stepping up to the bar on this one um Colombia is I think the next one on the horizon to watch Northern Mexican labor has become so highly skilled they now need a low skill partner Colombia is the closest country that kind of matches the the infrastructure the distance and labor force structure that Mexico needs Mexico now needs into Mexico it's going to be Columbia uh southeast Asia big fan uh countries like Vietnam have a great demographic structure they have an educational system that is among the best on the planet 40% of their college grads are stem you know that that doesn't happen normally and if you combine it with one of the youngest demographic profiles this is a country that will probably Leap Frog China technologically over the course of this decade even if China doesn't break so you've got this network within the region with relatively low skilled labor in places like Indonesia mid skilled in places like Thailand or Malaysia and the real highend in places like Singapore which honestly put us to shame when it comes to technology uh who already have their own trading Network we're tight on Capital Transportation increasingly an issue what's your view on Fe food security it came into focus with wheat seed oils Ukraine Russia where are we going from here is it something we should be concerned about pre globalization the bulk of the world's exportable food stuffs came from a very small list of tempered Zone arable countries United States France um being the top two but you know others in that elevation I'm sorry others in that Latitude band with globalization uh we had two things happen number one we created an environment of security that would allow lower productivity lands to come into play because they all of a sudden didn't have to defend their borders and second with Industrial ation we got the Industrial Level inputs to take subpar land and bring it into production if if you apply fertilizer to Iowa you're going to double yields if you apply fertilizer to Germany you're going to quintuple them they still won't be equal Iowa will still be ahead but you can take places that could not grow food normally and make them do very well that is 100% the success story of a place like Brazil if you remove the fertilizer Brazil produces nothing and so globalization has Inc increased the food supply of the planet by roughly a factor of three you de globalize and a lot of that falls away I think if we're really really lucky with some dietary changes we might be able to feed s billion that's still in absolute terms the the greatest famine in terms of numbers and reach that Humanity has ever experienced what are the areas where you see that today's production declining Brazil and China being the two big ones Brazil's uh land has very little indigenous um nutrient content they're completely dependent upon fertilizer that comes from a different continent and uh you break down the Russian system in any meaningful way it's not just a major exporter of food it's an major exporter of the fertilizer so even stagnancy there is a disaster for everyone else okay Peter now I want to put you in my seat you are working for a financial institution oh do you do indeed you have oversight of a international franchise focused on global trade what are you focused on what do you worry about Mexico uh they don't have a financial Market in the way we Define the term right now the trade relationship is largely personal based on individual companies in the United States largely Texas having personal relationships with individuals on the other side of the Border primarily the northern border considering the scope of the expansion we need to do parts of our financial Network need to cross the bo order in a way that we bring rule of law with us that's a model we're not used to right now I'm oversimplifying here but it's direct investment in cash and that's not going to give us the speed that we need now that's not necessarily a bad thing in an environment where capital is constrained the companies that have access to the capital have the keys to the kingdom and you will find takers who are willing to accept your terms if not in northern Mexico central Mexico if not in central Mexico Vietnam if not in Vietnam Thailand there's all kinds of opportunities here and whoever controls the limiting factor Capital labor they get to kind of punch their own ticket thank you Peter I want to thank you for coming on and having the conversation today I feel certainly more enlightened coming out of it maybe a little bit gloomier as well but I look forward to seeing you again soon hey we're looking at the fastest economic expansion in the history of the United States this is a good story it's just kind of a stressful [Music] one

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Length: 15min 47sec (947 seconds)

Published: Wed Jan 24 2024