In the last blog, we debunked Peter Zeihan’s sensational claims about China’s demise. Now, let’s analyze his other famous prediction about de-globalization.
First of all, this is predicated on Peter’s another silly claim that the US is sick of running the world and is going to withdraw itself. Well, Trump kinda tried it and he got kicked out by the globalists. Trump’s tariffs on China and attempts to eradicate US trade deficit failed miserably. Last year, the US imported $500 billion of Chinese goods. And the EU imported another $500 billion or so of goods from China.
Furthermore, after COVID and the trade war, all the pundits claimed that China’s role as the manufacturing powerhouse was kaput. Well, guess what, China’s trade surplus is about to hit record $800 billion this year!
And it’s not just the West or China. The entire world is busy trading with one another — buying the cheapest goods and raw materials, while seeking new customers. The only ones having temper tantrums are the American and European politicians.
Asian countries — except for India — have been gladly signing numerous free trade agreements like CPTPP and RCEP. Latin America is also realizing that going along with US’ suggestions is not always a good idea. That’s why Brazil is buying more Russian oil products now, and Argentina is joining BRICS. Saudi Arabia just said that Russia is an integral member of OPEC+ and warned that any conflict with China will be terrible for the world. Not surprisingly, Biden’s trip to Saudi Arabia this month was a big failure.
Just look at the world trade: It quintupled in the last three decades, from $5 trillion to $27 trillion. Developing countries are getting rich by globalization. They don’t want to reverse this trend.
Theoretically, there may be what I call as “re-globalization.” It entails moving the supply chains around for geopolitical or economic reasons. This is a more realistic description of what’s happening than Peter Zeihan’s “death of globalization.”
Some examples of re-globalization will be moving some semiconductor manufacturing from Taiwan to Japan (in case China takes over Taiwan); Apple moving some iPhone/iPad assembly to Vietnam to save money; India trying to make pharmaceutical raw materials (API) at home to reduce trade deficit with China; or Europe investing in natural gas pipelines in Azerbaijan.
However, this has to be done gradually and prudently. What’s happening with EU and Russia this year is an example of what NOT to do. Thousands of Western companies abruptly left Russia within a matter of weeks. Then the West simply stole about $400 billion of Russia’s foreign exchange reserves; and Russia was cut off from the SWIFT financial system. This was an unprecedented and stunning geopolitical stunt that gambled a lot but seemed to have backfired badly. Europe is suffering far more than Russia now. Moreover, let’s remember that World Wars I and II happened for a lot less provocation. We should be glad that Putin is a very sensible and strategic guy.
Re-globalization, otherwise, will be a slow process, since it involves a lot of new investment and changes to existing logistics. It’s not easy. Take Zeihan’s crazy idea that the US can easily move manufacturing from China to Mexico. It’s impossible. China’s manufacturing output is 20x that of Mexico — $4.8 trillion versus $232 billion. That means, to move just 5% of Chinese manufacturing to Mexico, the output of Mexico has to double! The last time, it took Mexico 20 years to double their manufacturing output. (chart). So, it’s mission impossible. Plus, 62% of Mexico’s workforce is in services. Once people go into services, it’s impossible to get them back into factory jobs (or farming). Link for chart below:
As China gets older and more expensive, there will be shift in manufacturing, but it will be a gradual process, since China dominates the sector. Plus, China’s mastery of logistics and vast infrastructure are not easy to replicate. Consider that 7 out of the 10 busiest seaports are in China. Finally, who knows how automation and robots are going to change manufacturing?
Another example of futile re-globalization is Europe’s impractical attempt to find new sources for oil and natural gas (after Russia’s “special operation” in Ukraine). Shipping oil from the Middle East or expensive natural gas from the US will not be sustainable in the long run. What the US/EU elites were hoping that Russia would crumble, Putin would get kicked out, and the West can make amazingly lucrative deals with a new Russian puppet leader. Well, that looks like a fantasy now.
Whatever oil and gas that Europeans refuse to buy from Russia … will be bought by other countries such as India, China, Brazil etc.
The production of fossil fuels is practically maxed out. All that is happening now is just reshuffling supply chains in a dumb and inefficient way. Europe will buy more from Saudi Arabia and Qatar, and former customers of Middle East will buy more from Russia. Result? Oil/gas prices will stay very high.
In fact, Russia’s Gazprom has made more money in the first six months of 2022 than in entire 2021.
Empire of Chaos
If you look at all the disruptions to globalization, they all come from one country: America. It’s the Empire of Chaos. The US was the cheerleader of free trade and globalization from 1945 until about 2015. However, thanks to America’s predatory financial capitalism and endless wars, the US started losing its mojo. Then it decided to contain three of its rivals — Russia, China, Iran — who had gotten too prosperous, too fast.
First, Russia’s GDP grew tenfold under Putin from 2001 to 2011. Thus, with color revolutions in Georgia and Ukraine, the US started creating problems for Putin.
Second, Iran and its ally, Syria, were becoming too successful as well. Hence the sanctions on Iran and a proxy war on Syria were started in 2011/2012.
The “pivot to China” also started around this time. The US placed THAAD missile defense system in Korea and started recruiting India to become the counter balance to China. However, all these were destructive actions. The US could have helped India become a manufacturing powerhouse, but selling weapons and creating wars is more lucrative.
In 2014, China surpassed the US in PPP GDP. Then came Trump, Mr. Anti-globalism. But the US is run by bankers and military-intelligence complex. They care about conquest of nations, not manufacturing goods in America.
These elites envision a fully globalized One World where they are the rulers. A few countries like Russia, China and Iran are threatening such Western hegemony — a.k.a the “rules-based international order.” This is why the world is in such a dangerous situation.
Europe is the sacrificial pawn for America’s hegemony. By the end of this year, we will see the collapse of either Russia or Europe.
So far, Russia’s currency and the economy are doing okay. Russia’s oil production in July is 10.8 million barrels per day — virtually the same as in the last few years. Putin has good relations with countries that represent 80% of the world’s population — including all the big ones like China, India, Indonesia, Brazil, Middle East, and African countries.
Europe, on the other hand, is crumbling due to shortage of everything — electricity, natural gas, food, fertilizer, diesel etc. Inflation is skyrocketing, recession is guaranteed, and entire industries in Germany — the engine of Europe — are on the verge of collapse. If Russia completely turns off the NordStream pipeline, how Europe will survive the winter will not be just a rhetorical question.
Here are some inflation numbers from Europe (as of June 2022). Germany: 8.2%, UK: 9.4%, Spain: 10%, Poland: 15%, and Baltic States: whopping 20%. Future electricity prices in Germany have grown sixfold. And the manufacturing powerhouse Germany had its first trade deficit since 1992. Many crucial and vital German industries such as steel, glass, and chemicals will face enormous downtime and destruction without adequate natural gas from Russia.
Hopefully, the world will realize by the end of this year that globalization is a good thing for the most part. Regulated trade with proper guardrails will make everyone more prosperous. And not to mention, trade brings countries and people together. Re-globalization is good for optimizing supply chains as well as balancing risks — geopolitical and economic. And it can be done without hot or cold wars.