Rising and falling: Analyst looks at shifts in the global landscape

For the Basin Business Journal | January 6, 2022 1:00 AM

YAKIMA — Peter Zeihan has three things he wants farmers to know: The era of globalization is over, the People’s Republic of China is doomed, and Mexico is the future.

Zeihan, a former intelligence analyst with the Texas-based consultancy Stratfor and author of “Disunited Nations: The Scramble for Power in an Ungoverned World,” as well as two previous books on global geopolitics and economics, gave the keynote address on the first day of the Northwest Horticulture Expo in Yakima in early December.

And he told apple and cherry farmers who looked to Asia — particularly China — for customers they probably needed to look to our neighbor to the south instead.

“Mexico today has a higher standard of living, higher educational levels, better industrial plant and better infrastructure than the entirety of Central Europe,” he said. “And that’s fantastic.”

Mexico and the United States are clearly not at the same level of economic development, Zeihan said, but Mexico is better off than much of the world, and the two nations need each other, especially as manufacturing returns to North America from Asia.

“We have $3 trillion of industrial plant that we need to build on this continent as soon as we possibly can,” Zeihan said. “And the Mexico-U.S. border region is the best place for that, and I expect the space to explode.”

In fact, Zeihan said he expects fairly simple industries, such as textiles and basic wiring for equipment, to lead the return to North America from Asia.

“These are normally industries that go to lower developed countries like Peru, but the United States has the cheapest electricity in the world,” Zeihan said. “And once you get the copper or the aluminum or the cotton, the single biggest cost in these industries is power. So it’s all coming back.”

According to Zeihan, all of that manufacturing is beginning to return because of the end of the current era of globalization and the eventual collapse of Asian manufacturing, particularly in China.

Zeihan defines the current era of globalization as beginning with the end of World War II, when the U.S. guaranteed free trade between all those nations that signed on the American side in the Cold War.

“We said that anyone can sell anything to any partner, anytime, participate in any supply chain, purchase any commodity, and we would protect it all so long as you fought with us against the Soviet Union,” he said.

“This is free trade. This is globalization,” Zeihan explained.

And in part because populations across the world are getting older — meaning production and consumption patterns are changing and many skilled workers are retiring — and in part because the last several U.S. presidents — especially Donald Trump and Joe Biden — have not been fans of the current regime of global trade, that era of globalization is ending.

“It’s over. We’re just waiting for the next little bit of panic before something breaks,” Zeihan said.

Zeihan is especially bearish on the People’s Republic of China, which he believes is facing a looming demographic and financial disaster that will severely challenge the communist regime’s legitimacy, if not lead to the end of the Chinese state within the next decade.

Chinese debt is now 350% of the country’s annual gross domestic product, four or five times what U.S. debt is relative to GDP, and that debt has been created to drive increasingly smaller levels of economic growth needed to justify the Communist Party’s grip on power, Zeihan said.

“It’s an over-indebted, bloated system that is driven on Enron-style lending,” Zeihan said, referring to the Houston-based energy giant that collapsed in spectacular financial squalor in 2001. “We know how this ends every time any country ever tried.”

Adding to China’s problems is the cult of personality that Party Chairman and President Xi Jinping has built around himself. Xi knows the Chinese system is broken, Zeihan said, and he’s trying to fix it. But since he’s the only decision maker, and no one feels empowered to tell him bad news, needed changes simply aren’t getting made.

For example, Zeihan cited an edict Xi gave demanding clear skies across China. That forced the shutdown of a number of coal-fired power plants without any planning or funding for alternatives.

“We started getting nationwide power outages in China back in June. It’s apparent to me that Xi didn’t even find out about this,” he said. “We didn’t have the first policy adjustments until November, which means that power cuts are going to last at least until next April.”

As for the demographic disaster, Zeihan said that as a result of the one-child policy enacted in 1980 and formally ended in 2015 a rapid drop-off in the number of young people means China is the fastest aging society in human history. Combined with the Chinese government’s discovery several months ago that the recent state census over-counted the country’s population by roughly 150 million, Zeihan said China is facing a population decline of 50% by as early as 2050, and at least by 2070.

That means workers will get scarcer, wages will rise, and China will cease to be competitive economically, Zeihan said.

“China’s system is breaking down,” he explained. “And if the Chinese system cannot guarantee health or economic growth, or employment, or electricity … all that is left is ultra-nationalism.”

Zeihan said he now believes the risk of military action by the People’s Republic to reintegrate Taiwan into the mainland is higher than it has ever been — one in three. However, because said China is also almost completely dependent on imported oil to grow its food and feed its people — imports the U.S. Navy could quickly halt — war with the United States over Taiwan would mean the end of China as an industrial power and mass death and starvation, Zeihan grimly predicted.

“And if you de-industrialize agriculture, you lose half the population within a year,” he said. “And the CCP (Chinese Communist Party) has already come to the conclusion that that’s a price worth paying to remain in power.”

Zeihan said it’s important to look to a future without Chinese customers or suppliers and find alternatives to build that future, if necessary.

“We’ve always known that this relationship was going to implode in the end,” he said. “And now it is.”

In fact, he noted the greatest asset and biggest advantage the United States has in the looming post-globalization world is Mexico itself.

“They’re rapidly developing, their incomes are going up. They have more disposable income every year than they had before. And they want to eat,” he said.

Charles H. Featherstone can be reached at cfeatherstone@columbiabasinherald.com.