Chris’ note: Get the big picture right, and the rest will follow. It’s a core belief here at the Cut. So, today, we’re turning to geopolitical expert Peter Zeihan for the 30,000-foot view.
He spent 12 years at Stratfor. It’s the Texas-based geopolitical intelligence firm reporters call the “Shadow CIA.” And he was one of the few strategists who predicted the war in Ukraine.
Peter says it’s one of the many signs of the collapse of globalization. And he warns that a global disorder is coming – a world where countries or regions will have no choice but to make their own goods, grow their own food, and secure their own energy.
Luckily, the U.S. will be able to ride out this change better than most countries. Peter even predicts a U.S. economic boom as it adapts to this new reality.
It’s all in the interview he did with colleague Nomi Prins. As regular readers know, she’s a former Goldman Sachs executive turned investigative journalist. Her mission is to help her readers level the playing field with Wall Street elites. And she’s kindly agreed to share her Q&A with Peter here…
Nomi Prins: You’re out with your fourth book, The End of the World Is Just the Beginning: Mapping the Collapse of Globalization. It makes the case that globalization is ending. Why?
Peter Zeihan: To see what’s coming, let’s first look at how globalization got started.
International trade as we know it today began after World War II. And it didn’t just magically happen. It happened by design.
Before the war, you made and traded goods within your empire. You didn’t trust other nations to supply key components, inputs, or raw materials. If there was a war – even one you weren’t a combatant in – you could be collateral damage. And you’d lose access to those nations’ exports.
So, empires played it safe. They kept everything in-house. And those empires competed. This brought us two world wars. But after World War II ripped that system apart for good, the U.S. tried something new. It guaranteed civilian maritime trade.
The U.S. Navy was the only navy with the power and reach to patrol the world’s oceans. And it ensured no one went after your commerce. This allowed countries – regardless of their military status – to access overseas markets easily, safely, and cheaply.
After 70 years of this expansion of trade, nations have become specialists. It’s given us the globalized system we have today. It also left global economies highly integrated… and connected. And that makes globalization vulnerable.
Take globalized manufacturing. It doesn’t work unless megacities in East Asia can import the food, energy, and raw materials. This in turn requires global energy, agriculture, and transportation markets.
It’s all woven together like a tapestry. When you start pulling threads out, it unravels.
Nomi: Why is this system unravelling now?
Peter: So much has happened in the few years it took for me to put my new book together…
Populism has started to spread in the U.S. and elsewhere. And we have an economic populist in Joe Biden, like we had in Donald Trump and Barack Obama.
This has led to bipartisan trade protectionism. That’s just a fancy way of saying that two rival nations favor limiting their trading relationship. We’ve seen that happen most notably with the U.S. and China.
We also had the COVID-19 pandemic. It’s done a lot of damage to trade, too. Then Russia’s war in Ukraine hit global commodities markets.
Together, this has done a lot of damage to the global world order. And this trend isn’t reversing any time soon.
Nomi: In your new book, you argue that the U.S. is well-positioned to ride out the global disorder that’s coming. Why?
Peter: Yes, there’s a bright side to this. We’ll have to double the size of its industrial plants over the next five years to ensure we get the things we need. And with that will come exponential growth. We’re at the leading edge of a massive boom in the U.S.
Nomi: Is this a zero-sum game? If manufacturing comes back to the U.S., will other countries lose out?
Peter: Yes. The rest of the world will lose access to our raw materials and agricultural markets. And as we double our industrial capacity, it means a matching loss of capacity elsewhere.
We’ll also be more food and energy secure.
In the U.S., we have a highly productive farming sector. We also have many densely populated urban areas spread out across the country. And we have the infrastructure to easily move food around the country. That gives the U.S. a population and infrastructure stability many countries don’t have.
It’s a similar story with our energy supply. The U.S. is the world’s largest producer of crude oil. It’s also the world’s largest exporter of refined product.
We’ll have some arguments over the details. We’re American – that’s just how it goes. But in 2015, Congress gave the White House the authority to shut off U.S. oil exports. I expect the Biden administration will soon put that into effect.
That will trap a lot of shale crude within the U.S. and force our refineries to retool to process it. This will cut the cost of refined products such as gasoline. And it will separate us from parts of the world suffering from food and energy shortages.
Nomi: I can see your case for an economic boom as we bring manufacturing back home. But what about inflation? It’s running at an annual pace of more than 7%. Won’t the higher growth you’re predicting push up inflation?
Peter: Inflation is going higher. There are two reasons for that…
First, every inflationary trend of the post-war period is now coming back. Second, every disinflationary trend is turning on its head.
We had our first big industrialization push in the 1950s and 1960s. And we saw inflation begin building up in the system. We now must do that again with the manufacturing buildout. But this time, we’re looking at doubling our plant capacity over next five years.
Our changing demographics also favor higher inflation. From the 1960s to the 1980s, American baby boomers came of age. They bought houses, raised kids, and created all this consumer-driven inflation.
Well, we’ve now got the millennials going through the same process. So, we’ll go through that inflationary process again as they drive up demand.
That’s one side of it. The other is that the big disinflationary trends underway are now reversing.
Think about China. In 1980s and 1990s, it joined the global economy. Chinese workers were willing to work at ultra-low wages. This pushed down the cost of manufactured goods.
But the Chinese population is the fastest aging in history. So, those low-paid workers are going away.
Or think about Russia. The Soviet Union collapsed in 1991. And Russia dumped an empire’s worth of commodities on international markets. This kept commodity prices – a key inflation input – under control for the next 30 years. That’s all now going away now, too.
These factors are all happening at once. A good starting point for the conversation is 9% to 15% annual inflation for the next five years. This will be combined with a boom in U.S. economic growth as we bring global supply chains back home.
Chris here again – If you’re interested in profiting from big-picture trends, make sure to sign up for Nomi’s 2023 Government Winners & Losers event this Thursday at 8 p.m. ET.
Nomi will detail a new law that went into effect recently. She believes it will help the government trigger a $46 trillion shift this year. And at her event, Nomi will reveal the stock market winners and losers coming out of it.
Legendary investors Ray Dalio and Warren Buffett are all positioned to profit from the big winners of 2023. So are Jeff Bezos, Bill Gates, and Elon Musk. And Nomi will show how you can do the same.
It’s free to attend. So, make sure to sign up with one click right here.
And if you want to hear more from Peter about the rise and fall of globalization… and what to expect in the aftermath… you can pick up a copy of his new book right here.