Chris’ note: China is on its way to being the world’s No. 1 economy and military. That’s been the consensus view now for years. But it’s dead wrong…
That’s according to geopolitical strategist and author Peter Zeihan. In his new book, The End of the World Is Just the Beginning, he predicts the collapse of the globalized world order.
This will force countries to grow their own food, secure their own energy, and do it all with aging and shrinking populations. And that’s a major problem for China… because it relies on trade to feed itself and keep the lights on.
It’s all in a Q&A he did with colleague Nomi Prins. Since quitting her job at Goldman Sachs, she’s been helping regular investors level the playing field with Wall Street elites. And it starts with getting the big picture right…
Nomi: Most folks have accepted the mainstream narrative that China will soon eclipse the U.S. economically and militarily. But in your new book, The End of the World Is Just the Beginning, you argue that China is in a terminal decline. What led you to that view?
Peter: If you had asked me this question a year ago, before I was sending the final version of my book to the editor, I would have said it had to happen this decade. Now, my best guess is it’s a couple of years away…
First, the demographic trends in China are terminal. Thanks to decades of the one-child policy, its population is shrinking at an astonishing rate.
By 2000, the Chinese already had the fastest-aging workforce in history. The government there has now released data from their 2020 census. And it admitted it overcounted the population by more than 100 million people. Almost all of them were aged below 35. Most of them were women.
So, most of those overcounted millions would have been of childbearing age. There’s no way the Chinese can regenerate their population without them.
China also faces an energy crunch. It imports about three-quarters of its oil. And about three-quarters of that foreign supply comes from the Persian Gulf or farther afield. Most of the balance comes from Russia.
But that Russian oil comes from those permafrost wells in Siberia. The Russians don’t know how to keep the wells open. They relied on foreign engineers to do that. And those foreign engineers have left due to Russia’s war in Ukraine.
Or look at agriculture. Most Chinese land is crap. And a lot of it is drying out due to extreme drought brought on by 2022’s heatwave. So, China depends on food imports to feed its 1.4 billion people.
Nothing about this works. But throw in a cult of personality around Chinese leader-for-life Xi Jinping that deepens by the day, and the Chinese can’t change their policies.
They’re hitting their heads against the wall, over and over, until something cracks. And the something won’t be the rest of the world. It will be China.
Nomi: We’re seeing the Chinese economic juggernaut slowdown already. In the decade leading up to the pandemic the Chinese economy grew by 7.7%, on average, each year. Economists are saying it grew close to 3% last year. That’s largely due to the government’s zero-Covid policy.
Peter: The lockdowns have caused a systematic breakdown of participation in manufacturing supply chains.
Now, I’m not saying they didn’t need lockdowns. Their vaccine doesn’t work. And there wasn’t much natural immunity. So, lockdowns were the only tool for the ruling Chinese Communist Party (“CCP”). But they also meant China could no longer play a productive role in manufacturing.
And a growing economy is one of the few sources of legitimacy left for the CCP.
But that’s what happens when you have a cult of personality like you do around Xi. My personal favorite was seeing workers in hazmat suits at Chinese airports. They weren’t in the buildings. They were on the runways, sterilizing them. Not because you can get COVID-19 from a runway, but because that’s what they think their dear leader wants.
Xi now has a cult of personality that’s far stricter than anything Mao ever instituted. So, he makes all the decisions. And people don’t want to bring him information they think might make him mad because they value their lives.
Nomi: How does the breakdown in globalization you predict in your book affect China?
Peter: It’s important to first understand the history of globalization. Before World War II, we had thousands of disconnected local economies. And without the level of international trade we got in the postwar period, there was never a chance to industrialize.
If you don’t have iron ore, you didn’t have steel. If you didn’t have concrete, you couldn’t have high-rises. And if you couldn’t get a handle on food production, you never had much of a population.
Globalization allowed thousands of economies to merge into a single, global whole. So, countries could access anything from anywhere in the world, as well as sell anything to anywhere in the world. This gave us this integrated, technologically advanced world we know today.
We’re now doing that in reverse. We’re breaking the whole into pieces. But not all pieces are created equal. Some have advantages others don’t.
NAFTA is a trade bloc made up of the U.S., Canada, and Mexico. It’s roughly one-third of the global economy. And it’s largely self-sufficient in everything you need to make the economy work.
And the U.S. has the military capacity to access raw materials that, for whatever reason, we don’t produce domestically. For example, lithium, which goes into electric vehicle batteries. We can reach out to foreign sources, such Argentina and Chile, for that.
I’m not saying the next five years will be peachy. But the U.S. has access to everything it needs – raw materials, agriculture, a powerful domestic consumer base, finances, access to friendly international markets – to make a go of it. We also have a relatively young population.
Other countries, with China at the top of the list, can’t even do the basics they need to maintain their systems in the deglobalized world that’s coming.
Like I said, it’s the fastest-aging society in history. Within the next decade, it will lose both its consumer base and its workforce. If China survives this decade, it would be a shock.
Nomi: Thank you so much, Peter. I’ve learned so much from our conversation.
Peter: My pleasure.
Chris here – You can hear more from Peter about the fall of globalization and how the world’s biggest economies will fare in the aftermath in his new bestseller.
It’s titled The End of the World Is Just the Beginning. And you can grab a copy at a discount just for Legacy Research subscribers right here.
And if you’re interested in more big-picture predictions from Nomi, join her tomorrow night at 8 p.m. ET.
She’s hosting a strategy session where she’ll reveal the details of a massive $46 trillion shift coming out of Washington.
It’s free to attend. And Nomi will even share the biggest winners and losers of 2023… plus, the strategy you can use to profit from both.
Go here to sign up with one click.