The Truth About the Coming Collapse of Global Trade

Most people think what's happening right now in the world is because of Trump, but I've heard you say that we were always going to end up here. I would love to get an explanation on that. Like what is here exactly? Yeah, well, I mean first let's let's start by saying that the US president, whoever it happens to be, is the most powerful person in history and typically the most powerful person in the world. Uh Trump, no exception to that. To say that he's not having an impact is not what I'm going for. Uh but we had a couple of massive trends that have been playing out for the last several decades that are coming to an abrupt halt right now. Anyway, and Trump is manifesting how we evolve from those old systems to whatever comes next. So he is going to be one [snorts] of, if not the most consequential American presidents in modern history uh simply because of the timing for when he is in the big chair. And he will have an imprint upon what it means to be American or what it means to be human on this planet uh for decades to come. And those two big trends are trade and demographics. The whole concept of how we have managed the world since World War II was that the United States will take care of global security, make sure that anyone can ship anything anywhere at any time. The US will keep their markets open if you allow us to write your security policies. And that's NATO and that's the Japanese and the Korean and the Taiwanese alliances. That is the physical structure that makes it all possible. But for the Americans, it was always about security, not about trade. And so as a percentage of GDP, if you remove agriculture and energy, we only trade with the rest of the world for 5 or 6% of GDP once you factor out NAFTA. We're just not involved in it. That that was the deal. If we had invested our economy into the world, it wouldn't have been a trade. It would have been an empire and no one would have joined. So that's kind of piece one. And we've been moving away from that since 1992 because the Cold War is over. Trump just happens to be the guy who is officiating the formal break. So really fast, when we were talking about controlling people's security policy, it was just a question of Russia? At the time, yes. Keep in mind that if you go back to the '80s and the '90s, China was an ally. Hmm. That's interesting. Okay, so if our goal was we need to deal with Russia, we dealt with Russia, the USSR collapses. Uh I've heard you talk about um the first Bush presidency, H.W. Bush tried to get us to have a conversation about what the new world order look was going to look like. Um one, help me understand. So if this is trade is a huge part of the world order, if demographics are a huge part of the world order, um other than um safety, like what is the world order? When we say that, what do we mean? Well, from the American point of view, it means one thing. From everyone else's point of view, it means another. So from the American point of view, it was about containment or neo-containment or whatever version of containment you want to call it. So stop anyone from getting too powerful to challenge us? Exactly. Wherever that happens to be. Uh the Western Hemisphere is very well insulated from the rest of the world and North America is the best chunk of land on the planet in terms of its capital capacity and for developing an integrated nation-state. And the greater Mississippi, the East Coast, that those two chunks are not they don't exist anywhere else on the planet. And to have them both in the same political authority gives us massive flexibility. But that doesn't mean we can impose on the rest of the world. That requires a strategy that involves basing and allies. And so what we did with our post-Cold War, excuse me, our post-World War environment was incentivize all of the allies to participate in our security structures and use their land and their armies and their navies to impose a security regime on the entire hemisphere. And so, the French, the British, the Japanese, the Turks, all of the major powers of the last half century, excuse me, half millennia, became from a certain point of view proxy powers under American control. >> [snorts] >> And according to our treaties with all of them, in the case of a hot war, we take command of their militaries. Something that a lot of people forget today when they're talking about the fact that these countries apparently owe us. So, we created this structure where all of the powers of the past were functionally on the same side under our command, except the Russians. And that's why the Cold War ended the way it did. There was never a strategic or economic option for the Soviets to prevail. But, the Cold War ended 30 years ago. And we have failed to update those strategies for the new reality. And so, lo and behold, whether you're on the left or the right in American politics, the rest of the world just seems less relevant to you. And we've been edging away from that system ever since. And now it's breaking. All right, having grown up in the middle of it, um it felt awesome. So, what I want to understand is what what broke down? So, regardless, like, okay, Russia, let's say, is the excuse. So, we all have to band together, but it what you described sounded like to me empire via cooperation instead of empire via force or having to pay for everything outright. So, a a a quite incredible system, and speaking from experience, as an American anyway, it felt fantastic. So, why, without Russia, why did it begin to break down? Is it because that system was great for America, but not other places? Or has Or did, say, globalism, hollowing out our manufacturing, creating a K-shaped economy, is that what ended up becoming untolerable such that we were always going to end up here, to quote you? K-shape is more recent. Let's put that to the side for now. Um the whole concept was that we pay you to be on our side. And when everyone agreed that nuclear annihilation was a problem, it was pretty easy to make that deal. But after 1992, no one until relatively recently in 2022, the Ukraine war, thought of the Russians as a problem. They thought of them as just something that could be managed off to the side while they stew in their own juices and degrade. And they are still degrading. We'll go back to that if you want to. Uh but the idea that we were under this nuclear pall uh had faded. And so various countries, based on their politics, based on their internal demands, became less willing to sublimate their security policies to the United States, became less willing to follow Washington's lead on things like economic sanctions. And as the United States' attention moved from the Russians to other things like say Iran, a lot of countries like this isn't what we signed up for. And so there became a lot more friction in the system that really accelerated in the George W. Bush administration with the Iraq war because the Americans said, "You know what? We we hold up the ceiling here. Um why are you not helping us with this conflict?" And for the French and the Germans, it was like cuz this isn't what the conflict is that we agreed that we were all on the same side for. This is something new. You're trying to repurpose this without negotiating with us. And so you can see how we saw a fissure in the alliance at that point. You move on further into say the 2010s and the war on terror, and the United States just became obsessed with things but from the European and the Japanese point of view were ever more esoteric. And they wanted economic opportunities that went different directions. So the Germans started getting the vast majority of their energy from the Russians. Uh a lot of countries started integrating with China because they saw an economic advantage to doing that. And if it happened to hollow out the American industrial base, or even some of their allies, that was fine because economics evolve. And so, the United States saw problems with the structure because we were no longer being able to dictate the security environment. And the everyone else saw problems with the economic structure because they saw the Americans in many ways becoming a a barricade towards what they thought was perfectly natural activity. And the bilateral agreement between us and all the allies that had held for 40 years broke down bit by bit at pretty much every functional level until we get to Trump. Uh it was always going to end now, this this decade, 2025 to 2035, for demographic reasons. The The problem there is when we started to globalize back in the '40s and '50s, everyone moved off the farm and and into the town. When you're on the farm, kids are free labor, you have a lot of them. You move into town, all of a sudden kids are expense. And so, we went from on average in the Western world having something like four or five kids today to having only one to two. You do that for 80 years, and eventually it's not that you run out of children. That happened in the '80s and '90s in most countries. We're now in the position in this next 10-year period where we're running out out of working-age adults. And there is no trade if there is no one to consume or produce. So, we're looking at a collapse of the economic model. And the security model was based on the economic model. So, we were always going to get to some version of where we are now. And now the economics have caught up to the politics, and it's all breaking. We'll get back to the show in a moment, but first, let's talk about how you're fueling your brain. Your brain is only 2% of your body weight, but it burns 20% of your total energy. That is a massive demand, and most people are running it on glucose. It's unstable, inefficient fuel that spikes your energy, and then crashes it. Ketones are different. They're what your brain was designed to run on. Ketones are the byproduct of fat metabolism. Your body is very adept at using [music] them. I take half a dose of Ketone IQ, and it keeps me alert and focused for hours. No jitters, no afternoon fog. This is not some overhyped wellness trend. Ketone IQ was developed through a $6 million Department of Defense contract to support elite cognitive performance. If you're ready to fuel your brain properly, visit ketone.com/impact for 30% off your subscription order, or visit your local Target to get your first shot free. Again, that's ketone.com/impact. And now, let's get back to the show. All right. So, I'm always telling people everything is downstream of economics. To understand world affairs, you have to understand humans as economic units. Uh I think people are often very uh confused by what I mean by that. So, um you certainly have not said those words, but they feel very in line >> with um if demographics is largely a trading problem, um you are saying a very big statement, which is we're basically going to have to reinvent an economic system, and I never hear anybody push you on that. Like, that that to me is like earth-shattering. So, uh what what does that mean? Uh do you have any guesses as to what that might look like? Uh I have one guess, and I will not put any money on it, but uh the backdrop. Capitalism, communism, European-style socialism, totalitarianism, fascist corporatism. You know, those are the four big models of the last 500 years. All of them are predicated on a balance between supply and demand and labor and capital. And each one of those four models values a different aspect of the process. So, European socialism is a little bit more pro-labor than pro-capital. Capitalism a little more capital than pro-labor. And then the balance of supply and demand is basically a demographic question based on how many people you have that are under age 50 who are doing the consumption versus over age 50 who are generating the capital. That's how we've managed this system for the last 500 years. And all four of those models are based on the concept that the population gets a little bit bigger every year. And so, they are all growth-based models. But in this next 10 years, that will no longer be true. We already have bulk of the advanced world aging out to the point that they all have shrinking populations. And most of the rest will flip in the next 10 years. And even the advanced industrializing countries, your your Mexicos, your Indias, your Brazils are very, very rapidly moving into that position. And they will be there in the 20 years from now. So, all four of those economic models, the very basis of them doesn't work with where we're about to be. And we're going to have to come up with something new. >> [sighs] >> Very little experimentation has gone on to this point. Um you're probably familiar with um modern monetary theory, MMT. Aggressively. Yeah, I'm not suggesting for a second that that is going to work. But it's one of the few examples out there of people experimenting with something new. And so, as long as the experimentations don't happen where I have a bank account, I'm all for it. Because you know, even if it fails utterly, and I think it will fail utterly, we're probably going to learn a few things from that that will be useful down the road. The only other model that I've seen any experimentation with and it really doesn't have a name yet is what the Trump administration is doing, which is an artificial restriction on production by government policies that are chaotic. You're saying the chaos itself, whether intentional or accidental, restricts production. Absolutely. We've seen industrial production and employment drop for the last 11 months. That's not by accident. >> going to put that in the zone of economic model? I I don't want to overplay it cuz I doubt this is being done on purpose. Yeah. >> seen manufacturing contract, we're seeing agriculture contract, and because of tariffs we're seeing consumption contract. Mhm. On the other side, Trump very very clearly has his favorites. And he's artificially restricting the demand of groups that he doesn't like. So, a demand management model where you have an arbiter in the government who decides who can consume what. It's a combination of capitalism and fascism. I'm not saying it's going to work. I'm saying it's the only other experimentation I've seen out there so far. Wow. Okay, looking at that as an economic model is utterly fascinating, Peter. I've never heard anybody else say that and I've certainly never thought of it myself. This is >> It's horrific, let's be clear. But but it's an experimentation. >> gave me the chills. Looking at it as an unintentional a natural test of a new economic model, one that neither of us it sounds like would support or want, but the fact that it's happening means that we can look at it through a new lens. Okay, so >> it matches what's happening with demographics, which I find even more problematic. Okay, very interesting. To understand this, I think the best question I could ask is the moment we're living in right now, what is the closest historical correlate? Black Plague. That was the only other time in history where the population declined. Okay. Uh what what do we learn? >> comparison, I agree. Not not a great comparison cuz it's horrible or not a great comparison cuz it's not accurate? Uh well, you you're talking about not just a pre-industrial society, you're talking a pre-deep water navigation society. So, it really was a very very very different economic structure by every way that you can imagine it. But, it's the only example where not just the population was declining, but the bulk of the population decline happened in relatively young people. And so, it roughly very roughly mirrors where we are now, where we're running out of people under age 50. Okay. So, knowing that we can't just map it one for one, what can we learn from that that might give us some directional information? Well, again, I'm not sure this is a plus or a minus, but after the Black Plague swept through Europe and killed a third to half of the population, what we saw was a change in labor mechanics because all of a sudden there were not enough people to maintain the feudal systems that had been the European norm throughout the Dark Ages going back to Rome. What that meant is for the first time in human history, skilled labor had an economic incent incentive to expand. It used to be you had lots of masters of unskilled labor who lived on the farm or paid their rents, who were controlled by the feudal lords. Then you had a thin sliver of skilled labor in the cities. All of a sudden, that group out in the countryside collapsed, and there was a need to increase productivity in every possible way. So, for the first time, we saw institutions form with the specific intent of expanding the skilled labor pool. And even in places where that didn't happen, like say northern Germany, you had a situation wasn't Germany at the time, Holy Roman Empire. You had a situation where just naturally the demand for goods and services required people being more productive than they had been before. So, you had this alignment of institutions and economic and demographic factors that all encouraged everybody to be better at what they were doing. And the direct outcome of that was the Renaissance. Interesting. Okay, so uh it does feel like there's a slightly similar setup to what's happening right now where we have demographic collapse in China, which is the most skilled manufacturer in the world. Um we have >> but certainly the largest by output. Interesting. So, who's the most skilled? Uh in terms of of value added, you're going to have a constellation Taiwan, Korea, Singapore, the United States, Germany, United Kingdom. Okay, so is there any protective mechanism from that being spread out? It it's a skill issue. Uh we in the modern system in the globalized system, we all specialize because we can. And if we go back to a world where all generalists, you're going to have a significant drop in the technological capabilities of the planet and of the individual economies. So, we all do different things. The Germans do force generation precision manufacturing, but have managed to do it at scale. The United States designs the systems uh and then marries it to close support merging with technolo- which with more traditional tech like you would think of when you think of Silicon Valley, so that everything has a services component as well. The uh Singaporeans, they're great at precision measurement and then those tools are used in other systems. The Koreans, it's memory chips. We all are like Taiwan, Taiwan, Taiwan, TSMC, GPUs, all that. And that's true. But the Koreans are actually better. It's just a different kind of chip they focus on. So, we're all we're all very good at very specific things. And we take components from one of these systems and merge it with manufacturing in the others to make the products that we use. It doesn't mean that China is irrelevant. It just means that China is much further down in terms of value added. They're very good at assembly and they have scale to do a lot of things that other countries just can't pretend to do, but they don't actually add a lot of value to what they're doing. All right, you just put a finger on a very interesting problem. So, we're in a world that for the last 80-ish years has been hyper-globalized. Everybody specialized. We were all getting along because of the world order that the US put in place from a trade and security perspective. That's all now beginning to fall apart for the reasons that you were saying before. It stopped being advantageous to the US because other people felt like they were not getting their opportunity to shine economically. They didn't want to fight the most recent war that the US was asking them to fight. It was always meant to be about Russia. So, we get these natural tensions. Now, this hits a boiling point partly because you have a unique figure in Trump and partly because this is just where we were going to end up regardless, but now you have a world that's pulling away from each other that's designed to have really easy transportation of highly specialized skills and the outputs from those skills. So, as that breaks apart, what does the world start to look like because if everybody then has to become a generalist again at a moment when the population is declining um yeah, how does that [clears throat] play out economically? Well, this is why Trump matters is because he's the guy in charge of making the decisions as this happens. If you dial back to George W. Bush, he was the last American president to negotiate and implement a meaningful trade deal. And at the end of his terms, we had NAFTA. We had free trade deals with Colombia and Chile, Japan, Korea, and um reasonably good manufacturing integration with the European Union. We haven't changed it since then. Now, in my opinion, that cluster is exactly what we would have needed to generate mini globalization or globalization 2.0, whatever you want to call it. The US was very well positioned to use that cluster of countries, maybe with a couple of others, in order to make a smaller version of the global structure where we wouldn't have to sacrifice the technological level we've become used to or the standard of living we've become used to. But Obama basically sat in the White House for 8 years and did nothing. Trump has been a very disruptive force, and Biden was Biden. So, we're now in a situation where all of those relationships are degrading, and if we can't re-solidify the NAFTA courts next year when they're up or this year when they're up for renegotiation, we're going to be in a situation where a lot of these pieces suddenly won't work anymore. From the American point of view, that means doing things more or less by ourselves, and that means four steps of the supply chain that are not the things that we excel at, like say assembly, we have to take a someone who earns $75,000 a year, the the average American income, and all of a half sudden have them doing die casting basic assembly, jobs that you probably shouldn't be paid more than a six or seven thousand dollars a year for. That manifests, among other things, as a vastly lower standard of living or massively inflationary. Those are basically our choices here. For the rest of the world, without the United States providing the freedom of the seas and the rule of law that allows intermediate products to shift around, no one can specialize anymore. And so you have a catastrophic reduction in what countries can do individually. Maybe they can cut deals regionally, like say Southeast Asia, very bullish on Southeast Asia. But it means that they lose the strength of the whole. You no longer can export to a larger market to earn income to then update your industrial basis and that's the entirety of the Japanese, the Korean and the Chinese models to this point uh for the European Union. They've aged out. They have to export and if they can't, you're looking at them having to invent that new economic model in like 5 to 10 years instead of the say 30 to 50 years that the United States has. So, we're looking at we're the dawn of it at a best uh technological stagnation as we have to generalize versus specialize and that's before you consider some of the financial income outcomes that come from a rapidly aging demographic on a global basis. Okay. Uh we'll get to that in a second but I really want to push on this idea of uh we have maybe a narrow but closing window to have some sort of regional globalization where uh we find sort of that the least number of unique countries and specialty skills that you need to continue the current way of life that we have. We'll round it to NAFTA and Trump is not showing the ability to bring them together and so is an accelerant on the dissolution of that that union. Um what should Trump be doing? Like if if you could advise him and he would listen to you. Uh what what would you be encouraging him to do? Yeah, very much a hypothetical. Yeah, I'm going to say let's start by saying that when Trump was out of power, he gutted the Republican Party of all its policy experts so that it is just a vehicle for his personality. So, the Republican Party today, it's lost its national security arm, its business arm, its fiscal conservative arm, its law and order arm, they're all gone. It's just him. So, um when he came in, he came in with the smallest team of any American president in history and the first thing he did was gut the federal government of the top 6,000 positions so that policy cannot be implemented. So, my advice to Trump would be to, you know, shoot Vance and leave and let's try this over with someone else because clearly he has designed the system so it cannot function on purpose. Uh if I was talking to any other generic president, it's you need to look at what we can't do. Uh Mexico is too skilled to do assembly. So, we need a relatively large-ish population somewhere that is further down the value-added scale that can fill that gap. The two best options are Colombia and Cuba. Uh Colombia, we already have a free trade agreement with. There, it's an infrastructure problem. Cuba, however you want to get Cuba on board, there are a wide variety of options, go to town. It can be more than a tropical Vegas uh cuz you've got a workforce that is probably about 1/3 as skilled as Americans but work for 1/10 the cost. That's a great set of math to start from an assembly point of view. Those two combined probably would be enough for what we need. Uh the other big problem is processing. Uh one of the effects of globalization is we go broadly with the most reliable, lowest cost producer and so China has lower environmental regulations and processing is technology that was developed more than a century ago. So, turning aluminum to bauxite, refining rare earth metals, getting the cobalt out of Congo with slave labor and turning it into cobalt metal and intermediate components, that North America does not do well. Now, because of the shale revolution, the US has the cheapest energy and electricity on the planet but you still have to build out the basic infrastructure and we really haven't started that yet. Uh the Trump administration talks a good game there but there's been no money really put behind building the actual infrastructure because the people who knew how to do that were all fired on the first week. So, we have to build out some more government cap- capacity in order to lead this effort, and this administration just hasn't been interested in that. Okay, very interesting take on the Trump administration. So, um if we were actually going to get the um things moving cuz to your point, Trump is talking about, "Hey, trillions of dollars of investment. People want to be here. America's the hottest country ever." Uh, he loves saying that. >> Yeah, the numbers don't back that up. >> [snorts] >> That that would not be new for Trump uh to to make a statement with absolutely no backing whatsoever. But, uh so, we've got maybe interesting idea, build infrastructure, get people to invest in America. Maybe they're even willing to do it. However, they're going to run up against the people that are going to facilitate that on a political level uh have been wiped out. And so, people come checkbook in hand, but they uh it's like, "I need certain regulations to be changed. Um not just Trump winking and nodding and saying, 'Don't worry about the old regulations. You'll be fine. Just ignore them and build anyway.'" Uh, and anybody with a brain knows that uh Trump could be out of power uh effectively as soon as the midterms potentially, but certainly uh within the next 3 years potentially. I'm not It's way too early to call, but >> yeah. But, if you're a business guy being asked to invest a trillion dollars, you're going to be like, "Well, uh I'm going to drag my feet. I need to see how this plays out. And if you don't have the policy experts to actually get this across the finish line, you've got a problem." Okay, so, very interesting. Uh, on top of that, um if we aren't going to bring this stuff in-house, we've got to be willing to go somewhere else to do the refining, to build that infrastructure that either already has it, China, and we can just establish a better relationship. I I don't think that's going to happen with China for Thucydides' trap reasons, but that's >> worried about Thucydides, but it's still not going to happen. >> Yeah, it that's on my list of things to talk about. Uh so so if we're um we're telling Trump to shoot J.D. Vance uh and start over. So it would be getting the policy experts in place so that infrastructure can be built here. Uh it's somehow some way getting a relationship with a nation that can accept that that not only can accept lower wages than what we do, but that's just where they're at. So they'd be like, "Yeah, that's what a wage goes for. This is fantastic." So uh could be Cuba, very interesting. Could be Colombia, sounds like we've got some beef there. Um so if you start really placing bets on how this plays out, um what do you think is more likely? Are we going to uh Maduro Cuba and we come in like we did with Venezuela and we just snatch up the leadership and make it work the way we want it to? Uh are we going to strike some sort of deal with Colombia or are we going to go entirely in the bring the policy makers in house? Well, let's start with Colombia cuz it's simpler, I think. Colombia's limitation is infrastructure. Uh the people live in the highlands on the sides of mountains because if you go any lower, it's humid and tropical and it's just can't build infrastructure and maintain it. If you go higher, you're in tundra, nobody can live there either. So it's an infrastructure issue of getting things by road and rail up and up down among the major cities and out to a port like say Cartagena. Um that can I'll have to say this, that's one of those things that can be solved with money. And you know, money, at least from the American point of view, is not in limited supply if we don't want it to be. Uh the second issue, Cuba's a little more complicated because Castro gutted the civil society. And now that the Castros are gone, you just have a cluster of like 80-year-old generals running the place and they're about as dynamic as Biden and Trump are in terms of doing things for the country. So, if you remove all of them, you're not left with a blank slate cuz there's, you know, millions of people there, but you're left with a system that doesn't have a logical next step. And restructuring it politically so it can accept investment is going to be a challenge and you can't do that without institutions like USAID, which are now gone. So, we're going to have a really interesting case study in Venezuela right now because that's more or less what has happened in Venezuela. We removed the chief thug, the backup thug is now in charge, and there's only about a dozen thugs around her, and then there's nothing below it. So, if if if by some magical experience Venezuela doesn't collapse, then maybe we have a model. But the US doesn't have the tools to impose something else at the moment. Mhm. Okay. Um so, we'll get right back to the show, but right now, let's talk about the business decisions you're making blind. It's 11:00 p.m. An overseas supplier just offered you a bulk discount, but it expires tonight. You need to know, do I have the cash? Will this inventory actually move? What's my burn rate right now? And if you can't answer those questions instantly, you're just guessing. >> [music] >> NetSuite by Oracle eliminates the guessing. It's the number one cloud ERP trusted by over 43,000 businesses. It's a unified suite that brings your financials, inventory, commerce, HR, [music] and CRM into a single source of truth. That connected data is what makes your AI smarter, so [music] it doesn't just guess, it knows. If your revenue is at least seven figures, get NetSuite's free business guide right now demystifying AI. Go to netsuite.com/theory. The guide is free to you at netsuite.com/theory. Again, netsuite.com/theory. And now, let's get back to the show. When I look at the Trump administration, I I may be prescribing to them too much um forethought, but I'll give you what I see happening. Sure. And then, uh poke holes in this. I have absolutely no interest in being right. I just want to update my mental model so I know literally where to invest my money, uh how do I need to be thinking about this, who's going to own the next century? Like, those are the questions I care about. Um so, okay. The when I look at the Trump administration, what I see, uh and obviously this speaks to my bias cuz I am a business guy, but I see a business guy coming into the office trying to run a country like a business, which is a terrible idea, but nonetheless has high predictive validity from where I'm sitting Let me stop you right there. Trump's not a business guy. He's a marketer. That's different. Marketing is a part of the business, but let me I'll make my best case. >> [laughter] >> Um I I I'll I'll disagree with that, but I'll give you the opportunity to swat the specifics down because the it'll all live in the details. So, the reason I map him as a a business guy is I'm leading with one of the primary things a business person has to understand is where is your leverage. And so, I look at Trump as somebody who sees America as a melting ice cream cone, but he understands that we have a limited window where we really can still press our advantage from an economic and military standpoint. And the card that no president has played before him is force. And so, whether that's economic force and you're threatening Canada and you're threatening the uh EU and you're, you know, talking all kinds of uh tariff madness like tariffing everybody left, right, and center, what you're calling the controlling the demand, making it impossible for people to buy from places that he doesn't like, um, utterly fascinating. So, he's certainly doing that and then the military advantage, um, thankfully he has since removed the threat of, um, force with Greenland, but we saw him deploy it against Venezuela, right? Uh, we saw him deploy it against Venezuela. He certainly understands, even if it's only a bluff, that he has it as a thing that he can play as a bluff to find out where everybody's real, um, like anger is going to be risen. I think he floated it with Greenland almost to see like what do people do? And then the backlash was so coordinated, so unified that I think he realized, "Okay, this is a terrible idea." But he sees those two points of leverage. Now, I see him moving with an urgency because I think he thinks that there's a narrow window where this is going to be useful. It could be he just knows he won't be in power for very long and he believes he's the only one with the guts to do it. Uh, or he could be he could believe that it's just declining and so there's a narrow window where we're actually able to do it. But that read makes Trump make sense to me even in Iran. I don't read him as being somebody who's altruistic. I don't think he's doing Iran for any reason other than, uh, it makes an ally in Israel happy and it allows us to, uh, control more of China's cheap energy, basically. And if he sees us as I believe he does, in a war for supremacy with China, uh, and he sees China attacking the dollar in terms of global trade with what BRICS is trying to do from creating an alternate payment system to the dollar, all of that then makes sense. You go after Venezuela, a source of cheap oil for China. You go after Iran, a source of cheap oil for China. And it's like, "Okay, if this is a desire to quarantine or make more difficult life for your number one adversary, uh, and you're a guy who thinks in terms of leverage, it all makes sense." Um, where do you think that falls apart? Unfortunately, several places. Yeah, please. There's no unfortunate. I just want to know how to move through the world. Yeah, let's start with the China situation. If the goal of the United States is to beat the Chinese, you don't need a war. You just need to put two or three destroyers in the general vicinity of Singapore and stop the oil flow and it'll all be over. And by all I mean Chinese civilization will all be over in two years. Uh this is a country that is completely dependent on freedom of the seas to exist and on the American market to facilitate the flows of oil and raw materials into their system. That is very easy to disrupt without getting within shooting distance of the Chinese in any way. Uh and if that is the goal, easily done. And if there is a hot war, it will be over. The United States could lose every single carrier it has in a straight-up fight with China. It'd be dumb, but it could happen. But again, two or three destroyers to stop the energy flows and the food flows and it's all over. They would be facing civilizational collapse. Half the population would be dead within two years. Whoa. Seven years ago, Chairman Xi knew that. It's also when he got rid of his last advisor, and he's been eating nothing but propaganda since then. So, I don't know if he still believes it, but he used to. Uh and so when I look at things like Venezuela and Iran, I see something different. I see something much more material. Uh it's not that the United States has ever gotten along with these places under their current governments, but the volume that goes to China really isn't all that high. Total exports from all of Venezuela and all of Iran are now under 2 million barrels a day. You know, that's less than 2% of global production. I don't mean to suggest that's nothing, but that's not enough to move the needle in any meaningful way. In addition to considering that the Chinese are importing 14 or excuse me, consuming 14 million, 15 million barrels a day now, I think. Um it's not that it comes from these places, it's that it flows through a route that can only exist if the US Navy is keeping the seas safe for everyone. >> [snorts] >> So, if your goal is to break China, there are far simpler ways, and if that is your goal, the first thing you should do is build out the industrial plant you need at home for success, because when China breaks, things that we need will stop, and you best provide an alternative supply of those things first, and I'm not seeing that. Yeah, that's part of what makes me think that while he while his advisors, I won't even give Trump that much credit, but while his advisors, however thin that pool may be, >> one on foreign affairs and foreign economic affairs, he has one, and until September, he wouldn't even let him in the in the Oval Office. Who is it? Rubio. He's the only one. No one else on his team has any idea of how economics or or foreign affairs works. I didn't realize he had at any point kept Rubio at arm's length. Oh, yeah. No, in the in the first few months of the administration, basically, you had Vance guiding him on everybody is evil, so we should kill everybody, including the Ukrainians. Vance is just a waste of genetic material. Damn. And then you had um Tulsi Gabbard, who for all practical purposes is a Russian plant, who was shaping policies for the Russian Federation through the White House. Uh and as part of that process, they gutted the State Department, they gutted the National Security um Council. So, all of the normal voices that funnel everything from the intelligence services and the military up to the president so he can make informed decisions, that was all deliberately dismantled. And it wasn't until, get this, Melania back in November was talking with her husband after Trump came back from a phone call with Putin about how wonderful everything was, she's like, "Oh yeah, and he just bombed an bombed an orphanage. Here's some photos." And he wasn't until November, because of the first lady, they started to realize that uh the Russians been pulling the wool over him every day for 10 months and we're just making him look like a fool. Uh that is roughly about the same time frame that Rubios came up with the Venezuela strategy and finally got back into Trump's good graces and actually could be in the room. And so, we actually now have one one person in the administration that is giving the president decent advice on what's going on in the world. And that's what also brought Jared Kushner back in. Um Kushner had decided to avoid the administration the second time because it was so much fun the first time. Yeah. Uh and so, Trump had relied on Steve Witkoff, who was one of his buddies from his New York real estate days, who knew nothing about foreign affairs, celebrated the fact that he knew nothing about foreign affairs, and so would pick one side in a conflict. Like, for the Ukraine war, he would talk to the Russians but not the Ukrainians. In the Iran conflict, he would talk to the Israelis but not the Iranians. And he would just basically go there, absorb the propaganda, and then vomit it on the floor of the White House. And that made policy. So, by November, because of Melania, he realized that maybe I need one more person and he brought Kushner back. And so, whenever you see Kushner go somewhere with anyone else, you know there actually might be real talks. But if Witkoff I'm sorry, I phrased that wrong. If you see Witkoff going anywhere anywhere with one other person, there might be real talks. But if Witkoff goes alone, you know it's just the opposing side's propaganda that's going to come back. That's very interesting. Okay. Yeah, no no no real advisors. The the team from the Republican Party is gone. And then the institutions have been damaged and gutted. Now, uh so I'll lay out my argument for why go after Iran and Venezuela if you really are trying to box in China in a second, but so when you look at the way that Trump behaves, is it almost random neurons firing and just entirely one guy's personality and like hey, like let's go after Iran today because why not? And let's go after >> not even that positive. Um >> [laughter] >> So, you remember back to April 2nd, tariff day? With the the big game show boards? Oh, yes. >> So, I've got a contact in Maga who's pretty up there. He doesn't like me, I don't like him. Uh but we find one another useful. And so, he called me at 1:30 p.m. uh Eastern time after he had had lunch at the White House and said, "They haven't started negotia- or talking internally about what the tariff levels are going to be." And the announcement was supposed to be at 4:00. I'm like, "But this is like supposed to be the set piece. This is going to be the basis for everything." He's like, "Oh, Peter, Peter, Peter, Peter." "There is no yesterday. There is no tomorrow. There is only the now." Yeah. >> And that's our foreign policy. Okay. Uh that's distressing, to say the least. You can feel that, but you really don't think Trump has an agenda even if it's chaotic. He may have an agenda. It resets every morning. Interesting. Okay. Well, that's clear. Uh so, I will for the sake of me building a better mental map, let me confess, maybe is the right word, the way that I see it. Uh and then you can help me align how to navigate a world in which this may just be um false. So, when I look at and we'll probably have to contend with the Thucydides Trap thing cuz that drives a lot of my thinking. Um but I look at what Trump is doing and I say, "Okay, here's a guy, business guy, pressing the advantage. He has a desired outcome that he wants. That desired outcome is for America to win everything." Uh so, America first, you can read it as America only, or you can read it as like I think the right way to read America first is America's going to take and do whatever it wants because it's advantageous to America. So, if we want Greenland, we're going to take Greenland. If we want to snatch up a dictator in Venezuela, we're going to do it. If we want to uh drop bombs on Iran, we're going to do it. Like literally, whatever Trump deems to be in America's best interest, he is going to do with no thought to second- or third-order consequences. >> id foreign policy. Got it. So well said. Perfect. That That sums up exactly how I see it. Okay. Now, I go, "Okay, but he understands that if you go after China in a head-on collision and you were I had never thought of it, but let's say the very brilliant thing that you just laid out, you block their access to food and oil through a single shipping lane choke point, do that, way easier, but that that is a red line that obviously China's going to respond heavily against. And because we have not built in the things that we need on the American side from a production standpoint, that would be shooting ourselves in the foot. So, he's going to do a slower thing. He's going to do something that's threatening, but that China can either ignore or respond to, but they don't have to treat it like an existential threat. And so, he's doing the thing that doesn't quite back you into a corner, but slowly starts like constricting that threat. Period. So, I guess chapter one. Now, now I want to know from a um for you that I think the the box is going to be I just don't put that belief that Trump is strategic in that fashion. as a basis >> I would certainly agree with that statement, yeah. Okay, so it is almost my thing uh my breakdown is it describes the world that we see, but you believe that I'm off on the base assumption as to why Trump has done that. But again, if you're going to smash China, there's simple more direct ways and the Trump administration >> contend with the um he wouldn't want to smash China in a way that felt existential. Fair enough. Uh if you want a presidency that was preparing for a world where China loses, that would be the Biden administration. The Biden administration has plenty of flaws, but they actually did build some of the infrastructure that was necessary and build the alliance structure that was necessary to prepare for a post-China world. Uh a lot of that of course is now gone. Um but you know, I have a big problem with any strategy that doesn't plan for success and we're not seeing that today. Not planning for US success or China success? >> US success. Got it. Because he's too chaotic, because he's not thinking second and third order consequences, does not have the uh political positions filled that would see this uh through to fruition. Well, just if if the goal is to defeat {slash} remove {slash} cow China, whatever you want to do, there's certain things you're going to need the next day and there's been no effort that I have seen in that direction. Until there is, it's really hard for me to describe describe anything to a strategy. Mhm. Okay, talk to me about why I should Well, one, tell people what Thucydides Trap is and then uh explain to me why I should not be concerned about that. Okay, so Thucydides Trap is the idea that eventually you've got a system that is run by a major power and then a new major power rises up and displaces the first one. Graham Allison is the guy who came up with the idea. Uh and a lot of people have pointed to the rise of China uh eventually triggering the trap that causes a fight between the two that China emerges from. What most people miss and what Graham Allison himself would underline that everyone has forgotten is that in over half of the global of the case studies that he looked at going back 3,000 years, the challenging power was destroyed. Uh so, yes, it's an interesting metric, but Americans always being a little bit paranoid have always only read half of the argument. And while eventually there may well be a power that displaces the United States, it absolutely will not be the Chinese. Okay, and so is is this a demographic argument? Is this a Xi purge isolating himself argument? What makes that such an impossibility? >> Well, let me give you three reasons and there are more. First is the politics. Uh Xi has basically become what Trump is attempting to do in the United States and has got all levers of power that are not him. And it means that policy making has frozen and the ability of the leadership to make informed decisions is gone. So, for example, just um what was it? Was it in February? Last week of January, he gutted the the Central Military Commission. So, it's just him and now uh an inquisitor and that's it. There's no one with any military experience on it at all. So, their equivalent of the Joint Chiefs has no one who knows how to fire a gun or sail a ship. So, the idea that the Chinese military is functional I find hilarious. Uh let's look at this from a geographic point of view. The United States basically occupies the best part of the best continent, has ocean moats protecting it from everyone else. And when we talk about invasion, we're talking about migrants who want to work here. It's like the the Chinese system has a line of islands off the coast from Japan to Taiwan to the Philippines. It's called the first island chain that has boxed them in for the last 3,000 years. And there is only one example in all of Chinese history of a fleet ever pushing past it. And it basically sailed into Southeast Southeast and Southeast Asia to do one trading run once. And that's it in 3,000 years. You combine that with the fact that most of their navy can't even reach the first island chain. And then of course the United States has the world's largest expeditionary navy and Japan has the world's second largest. So the idea that there's a military solution here for the Chinese for anything is also hilarious. And then you've got the demographic issue. Uh two things. Number one, this is one of the countries that industrialized most quickly. So they went from the farm to the city most quickly, which means that half of the population now live in high-rise condos. And their birth rate is effectively zero. And then you have the one-child policy on top of that where for 40 years people were penalized from having kids. So China, according to the official statistics, now has the 10th lowest birth rate in the world. And according to the official statistics, has had a lower birth rate than the United States since 1991. Unofficially, demographics, folks, in China are debating now publicly how many hundreds of millions of people they have overcounted their population. And they're settling on something between 100 million and 300 million at the moment. Ooh. If that is true, if we're closer to the 300 million, there are more people that are aged 54 and older than 54 and under in China. And we are in the final decade of the existence of the People's Republic of China. And in the final 50 years of the existence of the Han ethnicity, so no, if the US is going to be displaced, it won't be by the Han Chinese. It's really interesting. It's hard to internalize, but that doesn't mean that I'm not just chock-full of a bunch of base assumptions that all topple one by one. Okay, so Hey, like I said, you need to think of me in no other way than I have realized that actually understanding what's going on has huge utility. And so being right is has emotional utility. It feels good, but is very low utility in the real world. So yeah, I focus on actually understanding what's going on. So okay, you've got the the destruction of the Chinese civilization. So what do you mean by that? It will tear itself apart? Yeah, what what does that actually look like mechanistically? Uh Believe it or not, X is not equal one in this situation and it does not equal one in this situation. There have been 29 civilization collapses in Chinese history to this point. Most of which would have been severe enough that if it was anyone smaller than China, they would have just vanished from the earth altogether. Uh what about half of them have in common is the central state collapses, warlords rise up as regional powers and start fighting one another. The agricultural system collapses because a lot of it is based on water management, and you have a population loss of somewhere between 25 and 65% of the population over a few years. Oh. Uh and then eventually it pulls back together in some form. >> [snorts] >> Uh there are only three centuries out of the 3,000 years of Han history where China has actually been unified in a meaningful way. Half of that is under a Mongol occupation. The other half is under the globalized structure established by the United States because since 1945, we told the Europeans and the Japanese they couldn't have colonies anymore. And so for the first time in Chinese history, they didn't have to worry about their coast. And once Nixon came along, they were able to integrate into global economic structures and grow in a way they had never had before in their history. China today is only possible because of the US Navy. So if the US Navy ever stops doing that, we don't even have to go to war with them for them to die. This is This would not be hard. But what happens the next day could be a little awkward for us, but I'm really not concerned about Chinese survival, or I'm sorry, Chinese penetration or power. As to what it would look like, again, there's 29 examples, but a mass depopulation event is almost guaranteed at this point for demographic reasons alone. And if China loses access to the wider world, it's not just about energy and food, it's about the stuff that they need to grow their own. They are the most import dependent country on the planet when it comes to maintaining their own internal agricultural output. And if that goes away for whatever reason, you're looking at people with an average age in their mid-50s having to go back to subsistence farming. That'll kill off the population of what's left right there. >> [snorts] >> Wow. Okay. Um that is a very distressing outlook. Is Is there something geographically based or culturally based about China that makes their civilization so prone to that collapse? And I ask that in the context of when I think about Mao, I'm so mortified by how many people he starved to death, but there's this cultural sense of better to have an iron fist ruling over you than to have the chaos. Uh but what you're talking about is like that that chaos is very real. And that chaos may actually, just from a death toll perspective, actually be worse than somebody like Mao. So, what uniquely puts them in that position? Well, we've got the external and the internal. So, external of course is that first island chain that I mentioned earlier. So, China can never integrate with the outside world on any terms that it sets itself. So, it will always be vulnerable to the structures of whoever controls the first island chain, which in the modern day is a combination of Japan and the United States. Uh right now, this is the friendliest China has ever been with the powers that control the chain, believe it or not. You remove that, all the trade options that make China China go away, and then they have to deal with their own internally. Uh you've got the North China Plain, which is an area from maybe 200 mi north of Shanghai up to Beijing and beyond. That's where over half the population, close to 2/3 probably, lives. It's a big, wide, flat area. And when the Chinese talk about unity, they talk about that area all being under the same political authority. But what they ignore, and what their history tells us over and over and over again, is that unity just means one dude saying, "This is mine, and if I don't get my way, that is how we define chaos." And so, Mao was the most recent one to do that. She of course is his successor. Uh and the idea that you can't have successful parts of China when they're all not all under the same political authority is pure propaganda fiction. There's plenty of examples in Chinese history of pockets that have done very well for themselves when Beijing has been in chaos. Uh which brings us to the other parts. Uh you basically have three ultra-dense population clusters. The first one is Beijing, Tai- Tianjin, uh excuse me, Tianjin uh in the north, which is the big cluster that has over 150 million people in total. Your second one is greater Shanghai at the mouth of the Yangtze and there are mountains and various geographic barriers that separate Shanghai from northern China. And so while northern China has been an area of warlords where anyone can basically do whatever they want unless it's ruled by an iron fist, Shanghai's always been more cosmopolitan, more urban, more willing to deal with the outside world and courtesy of the Yangtze you can integrate with a number of cities inland by water, but there's no way to march an army along that corridor because it's gorgeous in a lot of areas. So all of these cities integrate economically, they have their own identity and they've never really fought one another. So you can get all the way to Sichuan and Chengdu in the interior, you know, a thousand miles from the shore and you have an urban population that is very sophisticated compared to northern China that trades with Shanghai and the outside world and it doesn't matter to them what happens in the north at all. >> [snorts] >> They're separated. You go further south and you get into Pearl River Valley in Guangzhou and Hong Kong and that's the third big dense conglomeration and it's only in this most recent version of China where that area has been tightly integrated into the rest of the Chinese whole. But there were almost the entirety of the rest of Chinese history it's been its own place and it has integrated with the outside world quite willingly. In fact, if you look at all of the cities from Shanghai down to uh Guangzhou, that entire belt for the majority of the last 1500 years, they've gotten more food from outside China than from the rest of China. And the moment that we're in right now where all of China's under one political authority, this really is the historical oddity by Chinese definitions. Uh that's just not a convenient narrative for Beijing. Yeah, to to say the least. So, if uh you're America and you want to maximize American prosperity, but we are where we are in terms of the changing world order, what would the right play be for China? It sounds like we could choke them out, make things very difficult relatively easily, especially if we're operating in a coordinated way with Japan. Um, is that the play or do we want to try to thaw whatever ice is forming there and continue the globalization party? I would argue that China is no longer capable of negotiating a meaningful deal in good faith. Their system has been more gutted than what Trump is doing here. So, they're basically locked into whatever it is that Xi thinks at the moment and when he wakes up for the day. He may be more internally consistent than Donald Trump, but he actually has fewer levers to control his system through because he's basically killed so many people or gutted them or intimidated them into just being toadies. So, I don't think there is a grand bargain that could happen. 10 years ago, maybe maybe there could have been, but not now. Uh, which means that for the United States you're taking an open, honest look at this and you know that the Chinese really are on borrowed time and are going to vanish before long. You've got to prepare for that day and you have to look at the things that China produces that we don't and figure out how you want to source that from somewhere else. Processing is part of that, assembly is part of that. And the sooner you do that the sooner you prepare, then the less China matters to us. And if someone else in the world decides to go the other direction and double down on the relationship with China, you know that long run you can start to write them off, too. But that requires a significant change in mindset and it requires something that we're not very comfortable with doing here in the United States an industrial policy uh, that isn't very capitalistic, but like I said, the economic model is going to fail anyway. The sooner we get started on this, the more options we have for however we define ourselves in the future. Right, and it's not capitalistic because you're saying there going to be industries you have to transfer back from China to US soil. You're going to have to incentivize it, put federal dollars towards it, uh and not just let the market decide. Yeah, well one of the reasons that I think Biden gets a little bit of a bad rap. I mean, he deserves a lot of it the bad rap, but when I look at the Chips Act or the Inflation Reduction Act and I look at the things he's investing in, I I thought 80% of them were stupid. But, we roughly need to double the size of the industrial plant in the United States. And even if we're building the wrong thing in the wrong place, we can always retool it. And if we get the concrete and the steel in the ground, great, cuz it's always better to do it the day before you need it. Mhm. Okay, so the smart play, reindustrialize America, uh carrying over something you said earlier, um trying to build alliances with NAFTA-ish, whatever that looks like, um and moving forward with that assumption, uh accelerate China's decline or just leave it alone? Well, you know, that's a strategy play. There's a lot of ways you could do this. Frankly, with every day that goes by, our options narrow. Uh but making sure that China is not essential for anything that we need is really the bottom line. That's a domestic play. That's an industrial play. That's an ally play. If you decide you want to accelerate their decline, you do need to be careful because once this breaks, it's not going to slide, it's going to collapse. The government is one system. They don't have a consumption base. And once the agricultural or the energy system snaps, you're not just looking at a recession or a depression, you're looking at a deindustrialization event that will build its own speed very, very quickly. When this >> In China or you worried that it spreads? Yeah. Oh, well, you know, if China when China collapses based on how countries have or have not prepared, we will have an expansion of the problem. I doubt we're going to have the de-civilizational event for most of these other trading partners. Like like just just just pick one, Australia. Their largest trading partner is now China. They primarily send raw materials there that they purchase. If China were to disappear tomorrow, they're obviously going to go through a horrific depression as everything is priced differently. But then the world will start to adjust and other countries will step into that gap and a lot of those countries are in Southeast Asia, which the Australians have pretty good relations with. So, you'll see those markets readjust over time, but over time is not a day. Okay, so you're painting a very clear picture. You're certainly you have an internal consistency to your logic. A lot of making this work would require America to have its act together to be able to act in a thoughtful manner. I'll take >> thought. I'll set Trump aside. Simply because one, barring something that I can't foresee, he's not running for a third term. So, maybe we've got 3 years of let's just see how much damage full Ed can do. Maybe we have my more optimistic view there's at least some strategy there. But either way, I want to look at a world where we understand what's causing America's internal turmoil that isn't Trump. So, removing Trump, what are the friction points that are still left? What do we have to contend with here before we can move forward well? Well, we've already dealt with the manufacturing system, so let's not revisit that. On the demographic front, the baby boomers are almost entirely retired now. They've taken their capital and put it into relatively low in velocity investments, so their cost of capital has risen. It's going to continue to rise for at least the next decade. Uh on the younger side, the Zoomers uh are the new generation. They're the smallest generation we've ever had, so we know the labor force is going to shrink every year for at least the next 12. Uh so we know labor costs have to go up even before you consider the demands of reindustrialization. And that's going to remake the economic model and generate all kinds of economic and political stress at every level just cuz of that. Because things are just going to get more expensive to entice workers. Well, we need to double the industrial plans in an environment of a shrinking labor force and a shrinking capital base even before you consider immigration policy changes. So all of that is inflationary. There's no way around that. If we do it right, it's still high growth. Seeing that today, but it should be. Uh but we are losing access to the inputs that are necessary to make this change work. And with every day that we wait, everything gets more expensive cuz if you have to do it you can do it fast or you can do it cheap. And by delaying, we're forcing ourselves to do it fast and that's going to just be pricier. Uh third, we have a first past the post single member district electoral system, which is a really over complicated way of saying you vote for one person who will represent a specific number of people in a specific geography. And that will always lead to two big tent parties cuz you have to get one nominal vote more than the other guy. Uh if you have nine parties, eventually they're going to consolidate. That works until it doesn't. And when you have big changes in demographic patterns, which we've had, and economic patterns, which we've had, and international relations or strategic relations, which we've had, the factions that are under those tents move around and sometimes they jump ship. And eventually enough of them move that you get a new party system. But figuring out what that new party system takes one to four electoral cycles. And in that time in that interregnum, things are really chaotic. And that's where we are today. Uh the Republican Party has lost national security conservatives, business conservatives, law and order conservatives, and fiscal conservatives. It has now been constrained down to religious conservatives, whether they're Protestant or Catholic, uh and a smattering of age-based issues for older folks. The Democrats are actually in a worse position. They've lost the youth vote, they've lost the labor vote, they've lost the Hispanic vote. Neither of them can win an election anymore. It's just a question of who loses more. And until this changes and these factions move around into a new more stable environment for our current situation, we're going to be in a situation where the Republicans in their current form are a one-man show, and the Democrats are a circus, and these are not governing structures. So we have to wait for the American people to form a new political alignment, whatever that looks like. >> [snorts] >> I really doubt we're going to get that in 3 years. So we're looking at a period of extended political chaos in this country uh until that happens. And unfortunately, it's happening at the moment that the world is going through the greatest shift in at least the last 80 years, and arguably the last 500. >> [snorts] >> Wow. Okay, so I look at this through an economic lens when I try to figure out what has driven this kind of populism historically, uh you just see economics over and over and over. So um I attribute a lot of this turmoil that we see in the US to a K-shaped economy, um and the long march to the institutions where you have a growing belief in say open borders, um, social security, not the exact right word, but entitlements for all. You've got the rise of concepts like nobody is, um, trespassing on stolen land or, you know, whatever the recent statement was by Billie Eilish that's caused so much backlash. But you put all of that together and you've got some people that believe that, immigration is causing problems, other people that believe that the doors should be wide open. It's what I call some people need to be chased by a lion. I believe that part of what's happening is things have been so good for so long people think prosperity and growth are just natural, that they just happen. And that you, um, don't have to fight hard for it. You don't have to position yourself on a global stage. You don't have to have strong borders. You don't have to have means testing before you give somebody, um, a handout. That's a pejorative word and I don't mean it like that. It's just the first thing that comes to mind. So, getting, I think getting people to understand how difficult it is to, uh, generate taxable income as but one for instance, is very important and the fact that people have lost touch with that is a big part of the chaos that we see here. Do you see a different underlying driver? Do you think that's completely crazy? I don't think it's crazy. I think most of those though are symptoms of the moment that we're in rather than the cause. If you think about what's happened in the last 30 years, the baby boomers were our dominant producing and consuming class. Now they're all retired. Changes to financial incentives. We were at the height of globalization. Now we're going through deglobalization. We had the economics and security system of the Cold War. Now we're clearly in a different space. It used to be that we had broadcast media. Now we have social media. Of course we're going to manage our political systems differently with all these changes. And what you just described were a lot of these things that are inconsistent with how we used to be, or people who for various reasons see the old system as no longer working in this era. This is what causes a political reshuffle. And that's where we are. Okay, so my the big breakdown of my theory is that there are more underlying causes. I'm sort of stepping into the game at a level that is not the >> very practical point of view, and I agree with everything that you said. It's just that we're dealing with a much broader shift here, and what you're seeing is the manifestation of that shift in real time. Okay, so the shift for you isn't necessarily the the right starting point is not looking at the K-shaped economy. The right starting point for what is really shifted is demographics, um deglobalization, um and basically a change in media and the way that we interface with the environment >> how far to carry? Interesting. I'll say it another way, just a gut check to see your reaction to this. Um I think the the biggest problem with social media isn't that there are no gatekeepers, which is wonderful and certainly has consequences. It is that without gatekeepers, we don't realize that um there it is very difficult to ascertain what is objectively true, and so we suddenly come face to face with a reality that has always been true, but broadcast media masked it, which is that um truth is very hard to come by. It's really perception. And so now >> Yeah. Please. A couple thoughts on that. Um Number one, this isn't the first time that we've had a new method of media or information transmission that has been disruptive. Uh the last really, really big one was the telegraph, and if you go into the world before reconstruction, basically each political party at the local level had their own newspaper where about 80% of the print was just them lying about the other side. >> Oh, fun. And that didn't matter because it was all local. Even New York magazines and newspapers didn't have a big circulation cuz we didn't have a railroad. Uh telegraph comes along and all of a sudden everyone's lies could be transmitted wherever and that got us into the Spanish-American War. And in the aftermath of the Spanish-American War, we had a series of court cases that made it illegal to deliberately lie, which we now call libel laws. That carried forward and eventually brought in all print and all mass media including television and radio. But if you fast forward to 1996 when the internet was starting to boil up, the decision was made by Congress that we can't regulate speech mostly because we don't know how. And so we got something called the Let's see, the Communications Act of 1996, which said that anything that was put on this new medium, this digital medium, the people who said it weren't liable and the people who transmitted it were not liable. And so we set up the kind of the perfect storm for the growth and expansion of digital services on the internet at the cost of codifying that anyone can say anything without risk to their income, to their personality, to their relevance. And that's get given us where we are now. So in the United States, we are very behind the ball in regulating this space and trying to come up with a more intelligent way of managing it and that's not new. Remember that if you go back to the telegraph, it wasn't Congress that did that. It was the courts because so much had gone so wrong for so long and the damage was so extreme that eventually the courts stepped in. If we wait for the courts this time, it's going to be at least another decade, I'm sure. But if you look at the rest of the world, which has a different legal tradition, they're now starting to come to grips with it. And we can argue whether they're doing it right or wrong. The point is they're trying. And so we have a country like Brazil that is now establishing a formal, to use a very loaded term, Ministry of Truth, where it's their job to decide if what there is the truth or a lie. And if you have lied, and you know you have lied, you are now criminally liable. In other countries, they're also >> or does that scare you? Uh >> [sighs] >> some version of this has to happen. I'm glad they're experimenting with it instead of us. I don't have a solution. But then you look at Australia or Spain or now Greece and Slovenia just as of today, and they're just saying, "If you're under a certain age, you can't access it because it's no longer safe cuz we don't know how to make it safe." Mhm. That strikes me as a reasonable mid-step. But we will, as a country, as a species, eventually figure this out. But the idea that we're going to do it in the first 10 years of the existence of the technology is a bit rich. And the idea that anyone's going to get it on their first try is also a bit rich. Very interesting. Okay. Um where do you think immigration, mass immigration very specifically, ranks on our list of things that we have to contend with or it's going to tear us apart? The United States has not had meaningful immigration reform since 1985. And the idea that the US should be able to decide who comes in and how is obviously true. But unless and until we get immigration reform, we have, on both sides of the political aisle, deliberately made that impossible. So I don't like what's going on with ICE. I really don't like what's happening on the border. And when I look at the demographic situation for the United States, like immigration has been part of our success going back 150 years. Deliberately reducing that to zero is incredibly stupid from an economic point of view. From a cultural point of view, I kind of get it. But that requires Congress to do something and that requires >> on the cultural side? Why do you kind of get it? Sure. Well, I mean, if you if you have an unrestricted immigration system where people are not registered and you prove to pre-create a permanent underclass of people who are not assimilated, then American culture by definition is going to be competing in its own front yard. In addition, if people can't get assimilated, if they can't be given legal status, they can't get things like a bank account, which means they're operating in the cash economy and they won't go to the police if there's a problem. So, all of a sudden they're not just being preyed upon, we have deliberately then created an underbelly that undermines rule of law at every level. You know, none of that is good. But if everyone has legal status, then all of a sudden they can go to the cops and organized crime can't get grips and the cartels can't spread across the border nearly as easily. So, this netherworld we're in in the moment where we prosecute migrants, but also deny them regularization options, we've created the perfect storm to increase the crime rate, to make sure organized crime can spread, to make sure that drugs can get into every community very, very easily. At the same time, we're gutting the labor market in a time when we're already in demographic decline. There's nothing about this moment on either side that makes any sense to me. Mhm. What when you look at Europe and cuz I I feel like you can look at Europe and see, call it a decade into the future of what it looks like when you don't when you have a large immigrant population that is not assimilating. Um and I certainly look at Europe and go, I get it. You guys have terrible birth rates, you know, take Germany for instance. So, I get why they're using an immigrant population uh to try to bolster those numbers, but at the same time, what happens to Germany when there's no such thing as a German identity? Okay, I hope this doesn't piss you off, but most of the numbers just don't support that at all. Europe has some of the strictest anti-migration policies on the continent after Japan. I'm sorry, on the in the world after Japan and Korea. With the exception of Spain, specific exception of Spain and Portugal. Most of the rest of Europe is very hard to migrate to. And when you look at countries like Germany, there have been, for lack of a better phrase, asylum events. So, under Merkel, we had one one year where they let in about 800,000 people. And in the years since, it's been like 15% of that number. Europe's demographic issue is that they urbanized to such an extreme that their birth rate is so low. And you play that for decades forward, you get a demographic crisis. It's not an immigration, it's not a racial crisis almost anywhere. Again, exception being Spain and Portugal, where they have deliberately gone out and attracted people from their former colonies to kind of flush out their numbers. And in the case of Spain, specifically, case I'm very familiar with, it's actually worked really well because they're all Spanish speakers. They're all descendants of Hispanics that came from Iberia, and the integration has been pretty pretty straightforward. Okay, so when you look at some of the pushback in those countries, whether it is Germany or the UK, or take the Netherlands, or even Brussels, where certainly there is a unless you tell me that I am just not seeing true numbers, you're seeing a dramatic surge in the ratio of either native call it UK, people from the UK, or you might not have just come, but you're the first generation born to an immigrant family. Uh and obviously seeing a lot of turmoil in these countries from where I'm sitting cuz you have a values clash where you have a new country coming in or new population coming in that does not share the values of the people that have been raised for generations in that place. Um so as an outsider looking at that stuff, it feels like that's escalatory. Um am I misreading the situation, falling for propaganda? I think you're falling for the propaganda. It's not that there's not an anti-migration sentiment in Europe. I'm saying that the anti-migration sentiment in Europe is so centrist that this is arguably the most racist part of the planet after again Japan and Korea. Uh and so you're listening to a few voices on the extreme edge that manipulate the numbers and the narratives to carry that story however they carry it. But even the centrist, even the leftist in Europe are deeply racist about outside cultures. It's one of the reasons why there's been so much pushback to the European project all along multi-decades. There just isn't that sort of deep surge of immigration that we in the United States think exists over there. Until you got to this year, the United States has always had a greater percentage of the population imported from foreign sources than the Europeans have. Again, with some very specific exceptions. So like you put it Brussels for example. Brussels is a horrible horrible place but it is not Europe. It's not even But Belgium's not even a country. The northern half is Dutch, southern half is French and Brussels itself is independently a city city-state. So what you're saying might be true in Brussels but that's because nobody else in Belgium wants to go there. Okay, very interesting. So this is a radically different perspective than certainly the worldview that I have formed. So you're saying demographically by the numbers the immigration rates in these countries is relatively small. I thought I had even heard you speak to Germany being in a position where over the next whatever 20 30 years, Germans would be a minority in their own country. >> Okay, that that was a purely hypothetical. If you want to use immigration to address your demographic crisis, and you have not used immigration historically like the Germans. In the German situation situation specifically, in order to hold where they are right now, to not have the average age increase, they need to bring in 2 million people a year every year from now on. And all of those people have to be under age 25. If you do that, 20 years from now Germany Germans would absolutely be a minority in their own country, plurality at best. It's just that example is to give you a scale of how far down the path most countries are, Germany specifically in this example. So, why though my base assumption is that if you bring in immigrants from a country where there isn't a ton of overlap in terms of value system, and part of the reason I feel like America's been able to assimilate assimilate Hispanics is that they're largely Catholic. And so, from a value system standpoint it's just not a huge leap. And so, that has made sense to me. But when you look at a if you have a values collision where let's say there you're not pulling from two religions that share a lot of core values, that you can end up having trouble there. One, do you agree with that assessment? And then, two, if we do agree with that assessment, what's the strategy? Like is this just No, this is just how the world goes and it's been happening like this forever, or is there a rational response for a government to take. The The difference is how your culture can assimilate versus not. So, historically speaking, the settler states, that's Canada, the United States, New Zealand, Australia, and Argentina, um none of us are from here. And so, it's a lot easier for these melting pot countries to bring in immigration, and if it happens in a relatively regular time frame, year after year after year after year, the assimilative power of the home culture holds just fine, and it certainly has here, because you're never bringing in more than 1 or 2% of your population in new people in a year, and then they integrate. So, for example, in the United States here, might blow your mind, Spanish is the most rapidly disappearing language in America today. It is very rare for second generation Mexican-Americans speak to speak more than a few phrases. Uh that is the power that the United States has when it brings in other people. That's not as true in Canada. Canada follows an almost ghettoization approach to integration, where there are large portions of the major cities where specific ethnicity has created a cell, and for all practical purposes, the ethics of their home country still exists there. It generates more numbers, it keeps their tax revenue higher, it stabilizes their labor force cuz they're bringing in more people, but it's also causing a real problem up there from a cultural assimilation point of view, which is something that will manifest over the next several decades. We don't have that here. In Europe, because they didn't start immigration in any meaningful way until relatively recently, the assimilative characteristic that we have just doesn't exist. And so, you're getting kind of a Canadian style concentration, and that is blowing the minds of people in say the Netherlands or Germany or Italy, because it's just such a new experience for them, or from their point of view, new in their lifetimes. If you go back before, say, 1880, pre-industrial, this was normal for Europe, but they fought about it a lot. They fought about getting people to assimilate, or they fought against immigration itself? >> went to war with one another. The only difference between the Nazi era and the and the pre-Nazi era is that the Nazis had industrial technologies to carry out the genocides as opposed to doing it door-to-door. Europe is the most Europe is the most blood-drenched place in the world, historically speaking, and post-1945 Europe is as much an aberration in their history as post-Nixon China is. Okay, at the beginning of this you were saying that this is largely a function of racism, or that's certainly how I took it. Uh but when Europe was fighting Europe, it's a bunch of white people fighting a bunch of white people. So, that to me speaks to cuz my thesis is >> You're implanting American views of race on European view views of race. I'll say more. In the United States, we see Germans and Italians and French and Brits as all white people, and that's all all okay. And so, we only have a problem if the color of your skin is different. They have a problem if the food is different, if the dress is different. And they see the French and the Germans and the Poles and the rest as very very very distinct peoples. Interesting. So, to me that distinction matters a lot, certainly in an American context, because we obsess over skin color. Uh and when I look at this what I'm trying to get people to understand and and man, if you've got an argument against this, please shoot it down. Uh but the way I see it is worry exactly 0% about skin color and worry 100% about value system. And so, what I hear is >> Well, is it accurate, though? So, I'm trying to get to the architecture of the human mind, and maybe you're saying, "Nah, you need to play out the architecture of the human mind in a specific national context, and maybe that's more accurate." But when I look at um Europe, what I see is you now telling me, "Yeah, this whole idea of values played out long before we had to worry about skin color. People are going to fight about food, about national origin. You don't even need to get to skin color." Which tells me that the problem is is exactly sort of as foundational as I thought it was, which is yeah, your skin doesn't matter, your value system matters a lot. In the United States, we overplay that in different levels. But, there are very few places in the I mean, phrase that differently. There are very few places in in Europe where both of those don't exist. So, I think the best example there would be France because France had an overseas empire and like the Spanish and to a lesser degree the English, they have brought in people over the last couple of generations from their empire, made it easier for them to immigrate. But, France has this weird little duality. So, France is the country that invented multicultural integration after the terror and the revolution. And they basically agreed that everyone who lived within the boundaries of France, whether you were French or Norman or Basque or anything else, you were now all French. Egalite, fraternite. But, anyone who's come in since doesn't qualify unless their cultural identity is perfect. So, for example, in the former French colonies, you've got Quebecois from Quebec, they're okay. You've got black French speakers from sub-Saharan Africa after who are Christian, they're okay. And then you've got Algerians who are the richest of the group, the most educated of the group, speak the best French of the group, but they're Muslim and they are not okay. But, it's France and we're all equal legally. So, you can't even carry out a reasonable census, is unconstitutional. So, officially, legally, everyone's the same. We're all one big happy family. Unofficially, they don't even know what the racial breakdown is of their country cuz it's unconstitutional to ask. That's interesting. I didn't know that. France is wild. I love it. >> Yeah, that that is very fascinating. Okay, well, the final card in the immigration thing is you look at Japan, be very curious to hear if this is uh your read of the situation, but it seems to me like they're playing the technology card. And they're saying, "Listen, Japan is for Japanese. Uh robots, AI, that's how we're going to solve this problem." Is that plausible or does the AI robotics thing just have a limitation that we're going to smack into? Well, they've had a robot strategy since the '80s and technology has come a long way, especially with actuaries or sorry, actuators, not actuaries. That's a tech thing. Uh actuators uh to make it more accessible. And when you have the world's oldest demographic, things that are very simple like changing a bedpan, if you can automate that, all of a sudden a lot of things open up for you. So, their hospitals are becoming more and more automated, for example. Their their manufacturing is becoming more and more automated. I'm not saying it's going to solve their problem, but every little innovation buys them some more time and really a lot of the world right now is in a race against time. Uh it's do you age faster than you can compensate with the technology? Uh Japan has also encouraged young people to have kids in a way that has been more successful than in most countries. Still not getting them up to replacement rate, but it's changed the numbers enough that they're no longer the world's fastest aging society. So, Germany, Italy, the Netherlands, um India, Thailand, Taiwan, and of course China are now all aging faster than Japan. Japan just had a big head start. Uh Uh, as to whether it will work, the technology question is of course questionable because you can't I can't tell you what's going to look like in 5 years. Right now, we are in a moment with AI where everything everything everything is locked up in large language models. And the building boom we have in the United States with data centers is all based around that one subset of AI technologies. It's not that the rest aren't having interesting things happen, but it's a 100th the pace. And so it's LLM which means you need lots of GPUs in a single place where you can cool them and you need lots of power for that and you need data center after data center after data center. That is of no use in dealing with demographic decline. That's a very specific type of AI which I would argue doesn't have a much more runway ahead of it, but I'm getting ahead of myself. You need machine learning and you need to interface AI with physical manipulation of the real world. And that's a manufacturing issue, that's a human management issue, that is a health care issue. Those are where those breakthroughs need to come and we're not seeing them happen very quickly right now. Uh, that could change in 2 years. If you go back just 9 years, no one was talking about LLMs in any meaningful way. It didn't make the top five list of the AI things people were investing in. And then all of a sudden there was one breakthrough in around 2016 and the world changed. Now we got ChatGPT and Claude and Anthropic and all the rest and it's really interesting and it's productive and it's changing some of the economic models. But it's just one little sliver and it's making a bet on hardware that we know we are not going to be able to produce in the not so distant future. So it's probably just a moment. It's certainly a bubble. Mhm. Well, Peter, this has been extraordinary. You have touched on so many of my base assumptions and give me so many new things to integrate, think through. This is No, man. This has been incredible. Really, I mean this. Thank you so much for taking the time. Where can people engage with you? zeihan.com. Z E I H A N dot com is where you can sign up for the free newsletter. There's also a paid version that gets you a lot more bells and whistles. The most recent book is The End of the World is Just the Beginning and I've recently been contracted to write my first fiction and that's going to be at least three books and those come out about a year from now because publishing takes forever. That's exciting. So, you've already finished the first one. Have you started the second and third? I am 90% of the way through book two at this point. All right, man. Well, that's exciting. Yeah, it basically takes the all of these demographic and geographic and structural changes that we've talked about today, deglobalization, depopulation, aging, and sets a fictional story against those factors and how the world remakes from a personal point of view. I can't wait to read it. That that is very exciting. >> It was a lot of fun. All right. Everybody there, make sure you check it out. Guys, if you haven't already, be sure to subscribe and until next time, my friends, be legendary. Take care. Peace. If you like this conversation, check out this episode to learn more. The only thing that's bipartisan is reckless spending. The Trump administration is my a lot more socialist than what Mondani is proposing. Golden share in US Steel because Donald Trump's so good at bankrupting casinos, he should run a steel company. Budgets and taxes are a reflection of our values. And our values right now state