The End of the World is Just the Beginning: Mapping the Collapse of Globalization

by Peter Zeihan

In many ways the American experience was an inverse image of the German one: there was no geopolitical pressure, so no need to speed things along, and while the Germans had a very dense industrial, riverine, and population footprint, the Americans were all sprawled out.

in that countries that are further along tend to have more oomph to their economic systems in terms of productivity, wealth, and diversification and can use that oomph to lord over less advanced systems. Welcome to colonialism, neo- or otherwise.

Such increases in complexity and value now play out across every manufactured product. Consequently, in the twenty years following 1996—a period that includes the Great Recession—global maritime trade doubled by volume and tripled by value. Trade that to that point had required five millennia to build. Everything didn’t simply get bigger in the post–Cold War globalized world; everything got faster as well.

In calendar year 1969, the first full year of container service from Japan to California, Japanese exports to the United States increased by nearly a quarter.

products China makes—as opposed to assembles—tend to be on the lower end: steel and plastics and anything that can be die-cast or injection-molded.

The successive waves of hypergrowth—concentrated on the coastal zones where the world can see them—make China’s rise seem inevitable. The reality is China has borrowed from its interior regions and its demography in order to achieve what, historically speaking, is a very short-term boost. Never let anyone tell you the Chinese are good at the long game. In 3,500 years of Chinese history, the longest stint one of their empires has gone without massive territorial losses is seventy years. That’s. Right. Now. In a geopolitical era created by an outside force that the Chinese cannot shape.

The majority of the country’s economic growth since the turn of the century has come from hyperfinanced investment rather than exports or consumption.

Thailand and Malaysia form a middle tier in everything from electronics to automotive to, of course, semiconductors. They do very little assembly and instead focus on the heavy-lift stuff both literally and figuratively. If the Japanese, Koreans, and Taiwanese wire the brains, and the Chinese build the body, the Thais and Malaysians put together the guts, such as wiring, midtier processors, and semiconductors for things like cars and cranes and climate control systems. The Philippines provides the work that is too low-end for even China.

India, with all its endless internal variation, hopes to take a bite out of everything.

Think of the wild variety of economies just within the American state of California. San Francisco is a tourism and finance hub and the most economically unequal urban area in the country. Silicon Valley designs and innovates many of the products produced throughout Asia—even in high-tech Japan—but has to import everything: concrete, steel, power, food, water, labor. Los Angeles’s urban sprawl disguises a wealth of small-scale industrial production sites. The Central Valley is both an agricultural powerhouse and home to some of the country’s poorest communities. And that’s just one state.

For a point of reference, the per capita income variation in the United States between the richest and poorest states—Maryland and West Virginia—is just under two-to-one. In China the variation between richest and poorest—between ultra-urban coastal Hong Kong and ultra-rural interior Gansu—is nearly ten-to-one. Even that understates the possibilities for synergies. Since 1995, China’s major cities have added some 500 million people, mostly migrants from the country’s ultra-poor interior, absolutely swamping every urban center with ultra-low-cost labor.

Germany cannot maintain its position as a wealthy and free nation without the Americans, but Germany also cannot maintain its position as a modern industrialized nation without Russia. The story of all things German and Russian is about alternating chapters of begrudging cooperation and incisive conflict. As searing as that is for the Germans and Russians, it is far worse for the peoples between them—countries essential to Germany’s manufacturing supply chains. The Ukraine War is already forcing some tough questions upon all involved.

It’s only during the Order that global peace and wealth smothered the age-old contest between the two visions. Smothered. Not killed. Despite seventy-five years of healing and growth and safety and security and modernization and freedom and democracy, much internal angst and grievance remains. Brexit, occurring at the very height of globalization, is a case in point. With the American withdrawal, that smothering ends.

When it comes to the fate of the NAFTA system, most indicators look wildly positive. Let’s begin with base structure: part of why American manufacturers feel cheated by globalization is because that was the plan. The core precept of the Order is that the United States would sacrifice economic dynamism in order to achieve security control. The American market was supposed to be sacrificed. The American worker was supposed to be sacrificed. American companies were supposed to be sacrificed. Thus anything that the United States still manufactures is a product set for which the American market, worker, and corporate structure are hypercompetitive.

Huawei’s corporate position imploded in less than two years, taking it from being on the cusp of the world’s largest cell phone manufacturer to not even being on the top-five list within China. Most Chinese firms simply cannot function without active American participation.

Within North America as a unit, more than 8 in 10 dollars (or pesos) of income is generated within the continent. That’s by far the most insulated system in the world.

the Americans have already ratified, operationalized, and implemented trade deals with Japan and South Korea, another two of the country’s six largest trading partners. Add in a pending deal with the United Kingdom (another of the six) and fully half of the United States’ trade portfolio has already been brought into a post-globalized system.

Most studies in the past half decade have indicated that by 2021, most manufacturing processes were already cheaper to operate in North America than in either Asia or Europe. That might shock, but it doesn’t take a deep dive to understand the conclusions. The North American system sports high labor variation, low energy costs, low transport costs to end consumers, nearly unlimited greenfield siting options, stable industrial input supplies, and high and stable capital supplies.

The United States and Mexico have among the world’s best greentech options. Wind on the Great Plains, solar in the Southwest. Mexico is pretty good on both as well, particularly in the north, where the greatest integration with the American system occurs. But perhaps most important of all, not everyone in North America has yet to toss their hat into the manufacturing ring. First up are the Millennials. For all their many* faults, America’s Millennials are the largest chunk of population of any developed country that are of working age. Their consumption is driving the North American system now, just as in twenty years their investment will drive it.

Second, America’s manufacturing megaregions just aren’t very integrated (the sole exceptions are the Gulf Coast and the Texas Triangle).

Third, not all of Mexico is playing. Yet. The northern Mexican cities have bet whole hog on American integration, but central Mexico is a manufacturing region in and of itself. Integration with the Americans occurs, but it just isn’t nearly as all-encompassing as what occurs in northern Mexico.

Fourth, there may be a pending win that’s just a touch bigger. The United Kingdom voted to leave the European Union back in 2016 but didn’t actually pull the plug until 2020, and it wasn’t until 2021 that London realized it hadn’t planned for the aftermath. Like, at all. The continental Europeans have shown no propensity to extend the Brits any concessions, and Britain on its own just isn’t big or stable or diversified enough to matter. But add the United Kingdom and its sophisticated first-world manufacturing capacity to the NAFTA grouping and the math changes significantly. Extending NAFTA-esque trade links deeper into Mexico would be great, but incorporating 66 million Brits? That just might be even better. Both are on deck.

To this point, globalization has . . . crushed Colombia’s dreams. The difficulty and cost of lugging stuff up and down Colombia’s mountains has prevented meaningful supply chains from manifesting both within the country and between Colombia and the wider world. As such the country is mostly known for exporting oil, superhard coal, and coffee. But in a world where the costs of production skyrocket due to instability, and demand for industrial inputs of all types surges in North America—including labor—Colombia may be about to have its day.

Most people think of the Bretton Woods system as a sort of Pax Americana. The American Century, if you will. But that’s simply not the case. The entire concept of the Order is that the United States disadvantages itself economically in order to purchase the loyalty of a global alliance. That is what globalization is. The past several decades haven’t been an American Century. They’ve been an American sacrifice. Which is over. With the American withdrawal, the various structural, strategic, and economic factors that have artificially propped up the entire Asian and European systems are ending. What consumption remains is concentrated in North America. Only North America sports a demographic profile that doesn’t have to immediately adapt to a fundamentally new—and fundamentally unknown—financial reality. And so massive manufacturing reshoring to the American system is already in progress. The real, actual American Century is only now beginning.

During the Cold War, two regions largely abstained from globalization writ large. The first abstinence, that of the Soviet Union, was by design. Globalization was created to isolate the Soviets. The second to abstain, the Latin American country of Brazil, held its systems apart for a mix of political and ideological reasons. When the Cold War ended, both opened themselves up, particularly to the inexpensive electronic and computing products of the East Asian Rim.

In the world to come, Russia and Brazil might experience a bit of a manufacturing renaissance. Anything that encourages supply chains to be shorter, simpler, and closer to consumers will benefit any manufacturing system that is not in East Asia or Europe. But even this “might” comes with a pair of major caveats. First, recovery would require the Russians and Brazilians to address a host of unrelated issues, ranging from educational systems to infrastructure. Second, any manufacturing renewal would largely be limited to servicing customers within Russia and Brazil, or at most, countries within arm’s reach. That’s not nothing, but neither country is even on a theoretical track to becoming the next China, Mexico, or even Vietnam.

On a more upbeat note, there are three regions that will be able to take advantage of the changed strategic circumstances to enter or reenter the world of manufacturing in a big way. The same mix of factors—demographic, labor variation, security, resource access, and transport safety—will determine who can pull it off.

Second, there is no obvious leader within Southeast Asia. Singapore is the richest, but also the smallest. Indonesia is the biggest, but among the poorest. The Thais are the most “with it,” unless they’re having one of their periodic military coups.* The Vietnamese are the most organized, but that’s because their government is borderline dictatorial. This isn’t simply an issue of asking who speaks for the region, but also, who can maintain sea-lane security? That task is largely beyond the locals. Luckily, there’s help at hand for this as well. Japan’s navy is very long-range capable—blue-water in the vernacular of defense-minded wonks—and could patrol the region fairly easily. It’s critical to note that this is not the age of Imperial Japan. There will be no imperial invasions. Most of Southeast Asia may be a generation or two behind the Japanese in terms of economic development, but all the countries that matter are fully industrialized. This would be a defense partnership, not an occupation.

Next up is India. In the ways that work, India is a bit like China. It is a huge, sprawling country with wild variation among its heavily populated regions. The Bangalore corridor was an early entrant into the world of tech servicing, while the country also excels at petroleum refining, heavy chemicals, generic drug production, and fast-turnaround consumer goods.

India’s problem is that it might be a bit too varied and too heavily populated. India is not an ethnically defined nation-state like China or Vietnam or France or Poland, in which one group dominates the population and the government, but instead boasts more ethnic and linguistic diversity than any continent save Africa. Many of these ethnicities don’t simply have their own cultures; they have their own governments. These governments often exercise vetoes—sometimes formal, sometimes informal—over nati...

At a minimum the changed circumstances will enable India to build out its manufacturing capacity to serve its own 1.4 billion strong population. India’s size alone means it doesn’t have to be a global player to be globally significant.

Even if they can maintain political and macroeconomic stability, they will not be destinations for capital flight. What they all need is foreign direct investment (FDI). The concept behind FDI is simple: money to purchase or build specific facilities—typically industrial plant—in order to produce a specific product. The solution to Southeast Asian and Indian capital problems is likely the same: Japan.

Combine Japanese tech and military strength and wealth with India and Southeast Asia’s manufacturing potential and demographic and industrial inputs and you have one of the great alliances of the twenty-first century.

There is one more region worth looking at: Buenos Aires.

Argentina has among the world’s most investor-unfriendly regulatory and tariff regimes, and the country’s penchant for flat-out confiscating private property has wrecked its local manufacturing base. All true. All relevant . . . for the world that’s dying. But in the world that’s being born, a world fracturing into regional and even national trade systems, Argentina’s socialist-cum-fascist industrial policy will work much better.

So that’s the where. Now let’s look at the how. After all, the world we’re devolving into will manufacture things not simply in different places and on different scales, but also in different ways.

The longer and more complex the supply chain, the more likely it is to face catastrophic, irrecoverable breakdown.

The processes we use to manufacture things will change because the environment will change. Global economies of scale will vanish. Many of the technologies we use to manufacture goods under globalization will not prove applicable to the fractured world emerging.

It is all going to become stranded. Deglobalization—whether triggered by the American withdrawal or demographic collapse—will break the supply links that make most China-centric manufacturing possible, even before consuming nations more jealously protect their home markets. Pretty much the entire export-driven industrial plant (and a not small portion of the domestically driven industrial plant) will be written off. Completely.

The pace of technological improvement in manufacturing will slow. Let me make that broader: the pace of all technological improvement will slow. Rapid tech advancement requires a large body of highly skilled workers, the opportunities for large-scale collaboration among those workers, and a metric butt-ton of capital to pay for the development, operationalization, and application of new ideas. Demographic collapse is gutting the first, deglobalization is fracturing the second, and the combined pair are ending the third.

The new systems will put premiums on simplicity and security just as the old system put premiums on cost and efficiency. The death of just-in-time will force manufacturers to do one of two things.

One of the great gains of the Industrial Age was that low-skilled labor could make a reasonable living working on an assembly line. But now? Demand for the lowest-skilled jobs within the manufacturing space will evaporate, while rewards for the highest-skilled jobs will soar. For poor countries, this will be a disaster. Moving up the value-add scale means starting at the bottom. Between geopolitical devolutions, demographic inversions, and technological changes, most of those jobs will no longer exist. In addition, shorter, simpler supply chains will reduce overall employment in manufacturing in general as measured in terms of jobs per unit of product produced. The end result? Widening inequality both within and among countries.

The regions that can best tap outside capital will be those with the best prospects for tapping resources, producing products reliably, and maybe even selling a few out-of-region: Southeast Asia, India, and the Greater Buenos Aires region. The only region likely to be able to fully self-fund its own buildout is NAFTA.

Change the map of transport, or finance, or energy, or industrial materials, and the list of winners or losers will shift with it. That’s not a happy outcome for the loser, but it isn’t the end of the world. Unless it is. There is a difference—a big difference—between a rising price of access and an absolute lack of access. The first leads to an industrial hollowing out. The second leads to outright deindustrialization. Just as with energy, countries that lose access to the building blocks of modern industrial society do not just enter recession, they lose the capacity to play the game at all.

The single biggest piece of international manufactures trade is automotive. All those 30,000 parts per vehicle have their own supply chains. Since each part has its own labor requirements and cost structure, a lot of countries produce a lot of steps and often serve as suppliers to one another’s brands and markets.

Heavy vehicle manufacturing—primarily farm, mining, and construction equipment—in many ways follows the same pattern as automotive. Lots of countries produce lots of different pieces and flip their intermediate inputs back and forth.

The French and Japanese models will have their wings clipped if they cannot maintain excellent relations with the Americans, the most popular end destination for both. The challenge is less about need and more about access. China faces a similar, if less intense, version of the same problem (internal demand in China is far higher than in France or Japan).

everyone uses wood for construction and furniture and fuel and paper and so on. Wood is a base material for human existence, and it has been so long as there have been . . . humans. But not everyone can produce wood in volume. The United States, as a large temperate zone country with extensive forested mid- and high altitudes, is by far the world’s largest wood producer, but because of its penchant for large, single-family homes packed with furniture, it is also a net importer. Canada and Mexico fill nearly all of America’s surplus needs. Forget needing to worry about the changes a post-globalized world will bring to North America; the continent is already looking after its own for this subsector.

Third, there is a big looming environmental issue. In 2019, wood and various wood by-products accounted for 2.3 percent of Europe’s electricity generation, mostly because the EU has some epically stupid regulations that consider the burning of wood and wood by-products to be carbon-neutral despite the pretty much undisputed fact that wood burning emits more carbon dioxide than even coal. More to the point, some half of the trees felled are used as direct fuel, with the vast majority being burned within a day’s walk of the forest’s edge, particularly in India and sub-Saharan Africa. In a post-globalized world, very little about wood-as-fuel is going to be inhibited. If anything, the opposite will happen. If people cannot source globally traded energy products like natural gas or diesel, they will have a choice between not having heat for cooking or staying warm . . . or burning wood. The scale of the devastation—in terms of carbon emissions, land cover, biodiversity, smog, water quality, and safety—caused by half the world’s population reverting to wood burning is difficult to wrap the mind around.

Taiwan, Japan, and Korea do the really good semiconductors. Malaysia and Thailand handle the midmarket. China has the bargain basement. These facilities just don’t move.