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

by Peter Zeihan

Monetary expansion is inflationary. Endemic capital shortages inject inflation directly into finance. The falling consumption of an aging population is deflationary, while breaking supply chains are inflationary. Building new industrial plant to replace international supply chains is inflationary while the process is under way, and disinflationary once the work is completed. New digital technologies tend to be disinflationary, unless international supply chains are needed to keep them running, in which case they are inflationary. Currency collapses are inflationary in the countries that suffer them as everyone shifts from cash to goods they can hoard, but such collapses are disinflationary in the countries where fleeing capital seeks succor.

Commodity shortages are pretty much always inflationary, but if the shortage is caused by a supply chain break, then they can be deflationary near the commodity’s source, which means lower prices, which leads to lower production, which leads to higher prices, which are once again inflationary.*

here is a total cop-out: the future of the . . . -flations* will be different in every region, every country, every sector, every product, and will change wildly, based on a wide variety of factors that can barely be influe...

Expect a lot more populism. The global demographic is aging rapidly, and most older folks are rat...

As a voting bloc, retirees don’t so much fear change as endlessly bitch about it, resulting in cultures both reactionary and brittle. One outcome is governments that increasingly cater to populist demands, walling themselves off from others economically and taking more aggressive stances on military matters.

There will be American exceptions. The world’s best geography will keep development costs low. The rich world’s best demography will make America’s capital cost increases less onerous. The rise of the American Millennials suggests that by the 2040s—when the Millennials finally age into that capital-rich age bracket—capital supply will once again rise, taking the heat out of capital costs.

First, the ultra-rich only need to preserve a fraction of their holdings to maintain their lifestyle. They can tolerate a much higher risk level and so keep much of their investment portfolio—typically well over half—fully engaged in stock and bond markets. Second, the rich are far more likely to realize they can’t take it with them, and there’s no reason to die with $100 million in the bank. They tend to start transferring assets to the next generation or charities long before they pass on.

All are by definition densely populated, while greentech by definition is not dense.

Three decades of growth has strained the country’s electricity system; the country has no spare capacity—it runs all of its power generation flat-out regardless of the input fuel—so any input shortage would at a minimum lead to large-scale rotating blackouts. It’s already happened.

Once the Mongols started catapult-launching corpses into the city of Kaffa, a group of Genoese traders decided not to stick around and see how the fight would end. They fled—casually—by sea (although not before picking up one final shipment of slaves from a city where suddenly any pretense of morality had evaporated).

has been common on all ships for the entirety of human history, the Genoese vessels had rats. Unknown to the Genoese, those rats were carrying bubonic plague. The Genoese’s first stop was Constantinople, the Singapore of the day. Within five years, nearly all of the European, Russian, and North African world was battling the worst epidemic in regional history. Ultimately, one-third of the region’s population was wiped out, with population densities not restored for 150 years.*

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Once the Black Death lifted, many locations lacked a sufficient number of weavers, or carpenters, or bricklayers. In every case of shortage, two things happened. First, supply and demand: those in the relevant profession experienced an increase in take-home pay, setting the stage for our modern concept of skilled labor. Second, the need to expand the output of such skill sets led local workers, guilds, and rulers alike to increase productivity. Some did this by training new workers. Some by developing new techniques. Some by importing the long-forgotten knowledge preserved by the Arabs in the aftermath of Rome’s fall.*

China sits squarely in the intersection of two quintessential trends of the modern age: rapid industrialization and urbanization on one hand, and China’s trademark hyperfinancing on the other.

Hyperfinancing can help make all that happen, but in doing so it overbuilds everything, not just the roads and buildings that mean yet more steel demand, but also the industrial plant that is used to make the steel in the first place.

Roughly 1 percent of buildings in the advanced world are torn down every year,

The solution is simple—the world will need more smelting capacity—but

our modern life is built upon; it has been a virtuous circle. The Order established stability, which fostered economic growth, which enabled technological advancement, which led to the availability of these materials, which allowed their inclusion into the products, modernity, and lifestyle of the modern age.

The supply chain agony of 2021 was primarily about whiplashing demand. Deglobalization will instead beat us about the head and shoulders with instability in supply.

Economies of scale are impossible with a skilled labor force of one. Industrialization enabled the development of industrial plants that would (a) enable skilled labor to multiply their efforts by having each worker specialize on a specific task or part, and (b) enable unskilled labor to come in and work the assembly lines.

Britain’s process was slow because the Brits were literally making things up as they went along. Germany’s development was far quicker, and not simply because the Brits were kind enough to blaze the path for others. Germany exists in a geopolitical pressure cooker, ringed by strategic and economic competitors.

For the Americans, everything is—everything has always been—rather la-di-da.

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.

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Containerization changed the math by making shipping more reliable, enabling firms to push their inventorying back onto vessels, and enabling smaller orders to be produced at more reasonable costs.

Toyota in particular realized that with changed shipping norms, manufacturing could evolve from a big-batch model to more of a steady product stream. This new “just-in-time” inventorying system allows firms to place orders for a few-day supply of widgets as little as a month in advance, with those fresh supplies arriving just as their last orders are running out.

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The most important is to help companies with cash flow.

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In a globalized system, supply chains are not simply about achieving economies of scale; they are about matching each part and process to an economy and workforce that handle the work most efficiently, all in the shortest possible amount of time.

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One of the many things that makes modern computing and telephony and electronics possible is that the world is awash with workforces and economies at different stages of the development path while at the same time the macrostrategic environment enables all those various systems to interact peaceably and smoothly.

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Just-in-time is the logical conclusion of humanity producing sufficient surplus foodstuffs to support people who could specialize, like that once-all-important blacksmith. And like intermediate manufactures trade in general, it is possible only because the global transport system has become so reliable. So that’s the how and the why. Let’s talk about the where.

.JIT-supply-chains Unlike physical supply chains, digital and remote work supply chains are not depend upon transportation, Deep water ports, and American peacekeeping

Japan, Korea, and Taiwan handle the high value-add in pretty much all value-added manufactured products, everything from white goods to automotive to machinery.

Both the Japanese and Koreans operate via a series of sprawling, vertically integrated conglomerates, the keiretsu and chaebol, respectively.

Taiwan, in contrast, is a swarm of minnows. Or, considering how hypercompetitive the Taiwanese business environment can be, maybe calling it a swarm of piranhas would be more apt.

By many measures, China is going backward. The country’s manufacturing output as a percent of GDP has been falling since 2006, which, judging by corporate profitability figures, was probably China’s peak year in terms of production efficiency.

Instead the coast imported at least 300 million—likely as many as 400 million—workers from the interior.* That bought the Chinese economy another fifteen years, but at the cost of hardwiring, both within the coast and between the coast and the interior, massive inequality in income and levels of industrial development. It also makes the Chinese goal of a domestically oriented, consumption-driven, internationally insulated economy flatly impossible to reach.

China now has a rapidly aging coastal population that has limited consumption needs and—most important—hasn’t repopulated. That coastal population is stacked against a seething migrant class from the interior that lives in semi-illegal circumstances in hypercramped, near-slumlike conditions, working grueling hours, and that cannot repopulate.

One Child Policy have encouraged selective-sex abortions en masse, so there simply are not enough women under forty to repopulate the country in the first place.

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.

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.

The North China Plain—home to more than half of China’s population—is all about bulk over brains. 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.

make outsiders feel like they’re part of the family. Embarrassingly little American investment drives the South, but foreign investment? Everywhere. The American South has become a playground for Germany’s VW and Mercedes-Benz; Japan’s Honda, Mazda, Nissan, and Toyota; Korea’s Hyundai and Kia; and Sweden’s Volvo. Even persnickety Airbus has facilities in Charleston, South Carolina, and Mobile, Alabama.

America does have a neighbor that complements its system: Mexico. The wage differential between the American and the Mexican average is approximately six-to-one, less than Asia’s split, but bigger than Europe’s.

Mexico’s low latitude puts it firmly in the tropics. The combination of tropical heat and tropical moisture and tropical bugs makes the tropics the most problematic climate possible for industrialization; building materials are compromised, concrete often sets incorrectly due to the humidity, asphalt slides in the heat, and the population must do battle with tropical diseases.

Normally, oligarchic systems are neither wealthy nor dynamic, because the bosses keep the cash to themselves.

End result: the Texas–Mexico axis boasts the technological sophistication of Japan, the wage variation of China, and the integration of Germany with its neighbors, all within the footprint of the world’s largest consumption market.

In calendar year 2019, China suffered the greatest decline in its birth rate on record.

The Uighirs of Xinjiang saw their birth rate drop by half just between 2018 and 2020. Instead of exceptions to One Child, some of China’s minorities are now de facto under a Zero Child Policy. Add it up and China is now the world’s fastest-aging society.

Rapid aging strikes the Asians with a triple bind: First, aging workforces may typically be more productive, but they are also more expensive.

Second, such rapid aging precludes the Asians in general—and the Chinese in particular—from ever breaking away from their export model. Third and finally, rapidly aging workforces are perfectly capable of collapsing under their own weight via mass retirement.

Second, such rapid aging precludes the Asians in general—and the Chinese in particular—from ever breaking away from their export model.

Third and finally, rapidly aging workforces are perfectly capable of collapsing under their own weight via mass retirement.

Perhaps the biggest problem for the Chinese will be . . . the Japanese. China’s navy is coastal and near coastal, with only about 10 percent of its surface combatants capable of sailing more than 1,000 miles from shore. Very few can sail more than 2,000 miles. China has no real allies (except maybe North Korea), so projecting power . . . anywhere is a hilarious impossibility.

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Japan, in contrast, has a navy fully capable of sailing—and fighting—a continent or two away. Should push come to shove, the Japanese can simply dispatch a small task force past Singapore into the Indian Ocean and shut down Chinese resource inflows—and with them, shut down China—remotely.

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