The End of the World As We Know It - Peter Zeihan

There’s no debating that we’re in tumultuous times, but who’s coming out ahead and who will be left behind? Geopolitical strategist Peter Zeihan, critically acclaimed author of The End of the World is Just the Beginning: Mapping the Collapse of Globalization is interviewed here. Through his work at the U.S. State Department, private intelligence company Stratfor, and his own firm (Zeihan on Geopolitics), Peter has gained a unique perspective of the way the world works and offers some insight about the end of globalization.

We’ve lived in freakishly good times, but you’re telling us the world as we know it is going to end. How did we get here?

Peter Zeihan: Before World War II, you had the British system, the French system, and so on, and these systems competed for everything. If you weren’t one of those imperial systems, you were probably one of the pieces that was fought over. There was always the looming risk of military conflict.

At the end of World War II, Americans made an offer. We would patrol the global oceans so that anyone could go anywhere, if in exchange everyone else would line up with us to fight the Soviets in the Cold War.

Countries are having to figure out how to go it alone, and for most, that will not be possible. Energy and food are not necessarily produced where you live. If you break down global trade, you see cascading failures in absolutely every economic sector. — Peter Zeihan

And it worked. For the first time in human history, there was a global market for manufactured goods, energy, finance, and transport. So everyone started to specialize, and that specialization brought us to the world we’re in today—where supply chains can have hundreds of steps with no risk, where products can cross the world in a matter of days, where people can finance the purchases relatively easily.

Since COVID, we have begun moving into a deglobalized era. We’re at the very beginning of the end of what we’ve come to know.

But why does it need to end? It brought many good things.

Peter: Oh, it’s been fantastic. But it wasn’t free. The United States agreed to subsidize the economic growth of the rest of the world. When the Cold War ended, we kept doing that, but we were no longer getting strategic deference. We’ve seen the rise of a number of countries that we’re not exactly thrilled with. China is at the top of that list, and now the Russians are back.

So, Americans in the last seven or eight presidential elections have gone with the more populist, anti-globalist candidate. That’s not an aberration; that’s a trend. But without someone holding up the ceiling, we go back to a kind of dog-eat-dog world.

We live in a world in which there are billions of interconnections, and it doesn’t take much to break them—and they’re now breaking. Countries are having to figure out how to go it alone, and for most, that will not be possible. Energy and food are not necessarily produced where you live. If you break down global trade, you see cascading failures in absolutely every economic sector.

So, the order isn’t finishing because it’s not good; it’s finishing because it required the United States to protect the world, and the key mechanism for doing that—correct me if I’m wrong—was U.S. naval power.

Peter: Naval power was the biggest piece. There’s an argument to be made that even if the U.S. wanted to continue, it couldn’t. We’ve shifted the way our Navy works over the past 30 years, and we’re almost exclusively focused on carrier groups. We’re going to have 14 of them by the end of the decade, and they’re incredibly strong. That’s how you knock off a country, but if you want to patrol the global seas, you need about 800 destroyers, and we have 70. But there’s another piece to it: the rest of the world is not willing to defer to the United States on security matters.

What comes next? I was thinking we could think about the future in two ways—first, through different economic drivers, and second, in terms of which countries win and lose. In terms of the economic drivers, why don’t we start with manufacturing and transport and as enablers of global trade?

Peter: When the U.S. Navy—one of the few to survive World War II—was put to the service of the global commons, anyone could put any product on a ship and have high confidence it would get to its end destination.

This started with the basic stuff we had during the imperial era—iron ore, food, oil. But as time went on, we started getting into intermediate good trades, where you would specialize in manufacturing a bumper or a carburetor, and that expanded transport volumes by three orders of magnitude.

We’re discovering—whether it’s because of the Ukraine war, or the China lockdowns, or the Trump tariffs, or Brexit—if you disrupt one piece of one supply chain, you don’t get an end-product. — Peter Zeihan

That brings us to the where we are today—a world in which an iPhone has something like 1,100 parts and 10,000 independent supply chain steps because the risk within the system is negligible. Everyone specializes in the specific thing; you shuttle intermediate products about. But ultimately, the final product ends up at your front door.

But as we’re discovering—whether it’s because of the Ukraine war, or the China lockdowns, or the Trump tariffs, or Brexit—if you disrupt one piece of one supply chain, you don’t get an end-product. So now we have to do it all in screaming reverse—un-specialize; bring production supply chains closer to the end-consumer.

Are you saying there’s literally going to be a lot of piracy on the high seas? Or simply that more countries being less willing to share materials?

Peter: Both. We’ve already seen the French, the Greeks, and the Brits start to confiscate Russian vessels for sanctions. We also no longer have sanctity of supply in China, because of the COVID lockdowns. That means we have to rebuild supply chains. The United Kingdom, once it figures out Brexit, will probably join the NAFTA alliance. We’ll see what happens with Germany when it can no longer access materials from Ukraine or Russia.

A logical conclusion is that it’s inflationary as the world uses its resources less efficiently.

Peter: That is absolutely part of this transition process. You don’t break up an old supply chain and build a new one in a period of demographic decline without massive inflation. And here we are. This is not a one-off. This is not a Biden thing. This is with us for years.

I want to be an optimist. There is such a thing as human ingenuity. Necessity is the mother of all invention. What do you see as the problem solvers? Automation?

Peter: When globalization hit, people moved off subsistence living in agricultural zones and into cities, where they took higher-value manufacturing and service jobs. And when you move into the city, you have a smaller living footprint, so you have fewer children. A lot of the world stopped having kids in large numbers 50 years ago, so we’re now at a point where, in much of the advanced world, their last generation is moving into retirement, like what is going on with the Baby Boomers in the United States right now.

When you have a mass retirement event like that, people change the way their capital works. They exit stocks and bonds and move to Treasury bills and cash. That leads to a financial shortage, and that’s a real problem for automation, which is expensive to develop, install, and update. We just don’t have the capital.

I can still see it working in younger countries, like the United Kingdom and the United States. But I don’t see how countries that are more advanced in age—Japan, Germany, Italy—pull that off.

It helps to have another proximate labor force at a different price point and skillset. In the case of the United States, that’s Mexico. But most of the advanced world doesn’t have that option. The Germans tried it, but most of the younger countries it has integrated with, such as Poland or Slovakia, are aging faster. The next step was supposed to be Ukraine, but that’s now off the menu. So, the German manufacturing model is arguably the second worst in the world.

Let’s talk about changes to food flow around the world and what it means.

Peter: We’re getting an unfortunate introduction to the early parts of this with the Ukraine war. Russia was the world’s largest exporter of both fertilizers and fertilizer inputs. We’re now seeing shortages on a global scale. In the United States, that’s resulted in a lot of crop switching. In the European Union, more subsidies have been required. And a lot of the developing world is just not using fertilizer at the scale that they normally would.

We’ll find out how bad it hits in September, when we get our first reasonably accurate forecast for the harvest. But we’re probably going to be shy of food for about 400 million people this year—assuming the war in Ukraine stops right now and that Ukrainians are able to harvest and export normally, which is exceedingly unlikely. Add that in, and we’re talking malnutrition for about a billion people starting at the end of this year.

This is just a taste of what’s to come, unfortunately. Disruptions in parallel economic sectors anywhere in the world ultimately cascade through to agriculture. If something happens to finance, farmers have a hard time sourcing the inputs they need. If something happens to manufacturing, farmers don’t get the gear they need to operate large fields. If something happens to industrial commodities, the fertilizer system falls apart. If you have a problem with energy, there’s no fuel, and oil is one of the components that goes into fertilizer and herbicide inputs.

If Apple has a problem getting cameras, you’ll just get your phone two months late. But if farmers are delayed two months in terms of planting, fertilizing, or harvesting, you don’t have a crop that season. — Peter Zeihan

And it’s not like building a phone. If Apple has a problem getting cameras, you’ll just get your phone two months late. But if farmers are delayed two months in terms of planting, fertilizing, or harvesting, you don’t have a crop that season.

You don’t think we’re in for another green revolution where we can see food grown in different places, such as vertical farming in cities?

Peter: Vertical farming is great for houseplants that can be grown close to a population center where food prices are high. But rain and soil just cannot be replicated at a scale for any of our staples. So, about as exciting as you can get with vertical farming is talking greens and microgreens, maybe tomatoes.

There are a couple of technologies that look promising and are getting into mass manufacture now. The problem is capital. This new technology is expensive, so you can only apply it where the manufacturing system is more or less homegrown and the financial capacity of farmers is relatively high—large farms that grow row crops. So, you’re talking Canada, the United States, Australia. If they can get the politics right, maybe Argentina, France, the United Kingdom, the Netherlands.

But the number of people who suffer extreme malnutrition and famine is still looking to be north of a billion people even with these advances.

Whenever you get severe food shortages or rampant food price inflation, you also get political unrest. Would that be your prediction?

Peter: I think we’re going back to that in a very large part of the world. The western and southern hemispheres are significant exporters, so I’m most concerned about the northeast quadrant of Eurasia and the Middle East.

Let’s do energy. We know where energy is located around the world.

Peter: Very inconvenient, isn’t it?

Play it forward. How does the flow of energy change? And will renewables save the day?

Peter: There are three big sources of conventional energy. The first is the North American system, which is shale-based, and it’s OK—the technology, infrastructure, workers, and consumption are local.

The second big source is the former Soviet Union. Even if the Russian government fell tomorrow and was overtaken by a small band of kindly kindergarten teachers, the Russians don’t have the technology to operate most of their fields, particularly in the eastern half of the country. And now that there are no western techs in the space, you should expect production to collapse. It’s really difficult for me to see most of it lasting more than three years, and that’s just getting the stuff out of the ground in the first place.

The third big source is the Persian Gulf. The oil fields there are simpler than the ones in North America or Russia, so a broader array of players can produce there. The problem is security. And the two biggest producers, Iran and Saudi Arabia, hate each other, and now that the United States has left, they’re having a spirited debate about who should actually be in charge and trying to sabotage each other’s systems. Few countries have the naval force to reach the Persian Gulf, and those that do aren’t interested.

The biggest losers are the east Asians, specifically the Chinese. China imports 85% of its energy, with 85% of that coming from the Persian Gulf by tanker and the remainder from the Russian space that is going to zero. This factor alone is enough to throw China back into a pre-industrial standard of living.

Before we talk about what this all means for specific countries, what’s your mental model for analyzing that?

Peter: You want a demographic structure that’s sustainable. Once you have more people in their 40s than their 30s, things start to fall apart, because you’ve aged past the point of theoretical biological repopulation.

Location is absolutely critical. It’s a candy bar analogy. You want a gooey center where it’s easy to move things around, but a crunchy outside. Swamps are OK; mountains are better; oceans are the best. If people can’t park their tanks on your lawn, that’s a plus. And if you’re on an island or have more or less a continent to yourself, that means your military force is probably naval-based, and that means you can go visit them instead of the other way around. That’s one of the reasons why the United Kingdom was able to rule the world for so long.

You also need a certain breadth of resources. First and foremost is food: you need to be able to feed your own population. Then raw materials and energy. Conventional crude and natural gas are great. Unconventional works if you know how to do it, but solar and wind are messy. There isn’t a lot of the Earth’s surface that is either windy or sunny and proximate to population patterns, and we don’t have a very good technology yet for battery chemistry, so grid storage at scale just isn’t happening yet.

When you overlap these factors, I imagine there are certain parts of the world that look great and certain parts of the world that look awful.

Peter: North America is self-sustainable in almost everything. On the other hand, the Middle East imports all its food. In many cases, it actually has other countries process its energy. That’s not self-sustainable in a post-globalized world.

Far more concerning is Germany. Absolutely everything except its labor comes from somewhere else, and its labor is dying as well. Transitioning through these geopolitical changes will be one of the most shocking things that the German people have done ever. And we all know from history that the Germans do not culturally deal well with systemic shocks. I have concerns there.

The United Kingdom is in between. It’s self-sufficient in food (British food, anyway). It has a partnership with the United States on defense and energy, and it has a partnership with NAFTA in terms of manufacturing. There’s a lot of change that has to come that will be inflationary, and that will be disruptive, but the Brits have done that sort of change before.

So the United States is No. 1. What’s the next tier down?

Peter: By far the French and the Japanese. The French have the best demography in Europe. They have an electricity system that is largely nuclear, and if that doesn’t work, they’re on the far western edge of the continent, and oil sources are not too far away. They also never really invested their economy in the eurozone. One of the dirty little secrets of the Brexit debate is that the United Kingdom and the French kind of treat the rest of Europe the same way in terms of economic integration—so just as the Brits can go their own way without too much pain, so can the French.

The Japanese have horrible demographics, but they’ve been horrible for 30 years and they’ve found a way to deal with it. And they also have a long-haul navy, so they can make it to the Persian Gulf if they need to.

OK. Next tier.

Peter: Turkey. Stable demography; shockingly diversified and stable manufacturing system; self-sufficient in food; oil and natural gas close at hand. And they’re already the premier military power in their neighborhood. I see no version of the future where the Turks are not playing a much larger and more stable role in that part of the world. Europe, of course, is going to have to come to terms with that, and it will be just as uncomfortable this time as it was last time.

Finally, Argentina. This shocks people. But while Argentines have a government that is creative in its destruction, they’re still a massive producer of food; they’re almost self-sufficient with energy; and there’s not a threat near them. The biggest challenge they’re going to have is bringing manufacturing back. But if global manufacturing is breaking down, they’re going to have a choice—build it yourself or go without. And like the Americans, the Argentinians do not like to go without.

Other winners coming out of this?

Peter: India looks interesting. It’s the first stop for oil out of the Persian Gulf, so probably no oil crisis. It doesn’t do much manufacturing right now, because the Chinese do it for less, but it has the capacity and demographics to rebuild. I can kind of see India taking a page from the British playbook and existing in splendid isolation for a fair period.

China dies this decade. — Peter Zeihan

Earlier you mentioned China.

Peter: China dies this decade. That’s the short version.

Its demographics are so atrocious that we’re looking at the population halving between now and 2050, primarily through aging. With just that, the entire economic model will collapse before 2030. But that assumes no breakdowns in the input systems that allow China to have energy and grow their food. If there are disruptions to energy, you are looking at a de-industrialization well before that.

And manufacturers are leaving as quickly as they possibly can because COVID is now the new norm for China, so it’s no longer a reliable partner in international supply chains.

The Ukraine war is also particularly problematic because it means China will lose energy from Russia space, and probably even a lot of food from Russia. China is probably the biggest loser from war after the Ukrainians themselves.

Everything that can go wrong in China right now is going wrong.

That’s controversial. I’m going to push back a bit. Doesn’t China have a ton of military power and a good record of innovation? Japan faced challenging demographics, but still built a navy and sent production overseas. Why can’t China do that? Indeed, I would argue it has been doing that.

Peter: I’d actually argue that it hasn’t worked out for the Chinese on any of those measures.

Let’s start with innovation. China makes low-end stuff. I don’t mean to suggest that’s insignificant; it’s a critical part of the process. But the Chinese cannot make the machinery that makes the low-end stuff. They have to import that from somewhere else. And unlike the Brits, French, Turks, Indians, and Japanese, they can’t go to get what they need.

On paper, yes, the Chinese navy is huge. It has more ships than the British, Japanese, and American navies combined by a significant margin. But 90% of those ships can go only 1,000 miles from shore—and that assumes that they’re going in a straight line to save fuel. Under combat situations, zig-zagging, you’re talking 400 miles. So, in any war scenario, someone else will put a couple destroyers in the Indian Ocean, and that will be the end of China’s energy imports.

And we’ve seen with the Ukraine war that everything that they thought would be true—that the war would be quick, that no one would sanction Russia—was not. I think China was floored by the boycotts, by the idea that private citizens can influence corporate policy. Now they have to apply that to Taiwan. They have to consider that there might be sanctions on food and energy. With the Russians, that was an export issue, so a numbers issue. With the Chinese, it’s an import issue, so a national survival issue.

There’s no way deglobalization breaks for the Chinese in a positive way.

One more country, and then we’ll wrap. Russia.

Peter: I never bought into the hyper-optimism for the Ukrainians. Don’t get me wrong; they’ve outperformed by every possible measure. But I don’t see how they win this.

The Russians have more men, longer-range weapons, better logistical systems, and a very deep bench, whereas the weapons that the Ukrainians can use are limited in supply. The former Soviet satellites are providing Ukrainians with some older equipment, and we’re trying to train them on a number of other weapon systems. Those are all available in limited supply, and we’ll probably run out of them this year.

So you have low-morale Russian conscripts operating 30-year-old tanks that have been inexpertly maintained going against unarmed Ukrainian infantry. There’s no math there. The Russians will pour over the Ukrainians, and I think we’re going to be dealing with a war of occupation within a year, which is just the next phase.

But this is Russia’s last war. The Russian demography was the worst in the world until the Chinese screamed by them a few years ago. What they’re fighting for right now is to establish a more coherent defensive perimeter, where they can concentrate forces where they’ve been invaded through in the past. If they can do that successfully, they will probably last another 50 years. If they fail at that, you’re looking at the Russian system collapsing in less than 20.

But Russia, despite its faults, is still going to produce enough food and energy for itself. So it can disaggregate into a regional principalities model like it used to be, ceasing to be a regional power but still be a regional centerweight. You will never be able to ignore Russia if you are on its border, but it will degrade in time into a series of competing fiefdoms.

Unfortunately, they also have nukes, and that is something we will have to stress about a few years from now.