So last night I listened to an amazing talk by Peter Zeihan, entitled The New President & World Challenges (h/t Arnold Kling). It's a bit over an hour long, but Mr. Zeihan is an entertaining speaker, and his ideas are very provocative. Highly recommended! Indeed, I'm sufficiently inspired to write about it now, despite the fact that I've just ordered his book and should probably wait until after I've read it. [I've since posted reviews of Mr. Zeihan's books here and here.-ed]
Mr. Zeihan does say that we're at an inflection point in world history, symbolized not by the end of the Cold War, but rather by the end of Bretton Woods (BW). BW was an agreement between the United States and the Free World that the US would control the world financial system, while in return we would 1) guarantee global security, specifically the flow of trade routes and oil supplies, and 2) allow free entry into the US marketplace. To keep its end of the bargain, the US built by far the strongest military in the world.
That agreement worked spectacularly well. After Nixon visited China, that country also became part of the "free world", and the system brought 400,000,000 people out of poverty. Japan and South Korea took maximum advantage of BW, to spectacular effect. And of course the Marshall Plan (which depended crucially on open US markets) was a smash hit. Organizations such as NATO prevented global war for 70 years, and the European Union was founded on the assumption that global peace was durable.
So what went wrong? Nothing, really, but something very dramatic went right. Fracking. Within a period of about 10 years the US went from being dependent on oil imports to being a net oil and gas exporter. Today we buy next to nothing from the Persian Gulf. Our need for the Venezuelan resource has dwindled to nearly zero, and even Mexico can't sell oil to it's northern neighbor.
For years this was euphemistically proclaimed as North American energy independence, as if we were dependent on Canada. And perhaps at one point we were, but no longer today. The much maligned Keystone Pipeline would have found a ready market as recently as 2008, but today it becomes irrelevant. American shale gas and oil are more than sufficient to supply the entire economy.
Further, they are now competitive on price with everybody but the Persian Gulf states, and on present trends US frackers will be the world's low-cost producers by 2022 or so.
Good news! Right?
For the United States, yes, but not for the rest of the world. The US now has no economic interest in the Persian Gulf, and therefore no incentive to maintain security there. Mr. Zeihan points out that historically the US maintained an aircraft carrier group in the Persian Gulf at all times. Today our ships are there only half the time. He predicts that soon enough there will be no American naval presence in the Persian Gulf at all.
Of course protecting the Persian Gulf means defending the sea lanes approaching the Gulf, especially from northeast Asia, which countries depend crucially on that energy source. But America's enthusiasm for defending their trade routes has also diminished. Japan and China are in a panic--they do not have the ability to protect those trade routes themselves, much less preserve peace in the Middle East.
A knock-off effect is the US no longer needs bases in Western Europe, which were used as a forward base for the Middle East. Indeed, Mr. Zeihan claims that the US now has fewer troops posted abroad than any time in postwar history. And our footprint is about to shrink further.
Of course Europe also depends on Persian Gulf oil, and will be equally unable to secure it for itself. The result is that Germany becomes dependent on Russia (and vice versa). The geopolitical calculus that led to the Hitler-Stalin pact reasserts itself. NATO is dead. So is the EU.
So doesn't the US care about the fate of its allies? A whole lot less than you might think, and that leads to the second disastrous piece of good news: artificial intelligence (AI).
AI reduces the need for large amounts of low-cost labor. All those women slaving away in the textile mills of China, Vietnam, Bangladesh, etc. are about to be rendered redundant. That manufacture will now be done by machine, with only a small fraction of the employees. Labor costs will not be the determining factor, but instead electricity (cheaper in the US than anyplace else), proximity to markets, and availability of natural resources will clinch the deal.
In a word, manufacturing moves back to the United States. Big time. That's already occurring. Instead of the infernal mills, it will be local, flexible, small-scale, cheap, and very close to the customer. It's all very good news...for the United States.
China, meanwhile, goes bankrupt. Mr. Zeihan points out that China has existed as a unified state only for brief periods in its history. He predicts disintegration, or perhaps only civil war possibly leading to disintegration. China will resume its historical role of not being part of the world economy. Poverty for Everybody Now--my Trotskyist friends should be happy.
Donald Trump has likely never seen Mr. Zeihan's video nor read his book. He's not an intellectual sort. But he clearly has an intuitive sense of the immense bargaining power the United States now has over its so-called "allies."
President Xi, Angela Merkel, Theresa May, Shinzo Abe, and Justin Trudeau all paid Mr. Trump a visit. (You really need to watch the video to see the humor in that situation.) Trump somehow understands that these people have absolutely no bargaining power whatsoever! Mr. Xi (according to Zeihan) basically conceded everything that Trump asked for in the vain hope that the US will continue to trade with China as it always has.
Theresa May offered a free trade deal with the US, pretty much entirely on American terms and in violation of EU law (Brexit hasn't happened yet).
Angela Merkel had nothing to offer the US, and thus came away with nothing. Germany is no longer a US ally in any meaningful sense of the word.
Justin Trudeau wants to maintain NAFTA, but Trump understands that Trudeau has no choice but to accept American terms of trade no matter what. NAFTA will turn into an American diktat.
All of these world leaders need the US way more than the US needs them. They came to Washington not to negotiate or bargain, but rather in abject supplication.
Welcome to the New World Order. And be very grateful that you live in the United States of America.
Further Reading:
Further Reading:
If we really want socialist victory, it is to be pursued in the united states.
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