The Peter Zeihan Podcast Series - Longshoreman on Strike: US Ports Get Shut Down || Peter Zeihan

Episode Date: October 10, 2024

This video was originally released on Patreon 1 week ago. If you want to see the videos as soon as they come out, join the Patreon here: https://www.patreon.com/PeterZeihan Back to the picket lines we go...this time with the longshoreman. Ports across the East and Gulf Coasts of the US will impacted by the strike, disrupting nearly two-thirds of the imports and exports by water. Full Newsletter: https://mailchi.mp/zeihan/longshoreman-on-strike-us-ports-get-shut-down

Hey everybody, Peter Zion here. I'm a geopolitical strategist, which is a fancy way of saying that I help people make sense of the world. And I deal with a lot. I deal with energy and manufacturing, industrial commodities, agriculture, finance, and on and on and on. As for the places, who, run to the gabbet. North America to Africa. Africa to the East Asian Rim. The East Asian Rim to the European continent, Europe to the former Soviet Union,

former Soviet Union to Latin America and back again. If you sign up for my pod on Patreon for a small fee, you not only get videos every day, you get access to our community forum where you can interact with me relatively regularly. And once a quarter, you will have the option of joining us for a live seminar where you can put your questions to me very directly. Anyway, love to see everybody there. join us on Patreon or wherever I happen to be. Everybody, Peter Zine here coming to you from Dallas. Oh, humid, even in October.

Anyway, today we're going to talk about the Longshoreman Strike on the East and Gulf Coast of the United States. They've been in place for a couple days already by the time you've seen this. And we're looking at roughly half of America's ability of the import and export, closer two-thirds, by water has been shut down. basically every port from Maine to the Texas border with Mexico is in effect and all the ports are closed. This is going to have an impact far more than the actual time of the strike, which is so far to be determined. Because for every day that the strike has shut down the ports, it takes about four days for once they reopen to clear the backlog. So if you hear that the port has been cleared while you're watching this video, it's still going to be upwards of two. two weeks before they actually get back to normal.

And so if this lasts through the entire month of October, that will obviously impact the holidays and going into the new year. Now, who gets hurt most by this? Europe is the short version. Well, there's two. Europe and agriculture. So first Europe. The Asians obviously import and export via the west coast of the United States,

which has a different union structure. Talk about them later. But the European model is different from the Asian model when it comes to interfacing with the United States. In Asia, they either import finished products. Well, no, that's the bottom line. They import finished products for the most part. The Europeans bring in all kinds of parts and have them assembled within the United States as much as possible

so that they then can get around tariff walls. That means that the parts have to have access. So most of the automotive industry that is in the east or the West Coast regions that has a European component is doing things that way. and it's not just automotive. It's pretty much any sort of manufacturing that the Europeans are looking to source closer to the demographic strength

that is the United States. And so without that constant flow of parts, the whole thing gets disrupted, and that's going to have a very big impact on employment and economic growth throughout the entire Eastern Seaboard for the foreseeable future. The second group that hits hit

is the United States agricultural system because moving things by water is really the only way you can ship things to the wider world with the exception of Mexico. And so everything that comes off of rail, everything that goes down the Mississippi to New Orleans, has to get repackaged onto another vessel, ocean-going vessel at the port and then sent out. And that has basically stopped. Now, we are kind of in a lull of seasons, agriculturally speaking. So if this only lasts a couple weeks, no big deal.

But if it lasts a month, then we're talking about all of the grains that are coming out of the Midwest suddenly have very few places to go. All right. How is this able to happen? Well, the United States has this incredibly stupid law called the Jones Act, and you've probably heard of me talk about it before because it prevents any cargo being transported by any ship between any two American ports by being transported by anything but a system that is 100% American-owned, Captain, crude, and built. We don't do this for any other modes of transport, and if we did, we'd be in a significantly worse economic position than the United States is. but since this law was passed in 1920, we've seen the amount of cargo in terms of value per mile

that has shipped on our waterways drop by over 99%. There's also a couple clauses in the Jones Act as regards to port management, which basically makes them all local monopolies, and unions have taken advantage of this by forming a network of unions that takes in all of the ports

so that when one of them strikes, they can all strike. If this was done in the corporate world, this would obviously be illegal. And what the unions are demanding is a 70% pay increase, but the real kicker is they want a guarantee in their contracts that no automation will ever be added. They want to go with like 1970s, 1980s levels of automation. And already America's East Coast ports are among the world's least functional. There are a number of ports in the African continent that actually are more advanced than ours now. Now, under normal circumstances, what we would do, we, the United States, whatever, is give them everything that they say that they want.

and then behind the scenes work, work, work, work to add automation so that this can never happen again. That's more or less what happened with the Teamsters Union on the West Coast. And now the port of L.A. has gone from one of the worst in the world in just the last few years to one of the, you know, let's call it above average. And repeating that on the East Coast would be wonderful. That's probably not going to happen for political reasons. Not only is this an election year, we are going through our once every generation or two political. realignments in the United States, and the factions that make up our parties are moving around,

and one of those factions is organized labor. One of Donald Trump's political successes was teasing them out of the Democratic coalition, but he has not yet succeeded in folding them into the Republican coalition. So they're kind of out there in the wind right now, free agents. And as the Chinese system fails and as the Euro system falters, if Americans still want manufactured goods, have to build them ourselves. Well, that means we need to double the size of the industrial plant. How many of those jobs do you think are going to be blue collar? Probably 80% or more of them. So we are at the dawn of the golden age of organized labor in the United States, and the longshore

union is part of that process. So it's difficult to see the Biden administration using its executive power, which does have to forcibly end the strike before the election. I can't say it won't happen, but it's politically more complicated now that it would have been the last time that this went down in the 1980s. And so we've got a very different situation here. And it's going to be complicated because neither side really wants to piss off organized labor right now. Now, if you're a manufacturer, you've got two possible solutions here. The first one is the easiest one and the one that will probably be followed most aggressively. Mexico, Mexico, Mexico, Mexico, Mexico, Mexico, Mexico, Mexico, Mexico, Mexico, Mexico.

Over 90% of our trade with Mexico is done by truck and rail. It doesn't touch the ports at all. One of the advantages of having a land border. And so the Mexican integration with, especially Texas, but the United States in general, isn't being affected by this really much at all. And that's certainly going to increase the argument that Mexico, it not only is our number one traded partner, but is going to maintain that position for the rest of our lives.

And by our, I mean, anyone who's alive today. The second piece is a little uglier, and it's not ideal, and that's inventory. We've spent the last 40 years in manufacturing going to something called Just in Tire, the idea that as you get better with logistics, you can partner with all of your suppliers, so every piece arrives at the moment you need it in order to assemble a product. And by doing that way, you don't have to buy rafts of warehouses to keep parts for emergencies. you can just focus on the supply chain. Well, if the supply chain is not reliable because of strikes at cords,

you have to go back to something called just-l-case. And that means stockpiling parts, maybe not at your primary facilities, but along the supply chain route for everything. And that means probably having four, maybe five times as many parts in circulation of time. That is expensive. You need to buy the land.

You need to maintain the inventory. You need to staff that. You need to have basically twice as much industrial plant dedicated simply to holding things in a box. It is wildly inefficient, and in the world the United States is finding itself in, very, very expensive because we need to expand our productive capacity, not expand our storage capacity, and if just encased techniques need to be done, then we have less capital, less labor, and less land, less industrial plant available for the things we actually need to build.

But until one way or another, this is resolved, if you, you are a European manufacturer, that's really your only option.