The Peter Zeihan Podcast Series - The American Reindustrialization - A (Stalled) Progress Report || Peter Zeihan

Episode Date: April 1, 2025

I recorded this video before Trump took office for his second term. At the time, this video outlined the trajectory the US was on. We held off on releasing the video because...well, everything was going to be changing.We'll be doing a deep dive on all of this during the Live Q&A on April 9 over on Patreon.Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/the-american-reindustrialization

Happy April fools, everybody. Peter Zion here coming to you from Colorado. We are coming up on what Donald Trump calls Liberation Day tomorrow, April 2nd, in which he has indicated he's going to announce the most robust tariff structure the United States has ever had in its history on top of the tariffs that he's implemented over the last five weeks, which are already the most comprehensive and largest tariffs we've ever had in our history. And dealing with the specifics of the economic fallout of that is going to be the topic of most of my work for the remaining of this month and probably for the remaining of Donald Trump's term in office. It's probably going to be utterly transformational, at least

as transformative as the United States moving off the gold standard under the Nixon administration, probably the most robust change to the American economic structure since the end of World War II. But I'm getting a little ahead of myself. Before we talk about Trump's impact, it has to happen. That's tomorrow. So for today, I wanted to highlight the trajectory that we were on before Donald Trump took office. What follows here is a video that I recorded the week that Donald Trump became president, but decided not to release because there's some things going on in the White House that suggested that the trajectory was going to shift.

So before we talk about what will be now, I think it's useful to see what we would have had otherwise. Everybody, Peter Zion here, taking a... question from the Ask Peter Forum on the Patreon page, and that is where is the United States or where do we stand in the re-industrialization process that started a few years ago? Just quick backgrinder. The Chinese population is plummeting, and we now have about the same number of people in China above age 50 as below. And so we're looking at an economic collapse over the course of sometime in the next decade. And so if the United States still wants manufacturing goods, we're going to have to get it from somewhere else. And the quickest, easiest,

cheapest way to do that is to build out the industrial plant within North America. And to that end, we have seen industrial construction spending. Think of that as the construction of factories, expand by a factor of 10 over the last five years. So we are definitely hitting the ground running in a number of sectors. The two sectors that have seen the most activity are things that are energy adjacent, taking advantage of the fact that the United States has the largest supply of high-quality crude in the world and the largest supply of natural gas in the world. retooling our entire chemical sector to run off of especially the natural gas and now using all of these intermediate products that we get from the processing of this for other things going

into heavy manufacturing. So that's a big part of the story that is moving very, very fast and is being moved almost exclusively by domestic economic concerns without any push from any politicians anywhere in the system because it's just we have the most and the cheapest and so the next logical step is then to move up the value added scale. That's proceeding just fine. Most of the stuff where the government has put its finger on the scale involves electronics and especially computing. Think of the Chips Act and the IRA, which are designed to bring back the manufacture of things like semiconductors. Now, it's not that I think that any of this is a bad idea. I just think it's kind of missing the primary need we're going to have.

There are 9,000 manufacturing supply chain steps that go into the manufacturer of a high-end semiconductor, and the FabSys facility, while important, is only one of the 9,000, and there are any number of ways that the United States can build out the supply chains in addition to the fabs that are a lot cheaper than the fab. So I'm not saying no. I'm saying it's really, really myopic focusing on one very, very specific piece when you need all of them. If you're looking for a recommendation, I would say the single biggest restriction on manufacturing in general is going to be.

processed materials. I know that doesn't sound very sexy, but it really is a problem. In the United States, we have steadily outsourced pretty much anything that is energy intensive and might have an environmental footprint that we don't like. The Europeans have done the same, to a lesser degree, the Japanese is the same thing. And most of this stuff has gone to China. It's not that China is better at it and more efficient at it. It's just that the Chinese massively subsidize everything and their environmental regulations are significantly lower. So taking raw materials like box site and then terming them into an alumina and then aluminum, the Chinese control roughly 60 to 70% of that market. For something like gallium, which is a byproduct of aluminum processing, it's closer to 90%. For

things like rare earths, it's over 80%. For lithium, it's not that they have the lithium that comes from Australia and Chile, but they take the lithium concentrate and the lithium ore and they turn it into metal in China. And you can just go down product after product after product where the Chinese basically have cornered this market. Well, if the Chinese go the way, then I'm anticipating All of that's going away. And we're going to have to make our own. It's luckily, there's nothing about these material processing technologies that is difficult. In most cases, you're talking about things that were developed over a century ago. And it would probably only take a couple of years and a few billion dollars to set up for each specific material that we need.

So not hard. But something that is cheap and quick is not the same as saying that it is free and overnight. And until we do the work, we haven't done the work. work. And if China cracks before we do the work, then we have to figure out how to re-industrialize without lithium or aluminum or cobalt or on and on and on and on. So this is something where I would expect state governments to take the lead because it's ultimately about an environmental regulation issue paired with the energy intensity that's required. And so most of this is probably going to end up going on in the Texas or Louisiana coastal regions, just where those two things

kind of come together right now. Nice for the federal government to do. part of the solution. But considering politics in the U.S., I think that's kind of a high bar. One other broad concern, no matter what the industry is, no matter what is reshoring, no matter what we're expanding, automotive, aerospace,

insulation, you know, take your pick. All of it requires electricity. For the last 35 years, the United States has become a services-only economy to a certain degree. We do manufacturing. In terms of value, we produce more in the manufacturer sector than we did 35 years ago, but everything else has gotten

so much bigger. And while the AI push with data centers does require more electricity than what we've done before, as a rule, moving things, melting things, stamping things, building things, requires more energy than sitting at a computer and typing. And so we have, for the first time in 35 years, a need for a massive expansion in the electrical grid. We probably overall need to expand the grid by about half and half, and expand generating by about half. And there are certain parts of the country, like the front range, Arizona, Texas, and the south going up to roughly Richmond, that probably need to double their grid as soon as possible, because if you don't have enough electricity, it's really hard to have meaningful manufacturing. The problem in the United States is we

don't have a grid. We've got one that's basically from the middle of the Great Plains West, from the middle of the Great Plains East, and another one in Texas. But even that makes it sound like it's more unified than it is, because almost all utilities are state-manded local monopolies. So they all have their turf, and all of them have to individually make a case for expanding their electricity production because that cost ultimately has to be passed along to someone else. One of the reasons why I'm so interested in things like small, modular, nuclear reactors, is if you get the tech folks to pay for that, then all of a sudden you get the power and you don't have to go through all the normal regulatory rigmarole

because you have to, as an electrical utility, prove to your regulator that what are you doing is in the best interests of your end consumers. And until you have the manufacturing capacity, it's hard to make the argument that you need electricity to make manufacturing capacity. So it's a very chicken-in-the-egg thing. The easiest way to get around this

would be for state and regional electrical authorities to loosen up the ability of one electrical mini-grid to provide electricity to another. That would do two things for us. Number one, it would increase the amount of transmission we have within the system, allowing power to go from where it's generated to where it's needed. And second, if you're in a rural area that's not likely to get, say, a major chips factory, you could still build a power plant and export it to an urban center that is likely to need a lot more electricity. And all of a sudden, you can get someone else to pay for your electricity development in your own region. So that is where I'd say the shortfall is, it's a solvable one. It's just one that we need to do as soon as. possible because if we say wait 10 years and the Chinese are gone, then we have to do this all

from scratch with less money, less labor, and everyone trying to do everything at the same time. And if you think inflation was uncomfortable the last three years, nothing compared to what that environment would be like. Yeah, it doesn't look like any of that is going to happen now. I mean, the core issue here is that the Chinese are still collapsing probably ahead of schedule. We're now talking less than eight years. And the United States has a limited amount of time to re-industrialize in preparation. The Trump tariffs are going to slow that. process down make it a lot more expensive and by cutting out some of our key economic partners most notably Canada and Mexico everything is going to take longer

everything is going to be more expensive and inflation is going to be a much bigger problem than it would have been otherwise and it was already going to be very high now you have seen this video for free because I want to give everybody an idea of where we are in the road and if you want to keep up with everything we are doing a seminar on the 9th of April so about a week after Trump's terror such you give me enough time to digest everything and it looks like it's going to be a doozy. If you sign up for Patreon now, you not only get all of our newsletters as they come out instead of with a weak delay, you also get to attend the seminar and submit your

questions ahead of time and then live while we're doing it. It usually takes about an hour for us to get through everything. I have a feeling that this time it's going to take a little bit longer. See you soon.