The Peter Zeihan Podcast Series - The Chinese Cut Off Drone Exports || Peter Zeihan

Episode Date: December 30, 2024

The Chinese Government has moved toward implementing an export ban on drones and drone components, with an eye toward making supply issues a particular headache for the United States and the Ukrainians. Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/the-chinese-cut-off-drone-exports

Everybody, Peter Zine here coming to you from the Tongariro crossing in New Zealand. And today we're going to talk about the Chinese drone ban, basically specific parts, guidance systems, motors, and the battery systems are now on a restricted list, specifically to Ukraine and the United States. This was done at Russia's behest because the primary method that the Ukrainians have found that really hurts the Russians, just throw lots and lots and lots of drones at them. And they're starting to combine drones with rocket engines, which is getting really exciting.

And the idea is that if they can't access the parts, they won't be able to pursue the war. So, you know, there's that. Pros and cons. First of all, the con is pretty obvious. The Chinese shove just a bottomless supply of financing into everything that they decide that they want to corner. And drone manufacturing is not particularly sophisticated,

so it's something where they've become far and away the world's largest producer of drones and drone parts. And most of their competitors around the world, world still use a significant amount of parts from the Chinese in order to make their own drone products work. And that's certainly the problem we're having here in the United States now. The only way around that is to build your own capacity, which brings us to the second point. Pro, I love that the Chinese are giving us an excuse to build our own capacity for both economic and strategic reasons. The Chinese ethnicity, the Han ethnicity, is literally dying out.

Their birth rate has now been so low for so long that they now have significantly more people overage 50, then under age 50, and their workforce is vanishing. Their consumption is gone, which is why we keep finding ourselves in these trade spats, because they don't consume much anymore. It's export. And in a world just a few years from now where the Chinese can't even maintain the workforce, because everyone will be older, we are going to have to get by without Chinese stuff. So the more excuses we have to front load the re-industrialization, regardless of the manufacturing,

subsector, the better. The product I'm most concerned about within this is actually not in the drone world, because that manufacturing is pretty straightforward. U.S. is already good at that. We're just going to build out more. It's with the lithium batteries. Right now, most of the world's raw lithium ore comes from Chile, Argentina, and especially Australia. But then it is taken, for the most part, to China for processing into lithium metal and then to be built into battery chassis. That's the part of the process, the processing and the chassis production that we need to reshore into North America as quickly as possible. And while I think that lithium is a stupid battery chemistry for transports and that EVs in general are not a great idea, grid storage makes a lot of sense.

The idea that you can take a lot of this lithium, whether it's in pre-existing batteries for EVs or drones or whatever else, and pack it into a container unit and use it to store megawatts of power. And then that can do the part of what we would normally use a piker plant for. Peaker plant is a plant that only burns power or generates power for a few hours a day or maybe a few days a year in times when demand has risen above normal norms. And it steps in. Building a piker plant, hooking up a paker plant to a grid is really expensive because you have to basically pay for an entire power plant for something you're only going to use 10% of the time. But battery storage, you don't have to burn anything.

You can just use the surplus energy, whether it's generated from wind or solar in times that it's windy or sunny, or from your normal thermal power plant and times when demand is lower. So like if you have a nuclear power plant, say it in the middle of the night, and its natural gas power plant

may be in the middle of the day. And you store it and you discharge it in those shoulder times in the morning and in the evening when demand is much higher because people are getting ready for work or getting home from work. If you do that, you save a lot of money on power. And you can only do that

if you have a lot of lithium, and right now we are dependent on the Chinese for the lithium. We're in a weird little moment right now where the United States is evaluated all kinds of trade sanctions and tariffs to put on the Chinese products for really all kinds of reasons. But EVs came first, so it's hard to get a Chinese EV in the United States, but you can still get the battery system. So the Chinese are repackaging their EV batteries into grid storage and sell into the United States. In fact, in Texas, that's the cheapest way to add power generation right now and is the primary reason why Texas hasn't had a power outage this winter so far. Anyway, I think that's all I got. Yeah, bye.