The Peter Zeihan Podcast Series - The Future of Manufacturing: Where and Why? || Peter Zeihan

Episode Date: June 28, 2024

China has been the global manufacturing hub for decades, but what happens if that goes away? If and when China experiences a significant collapse, someone will have some big shoes to fill, but who can do it? Full Newsletter: https://mailchi.mp/zeihan/the-future-of-manufacturing-where-and-why

Hey everybody, Peter Zine here, coming to you from Miguel Shores. Today I'm taking an entry from the Ask Peter Forum, and it's if my estimation for the mass collapse of China comes true, where is the manufacturing going to go? Well, first things first, if you remove a billion people from the global pool, you need lost stuff. So yes, we're still talking about tens of trillions of dollars of capital investment that needs to happen,

but maybe not quite as much as we think. Now, once you've gotten past that, you're basically looking at three factors that shape where the stuff is going to go. Number one, a place that is either has itself or is proximate to a significant consumer base to justify the infrastructure development in the first place. Number two, sufficient number of people under 50 not just to consume, but actually to do the work that is necessary. And then third, you would prefer somewhere where they're not starting for scratch. there's 35 trillion dollars at least an industrial plant in China and even if we only need to relocate half of that which would be overly optimistic I would argue having to do that in a place it doesn't have a road and rail system would be a much heavier carrier than a place it does so this rules out any number of locations now Africa doesn't look too good because it doesn't have the infrastructure and it's too dependent on international imports to make its system function

Europe doesn't look that good because while it has the infrastructure, it doesn't have the consumption base. Japan kind of falls in the same category. So when I think of this, I think of three regions. So in ascending order, at the bottom is Argentina. Good infrastructure, great educational system, positive demographics, probably they're arguably the best one in the world for a country at its point of economic development. Of course, the downside is that it's full of Argentine foreign policy. Yes, yes, yes, Malé, the new president, is doing reasonably well, but one president does not make a pattern.

So we will see, but if, if Argentina is successful in reinventing itself, it will easily become the manufacturing hub and player not just for itself, but for the broader Southern Cone region. Brazil can't compete in this. The infrastructure isn't there. The education system isn't there. And the country is aging rapidly. So you can see a world evolving where Argentina gets a lot of these pieces. and then just treats Brazil as a captive market. Okay, that's number one.

Number two is North America. The United States obviously has the consumption base, but so too is Mexico. It's a pretty young country, demographically speaking. And while most of North America has already been absorbed into the NAFTA system, Central and Southern Mexico really have it. So there's a lot of low-hanging fruit there,

not just from a consumption point of view, but from a worker point of view. point of view. And then of course the United States is the world's largest consumer market with top rate infrastructure. So we'll grab some chunks too. The third section and the part that I think in relative terms is going to do the best is South East Asia. Here you've got a cluster of countries that have partially integrate, we partially globalized and partially industrialized, but almost all of them still have significant reserves they can draw upon for labor. And as the place says better and better and better, the consumption in this situation is going to

it better. The two countries that I'm arguably most interested in in relative terms are Vietnam and Indonesia. Both have large populations. Cruen. I ran out of beach. Both have large populations in excess of 100 million people, almost quarter of a billion in the case of Indonesia. Their infrastructure is okay, not great, but it's rapidly expanding, and there's some very clear population centers where this is all, where they're serving as nodes for greater regional distribution. They're also proximate to China. So this is a place where Chinese companies are already investing. These are countries that along with the United States. There are places where the Americans are invested. These are places to get well with Japan, so the Japanese are

investing. And most importantly, they're all at different stages of production. So it's easy to imagine a supply chain system where the Vietnamese do the really high-end stuff, then come down the ties and Malaysians for the middle manufacturing, and then lower-end stuff in places like Indonesia. Vietnam is the one I'm most interested in because they're trying to, and to jump stages of production and already 40% of the college grads are STEM graduates. So it's easy to see them becoming the next Malaysia, but with a population that's roughly four times as large. That becomes significant very very quick quick. So do I give everything? Yeah, I think that's everything. All right, everyone have a good one.