The Peter Zeihan Podcast Series - Things I (Don't) Worry About - Chinese Investment in Mexico || Peter Zeihan

Episode Date: November 28, 2024

If you're getting worried about Chinese investments into infrastructure in Mexico, it might be time to switch the TV off and take a walk...because that narrative is a complete fabrication. Join the Patreon here: https://www.patreon.com/PeterZeihan Full Newsletter: https://mailchi.mp/zeihan/things-i-dont-worry-about-chinese-investment-in-mexico

Everybody, Peter Zine here coming to you from Massey Draw Above the Denver Metroplex. Today we're going to talk about something that has been on a lot of people's minds on my work trips the last couple weeks. Two weeks ago, I was in Mexico, and one of the first questions that everybody asked me is what I thought about the Chinese effort to build industrial plant in Mexico to get around NAFTA regulations and ship stuff into the United States. Last week, I was in Canada. The same question popped up, and I decided to turn on the television for a few

15 seconds for the first time in a year. And wow, wow, wow, it doesn't matter who you are. Left, right, center, economics, socialists, whatever, whatever you're watching, this is a hot topic. It pleases me to say, as somebody who just looked at the data, it's a complete fabrication. China doesn't even make the top 10 list for foreign direct investment. That's investment in a physical point in Mexico. In fact, it doesn't even show up in government statistics. It's so low down the scale. And, you know, honestly, folks, let's be honest here, a little soul searching. This kind of stuff is really hard to hide. I mean, an industrial plant that's going to be big enough to process, even if it's just a stamp

made in Mexico onto a previously made Chinese plant and shipped to the United States, that's not small, that's not quiet, that we don't have stealth fields, and there isn't a single facility doing this anywhere in the northern Mexican states. And then the infrastructure into the central Mexican states is insufficient for the task. Anyway, this is something that we have dreamed up ourselves in our post-truth environment that just happens to have taken on a life of its own. It reminds me a little bit about when everyone was panicking a couple of years ago about the Chinese purchasing farmland. And again, the Chinese weren't even in the top 10 list. Now, that doesn't mean that there aren't foreign

entities that are looking to do something like this. But it's not China. It's Canada. Canada is the number one owner of farmland in the United States outside of Americans. And it's the number one investor into Mexico after the United States. And yes, yes, we should be concerned about Canada. With their rule of law and their politeness and their heavy coats. I mean, Canada, I'm watching you. Anyway, should things change? Should this become a real thing?

Three things to keep in mind. Number one, NAFTA 2, which was renegotiated by Donald Trump in his first term, has very clear rule of origin laws, which says a certain percentage of goods have to be made in the NAFTA states. This hypothetical scenario where the Chinese are trying to get around that is already covered by U.S. law. And the U.S. already has tools within the NAFTA system to deal with it economically, politically, and to block the products should it become a problem. That authority already exists. In addition, the most likely person to take over trade policy in a second Trump term is Robert Leidheiser,

who is the guy who wrote these clauses and negotiated NAFTA to in the first Trump. Trump situation. So I have no doubt that if there's any inkling that this is going to go down, that Lightheiser will take personal responsibility for this, and he is by far the most competent person who was on Trump one team. And if he accepts Trump's offer, he'll be the most competent and capable person on Trump 2's team. So put that to the side.

Second concern, if something like this does go up, it will not be quiet. When the Chinese build industrial plant in third countries, they bring in their own workers, they house them on site and then generally generates a lot of labor protests for the host country to deal with. And Mexico now has a healthier press environment that the United States does. And Mexican workers will not be shy. Mexican business leaders will not be shy about shining light on something like this. Should it go down? Keep in mind that most of the business leaders in northern Mexico are relatively oligarchic,

a little bit Elon Musky, and they really don't like it when things don't go their way. And they're not going to be quiet. So we have a really good alarm system built in should this happen. Third, and finally, the Chinese system is failing due to demographic collapse before you consider trade tensions, before you consider the possibility of a conflict in the world that would interrupt raw material supplies, energy supplies, or merchandise exports. We need to prepare for post-Chinese world, which means here in North America, we need to roughly double the size of the industrial plant. And if the Chinese do decide to come in to build industrial plant in North America, think about what that means.

They are spending some of their limited capital resources and technology and labor in order to help us get ready for a world without them. So even in the worst case scenario where I'm completely wrong and this is about to happen at scale, the worst case scenario, still pretty good.