The Peter Zeihan Podcast Series - Why The US Needs Mexico: Replacing Chinese Manufacturing || Peter Zeihan

Episode Date: October 12, 2023

As the US pulls manufacturing from China, we'll look to Mexico City to fill that void. This region not only holds over half of Mexico's population but also represents the largest untapped workforce globally.Full Newsletter: https://mailchi.mp/zeihan/why-the-us-needs-mexico-replacing-chinese-manufacturing

Hey everybody, Peter Zine here coming to you from Mexico City, and for those of you back in the States, this is a town you're going to all have to get used to. I'd get to know very well because it's the solution to a lot of the upcoming problems. Now, for those of you guys who have been following me for a while, you know that I've been very concerned that the Chinese system is breaking. The demographic situation is terminal. The government itself seems to be incapable of making decisions now. And Chairman Xi has basically purged the entire system of anyone with a positive IQ. which means that all of the manufacturing industrial base that exists in China is something

we're going to have to get by without very, very soon. The question is whether that's one year from now, three years from now, or ten years from now, but certainly no more than that. Which means if we still want stuff, we're going to have to make it differently, and that's where Mexico comes in. Now, a lot of folks point to the nexus between Texas and northern Mexico as being a very successful model, and I agree. Over the last 35 years, the industrial plant that's built up there,

has made itself all by itself, the third or fourth war, just on the planet, next to China Inc, of course, and the German system in Europe. But that is not probably something that we can pull off again. I mean, yes, there are ways to improve that with infrastructure, with labor, with capital of tech. I agree with all of that. We should do all of that. But the bottom line is that Texas has run out of people,

and it has now had to recruit from the rest of the United States just to expand its footprint from where it is now. and Northern Mexico has run out of people because they're all already working in that Texas-Mexico synergy. And it's great and it's wonderful. And it's not done, but it can't double or triple. And that's exactly the scale of what we need to do. The solution is to integrate the rest of the United States with the rest of Mexico, specifically the greater Mexico City region, which is home to over half of Mexico's population. And it's the largest untapped workforce in the world at the moment. That means massively expanding the infrastructure that connects the two countries.

Today, about 80% of the traffic and manufacturing between Texas and northern Mexico is by truck, which is among the least efficient ways that you can move things, but it does allow for a lot of small connections with small and medium-sized enterprises on both sides of the border, contributing to very complicated supply chains, particularly in automotive. We need to think bigger. We need a better transport system to take things at ball, So there's not necessarily less integration between the various steps on both sides of the border, but the value add can really explode because we can do things at scale.

And for that we need rail. We need a rail system that connects areas beyond the Texas Triangle to the Mexico City core. Right now there's only one multi-mobile rail system at all that comes south from the border as far south as the very edge of the Mexico City complex. We need to expand that system by at least a factor of four in the not too distant future. In addition to expanding the border infrastructure, in addition to expanding America's I-35 corridor, in addition to expanding the Texas Triangle's connections to the rest of the manufacturing zones in the United States. If we pull this off for the next five years, we're going to be in great shape. And if we don't, well, then we're going to have to figure out what sort of stuff we don't actually want.

No pressure.