ORDER PETER'S NEW BOOK: DISUNITED NATIONS
By
Peter Zeihan March 6, 2020
@ Zeihan on Geopolitics -
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In the past couple of weeks coronavirus cases outside of China surged.
Particularly worrisome clusters emerged in South Korea and Iran,
countries which serve as transport hubs for their respective worlds. US
President Donald Trump is doing his normal rambling press conference
thing, contradicting most of what little information that is out there.
Data coming out of China is more positive, but the idea that China and
only China has cracked the code on how to stop a highly virulent virus
from spreading in dense population centers is, in a word, dubious. Is
anyone not feeling at least a bit…twitchy?
Let’s shift the conversation: Coronavirus may be the most
positive thing that’s happened to the global economy in recent years.
China is the world’s workshop. There are precious few complex
manufacturing supply chains that don’t link to the mainland in at least
some way, with computing, electronics and automotive by far the most
exposed. China represents a bit more than a fourth of global
manufacturing output all on its own and sports seven of the ten busiest
container ports in the world.
The two zones in China most impacted by coronavirus are the Pearl Delta
and Yangtze Valley. Most of the 150 million people in China under some
degree of involuntary quarantine reside in these zones. The Pearl and
the Yangtze are the two most technologically advanced portions of the
country, sporting the most sophisticated industrial bases. These regions
are by far the most internationally connected of China’s population
zones.
The viral epicenter city of Wuhan is one of the largest automotive
manufacturing centers in China. Nissan and Honda alone manufacture
nearly 2.25 million automobiles there annually. Dongguan, a city in the
Pearl River Delta, is known as “the world’s factory” and on its own
produces an estimated one-fifth of the world’s smartphones and one-tenth
of its shoes.
We’ve all read about how this or that product or company or industry
faces pressure from the Chinese shut-ins. So far, shipping companies
have cancelled over 80 sailings of container ships, meaning that tens of
billions of dollars of goods, many of them inputs into other goods,
either weren’t produced or couldn’t get where they needed to go. The
sudden lurch in China’s $70 billion annual auto-parts exports industry
is already stalling automobile manufacturing in South Korea and Eastern
Europe.
But here’s the thing: China’s position in the global system is artificial, and it was going to end anyway.
A look back:
To distill America’s entire Cold War strategy: the Americans created a
global Order to provide an economic incentive for membership in their
military alliance network. The Americans broke the empires and paid
everyone to be on their side against the Soviets. Of the many
unintentional side effects was the fostering of an environment where no
one shot at anyone else’s shipping, no matter how valuable that shipping
might be.
In absolute terms, China is by far the biggest beneficiary of this
American-led Order. Japan and the Europeans had carved Chinese territory
into imperial spheres of influence. The Americans ended that. China’s
manufacturing prowess required the economies of scale of all China being
under a single government system. The Americans enabled that. China’s
import-export model requires freedom of the seas for commercial shipping
to sale the ocean blue without military escort. The American Navy
guaranteed that. Without the American-led Order, the Chinese would have
never been able to
unify or
industrialize or
modernize or
urbanize.
Today, as the Americans step back, there is less than zero hope for the
Chinese to step forward. China’s navy is short-range, designed to
recapture Taiwan. Convoying clusters of slow-moving supertankers to and
from the Persian Gulf is simply beyond China’s capability, much less
enforcing the sort of all-ocean maritime safety that the Americans have
done as a matter of course these past seven decades.
If anything, it is worse than it sounds.
Energy: China has had no equivalent of the American shale
revolution. As the Americans have achieved net energy independence, the
Chinese have quadrupled down on becoming the world’s largest oil
importer, with the bulk of their oil needs sourced from none other than
the Middle East. China lacks the ability to convoy tankers to and from
the region (past oil-importing regional rivals Japan, Taiwan, Vietnam
and India no less), much less intervene in a way that might preserve oil
flows in the way the United States has done almost pathologically these
past seven decades.
Agriculture: Some 80% of global foodstuffs can only be produced
with imported inputs, whether that input be fuel or fertilizer or
fungicide. China has plowed under its best farmland to build all those
factories, making the country more input-dependent than most: China
today uses some five
times the inputs per unit of food of American farmers and
still
hasn’t achieved food self-sufficiency. In a world without trade China
can neither import sufficient foodstuffs from a continent away nor grow
its own. Failures in food distribution have crashed far more governments
than war or disease. Just ask Mao how he rose to power.
Manufacturing:
Modern manufacturing is a logistical marvel that
taps hundreds of facilities in dozens of countries, but that system is
based on frictionless international trade. Break just a few links and
the entire network collapses. A modern car has about 2000 parts. If you
are missing ten, you’ve got a large paperweight. Even if the Chinese
could somehow magically maintain their globe-spanning supply chains
without a globe-spanning navy, there remains the question of who would
buy everything?
Demographics: The One Child Policy has gutted the country’s
next generation of consumers far more effectively than anything the
Cultural Revolution or Great Leap Forward ever did. The mean Chinese
aged past the mean American about two years ago, so a consumption-led
system at home is simply off the table. Slow-moving aging throughout the
bulk of the world is doing something similar in Europe and Canada and
Brazil and the former Soviet Union and Japan and Korea. Even if somehow
the Chinese could make their manufacturing system work without the
American security blanket, the export-based model upon which
contemporary China is based would have ended this decade anyway for want
of consumers.

In
a world where the Americans do the security heavy lifting and guarantee
the world access to their consumer market – one of only a few that will
not contract in the 2020s and 2030s – China’s global integration
efforts aren’t simply smart, they are doomed to succeed. In a world in
which the Americans’ step back and the rules by which the world works
change, China is doomed to do the other thing.
Which means coronavirus is giving us a rare gift. A glimpse into a future
without globalized manufacturing in general, but in specific a glimpse into a world without
China.
Any company or industry that can weather the suspension of industrial
activity in the Pearl and Yangtze should be able to manage the coming
global collapse with relative ease. Any that can’t, well, they now know
precisely where their exposures are. The question now is whether
impacted firms treat this as a one-off or the serendipitous peek that it
is.
My new book
Disunited Nations: The Scramble for Power in an Ungoverned World
published March 3. It contains a big fat trio of chapters on what makes
for successful empires and countries, much of which focuses on China.
Spoiler alert: It does.