Geopolitical Evolutions

• The Dawn of the American Age– Geography, Demography and Shale Energy

• The (Real) Crises of the Future– The North American Drug War– European History Recommences– The China War– The Alberta Question– Militancy and immigration go big and go

global

Peter ZeihanSIBF

October 5, 2013

Bretton Woods: Restructuring the World

• 1946: U.S. dominates high seas• Formation of Bretton Woods

– Establishes World Bank, IMF, and USD as the global currency

– U.S. grants market access without demanding reciprocity

– Adherents defer to U.S. security policy

– U.S. uses maritime strength to guarantee maritime trade

Bretton Woods: A World Restructured

BW turned maritime rivals into allies and clients, leaving only disparate land powers to challenge the American power

(that’s hard)

Bretton Woods: A World Restructured

The American GeographyIntegrated natural transport network overlaying gigantic piece of useable landÞ Unified, capital-rich polity

Two oceansÞMassive military insulationÞDirect access to two trading basins

Net effectÞ Largest marketÞLargest agricultural producer/exporterÞLargest military

Evolving Demography

Shale:Acceptance?

• Groundwater contamination (porous v non)

• The “toxicity” issue is about to vanish

• Even without “approval” is already remaking the system

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

4.00

6.00

8.00

10.00

12.00

14.00

16.00

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Average Electricity Prices

US total NY TX CA

Shale Output: Only Local…United States

Middle East

FSU Europe China

Deep capital supplies

5 4 2 4 3

Legions of autonomous petro-engineers

5 1 2 3 2

Legal system that rewards landholders

5 3 3 1 2

Preexisting collection/ distribution infrastructure

5 2 5 4 2

The Situation at the End of an Era• Large, stable,

growing market• Energy secure• No hegemonic rival• Dominates (but

doesn’t need) intl trade

Þ Energy/trade no longer central concerns of strategic policy

Þ U.S. largely immune to intl system

Every culture has a national neurosis, the Americans’ is...

manic depression– Pearl Harbor– Sputnik– Vietnam– Japanphobia– Sept 11, 2001

A Critical Point About the Americans:Geopolitics and Culture

The First (Mexican) Problem:A Very Hostile Geography

No rivers, few portsÞLow capital generation

Mountainous, disassociated territoriesÞNo infrastructure EcoSÞWill never be a strong state

The Second (Mexican-American) “Problem”:An Economic Miracle Not to Be Missed1) China is losing the

ability to subsidize its competitiveness

2) Remember U.S. shale

3) Young demographics generate growth (and cheap labor)

4) Drug war makes Mexican labor more attractive

The Third (Mexican-American) Problem: Not a Normal Border

2013• 0.7t cu feet of

natgas • $500b of bilateral

trade• 350m legal border

crossings

2020• 3t cu feet of natgas • $650b of bilateral

trade• 500m legal border

crossings

The Fourth (American) Problem: America’s only Ghettoized Community

Crisis #1:The North American Drug War

• American naval interception created the Mexican land route (and the cartels)

• The cartels can expand along land routes

The First Chinese Problem: UnityNorthern consolidation difficult; Yellow River unnavigableÞBeijing is the political/military capital

Yangtze is navigableÞShanghai is the economic capital

South has good ports, but (sub)tropicalÞGreatly retards northern controlÞEncourages foreign presence

The Second Chinese Problem: The Limits of Bribery

• Country requires social binding agent

Þ Private capital pooled, then funneled at sub-market rates

Þ Maximize employment by large firm size, market share and throughput at the cost of debt and profitability

Þ Subsidizes inputs and outputs

?

The Third Chinese Problem: Nationwide Subprime

Crisis #3: The China Wars

The First Canadian Problem: Transport

The Second Canadian Problem: Old

The Third Canadian Problem: Needs MismatchPopulation heft 22 million in

eastern, Eur-oriented core

3.6 million, sequestered near U.S. Midwest

Demography Aging towards mass retirement

American-style double bulge

Tax structure High: support aging pop

Low: support young pop and energy industry

Currency preference

Strong: preserve purchasing power

Weak: facilitate commodity exports/FDI

Alternative markets

None needed None available

Option 2: The Prairie Kuwait Option 3: The 51st state Option 1: Patriotic but poor(ish)

Crisis #4: The Alberta Question

A World Without Canada?

• US completely energy (and largely mineral) independent

• The “adult” factor

Crisis #5: Militancy and Immigration Go Big and Go Global

Global Stability Map: Militancy

• Militants like collapsed states• Transborder terrorists like weak states

Global Stability Map: Immigration

• Skilled labor likes stability and growth– Steady influx of fleeing capital and high-skilled labor– Keeps cap on capital and labor costs

1985 1990 1995 2000 2005 2010 2015 2020 2025AustraliaCanadaFranceGermanyItalyJapanUKUSBrazilChinaIndiaMexicoRussiaTurkeyIndonesia

The Cheat Sheet Slide

Demographically-

Driven Growth

Financial

Tipping

Points

Curre

nt

Geo

politi

cal

Risk