1370: Peter Zeihan | North American Solutions to a Breaking World Order

War is getting cheaper, supply lines are in danger, and the old order is cracking. Peter Zeihan explains why it's breaking and what North America can do. Full show notes and resources can be found here: jordanharbinger.com/1370 https://jordanharbinger.com/1370 What We Discuss with Peter Zeihan: War just got cheaper, not less lethal. A drone costing double-digit dollars can now pick its own target, fly hundreds of miles, and destroy gear guarded by $4 million interceptors. Ukraine fires hundreds a day, and the edge that made piloted systems king is shrinking by the week. America blew through half its Patriot interceptors in the Iran war and can build only about 70 a year — refilling the stockpile is a 15-year math problem. The result: a broad drawdown of US power across the Eastern Hemisphere, because we can no longer afford to defend it. The real crisis isn't losing cheap gadgets — it's losing the building blocks. Roughly 80% of the world's steel, copper, lithium, and cobalt is processed in China. Break that system before a replacement exists, and we lose the materials that make the things that make everything else. AI isn't floating safely above the mess. Its best chips lean on about 9,000 companies and 100,000 production steps, so one broken link stalls the whole thing. Stack that on China's demographic freefall — a white-collar generation apparently never born — and 'fragile' undersells it. The way through: deepen North American integration — lock in NAFTA with Mexico and Canada and rebuild industrial capacity at home. Mexico's plants are largely built and Turkey is rising fast. The path exists; it just takes the discipline to stop dismantling the fix first. And much more... And if you're still game to support us, please leave a review here https://itunes.apple.com/podcast/id1344999619?mt=2&ls=1 — even one sentence helps! Sign up for Six-Minute Networking https://jordanharbinger.com/course — our free networking and relationship development mini course — at jordanharbinger.com/course https://jordanharbinger.com/course! Subscribe to our once-a-week Wee Bit Wiser https://www.jordanharbinger.com/news/ newsletter today and start filling your Wednesdays with wisdom! Do you even Reddit, bro? Join us at r/JordanHarbinger https://www.reddit.com/r/JordanHarbinger/! This Episode Is Brought To You By Our Fine Sponsors https://www.jordanharbinger.com/deals/: Ground News: 40% off unlimited access Vantage subscription: groundnews.com/jordan https://groundnews.com/jordanBetterHelp: 10% off first month: betterhelp.com/jordan https://www.betterhelp.com/jordanCash App: Get $10: Download app, use code Bitcoin10, and send $5 to a friend in the first two weeks https://cash.app/K12: Learn more at k12.com/jordan https://k12.com/jordanSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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• 1:04Speaker 01

  Welcome to the show. I'm Jordan Harbinger. On the Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people. Our mission is to help you become a better-informed, more critical thinker through long-form conversations with a variety of amazing folks, from spies to CEOs, athletes, authors, thinkers, and performers, even the occasional special operator, real-life pirate, or astronaut. And if you're new to the show or you want to tell your friends about it, I suggest our episode starter packs. These are collections of some of our favorite episodes on topics like persuasion and negotiation, psychology and geopolitics, disinformation, China, North Korea, crime and cults, and more. That'll help new listeners get a taste of everything we do here on the show. Just visit jordanharbinger.com/start or search for us in your Spotify app to get started.

• 1:46Speaker 01

  Coming up on the Jordan Harbinger Show, war is getting cheaper. Not less destructive, not more civilized, just cheaper. A drone costing thousands of dollars can now make limited decisions on its own, fly hundreds of miles, and destroy equipment protected by $4 million interceptors, which is excellent news for defense contractors and slightly less excellent news for everyone else. Peter Zeihan is back to explain why Ukraine's rapidly-evolving drone war may be rewriting the rules of combat, why America has burned through so many missile interceptors that it may no longer be able to project power the way it used to, and why the crisis in the Persian Gulf could take down East Asian manufacturing long before most people realize their Amazon order is the least of their problems. Because if China breaks before anybody rebuilds the processing capacity to replace it, we're not merely

• 2:30Speaker 01

  losing cheap electronics. We're losing the copper, steel, aluminum, lithium, and other materials required to manufacture the things that manufacture everything else. We'll also examine why advanced semiconductors depend on thousands of companies and roughly 100,000 production steps, why artificial intelligence may be one of globalization's most fragile creations, and what Peter believes could still prevent the bleakest version of this future. Spoiler: Mexico might help save us. Your LED flashlight may also survive, so at least you'll be able to see how screwed we are. Here we go with Peter Zeihan.

• 3:05Speaker 01

  Peter, are Iran, Ukraine, and China three separate crises, or are we kind of looking at one global systems crisis from three different angles that people can't separate because we're just reading the news?

• 3:16Speaker 02

  At the moment, they're still separate, but you know, I might change my mind by the time it takes us to record this video, so who knows?

• 3:23Speaker 01

  Got it.

• 3:25Speaker 02

  Let me give you the connections real quick. Economically, the Persian Gulf crisis, China is by far the country that's getting hurt by that the most. The only reason it's not really obvious to everybody is the Chinese have stopped sharing data with anyone on anything. So, we really don't know the status of their reserves, or their flow-throughs, or the refinery system. We have a little glimpse at their re-exports of refined product, and that's about it. So, if this isn't resolved, really, the entire East Asian manufacturing system fails, of which China's the biggest piece. The Ukraine angle, we are going through a revolutionary in military affairs. This is the second phase. The first phase was back in the 90s when we started putting digital technologies with military tech. We got satellite communications, we got cruise missiles, cool stuff. Now, the cost of the new generation

• 4:10Speaker 02

  of technologies is so low, like in double digits of dollars, that you can put a low-grade memory chip on a drone with some really basic optics. And when the drone gets over its potential target zone, it can look at what you've loaded into that memory chip, play through a decision tree, match targets, pick a target itself without you doing anything, and then it goes. And once the decision-making is on board, it can't be jammed. And so, we're seeing the Ukrainians literally firing hundreds of these things a day. And we know now that in the first phase of the war back in March, the Iranians had some protoversions of these

• 4:52Speaker 02

  drones. And the drones that actually hit US military facilities were probably using these memory drones. Well, that was almost six months ago now, which means the Iranians probably have hundreds, if not thousands, of them now.

• 5:04Speaker 01

  Right. Geez, wow. So, you're programming this thing to say, hit anything that looks like a person wearing a green uniform?

• 5:10Speaker 02

  Yeah. Basically, you give it a rough map and some silhouettes to look for. You load in a bunch of pilot data, and then you rank order what you're after that day. So, target number one might be the distillation column off of a refinery. Number two might be a fuel truck. Number three might be a power station. Number four might be a tank. And if you can't see anything in the first category, it'll go for the second, then the third, and the fourth, or whatever. And these are getting more sophisticated by the week because the first of these only came out in February.

• 5:37Speaker 01

  Wow, okay, yeah. So, and you don't need like a 4K, 360-degree camera with a bunch of, I don't know, LiDAR on this thing. You just need the most basic... I get stuff off Alibaba for my kid. That's like a little drone ball that you throw to a friend, and it's pretty cool, and it floats well. It doesn't have optics on it, but I mean, it's like $6. So, if you were to spend $60 and you were making a million of them at a time, or whatever, $100,000 at a time, you could put some explosives on there. Even the ones I buy that are really cheap can still lift, maybe if you put two of them together, could still lift a small enough payload that if it blew up next to your head, it would be lights out, right? So, it wouldn't take out a tank, but...

• 6:18Speaker 02

  We have not yet gotten to the point that people are using microdrones on the battlefield to target people. Those are still, for the most part, first-person drones that are controlled through a digital tether, but it's not far away.

• 6:30Speaker 01

  Yeah. I don't see how it could be. I mean, the technology exists, it's probably just kind of expensive, or maybe their preference is to destroy materiel instead of personnel, for now. Geez.

• 6:40Speaker 02

  At the moment, if you've got a fiber-optic drone, so it basically has a spool of fishing line beyond it, that can't be jammed either. And at the moment, that is the cheapest way to target an infantryman. But if this technology continues to evolve, and you can just let out 20 of them, they'll fly over there, look for a soldier, and if they can't find any, they'll fly back and land. You know, once that becomes cheaper, that's what we'll do.

• 7:02Speaker 01

  Yeah, yeah, wow. A lot of people think, oh, once they have drones, all of our fighter jets and Patriot interceptor missiles are obsolete because they won't fight wars like that anymore. That doesn't sound right to me because you do different things with those tools.

• 7:14Speaker 02

  It's a different layer, and it's changing how the weapons are used. So, as a rule, I tend to agree with you, but something to keep in mind is that since 1989, there's really only been one large military-industrial complex in the world that's been American, and most of our allies buy our equipment. And what we're discovering now is a lot of these new technologies are really effective at destroying some of these types of equipment in certain environments. So, for example, using drones against a Patriot missile battery, you can supersaturate very quickly, and the United States at any given time only has a few thousand Patriot interceptors. Well, in the environment that we're in now, where we just blew through half of those in the Iran War, we're now no longer giving the Ukrainians

• 7:56Speaker 02

  any because we can only make like 70 of them a year.

• 8:00Speaker 01

  Geez.

• 8:00Speaker 02

  So, do we really think that we are ever going to export Patriot missiles ever again?

• 8:07Speaker 01

  Right, no.

• 8:08Speaker 02

  Because we need them all. And so, everyone else is now designing new military systems, offensive and defensive both, with these new technologies that just puts the United States in a different category, for better or for worse. And we're at the beginning of the end of the old system. We don't know what legacy systems will still have uses in the new system. I would assume that fighter jets are still going to be super handy, but I don't know that for a fact because we're still only in the part where a really, really advance of these new drones is $50,000.

• 8:37Speaker 01

  Right.

• 8:37Speaker 02

  Most of them are a tenth of that.

• 8:39Speaker 01

  Right. So, instead of spending, I don't know what a fighter jet costs, $60 million?

• 8:42Speaker 02

  If you got a cheap one.

• 8:43Speaker 01

  Yeah. So, that's a lot of drones. That's a lot of really advanced drones. So, yeah, I guess fighter jets are very specific tools, like, I don't know, I'm not a tech expert.

• 8:54Speaker 02

  It's the human brain. You put a person in a weapon system, it has a degree of reach and versatility, then decision-making that a drone just can't match, and won't match anytime soon. But the drones keep expanding in their reach, and their capability, and their independent control, and that chips away at the envelope that makes a human-piloted system advantageous.

• 9:14Speaker 01

  Yeah, this makes sense. Okay. So, people are afraid that the United States is running out of interceptors. It sounds like that's not totally wrong. I know...

• 9:22Speaker 02

  It's a reasonable fear, yeah.

• 9:23Speaker 01

  Guys like Ryan Macbeth say, well, they say we're running out of interceptors. We still have tons of anti-ship missiles and harpoons and things like that. So, it's not like we're running out of missiles generally. We're just running out of specific kinds of interceptors. And you said we can make like 70 Patriots a year. Is that because they're really, really complicated, or because we just haven't tried to make more than 70 per year because we don't usually need this many?

• 9:46Speaker 02

  It's both. So, one of the problems that AI drones, which don't exist, by the way, has been facing is when you take a high-end silicon-based semiconductor and you put it into a weapon system, it doesn't like heat, or cold, or shock, or humidity, or dust, or vibration, which pretty much rules it out for most projects. So, you have to have a different sort of chip base, with gallium being one of the more popular ones, that is more resilient. Gallium is a specialty material that is produced as a byproduct of aluminum. Getting it refined to the degree that you can actually put into a chip requires a whole nother level of infrastructure, and the only market is military. So, it's a very complicated supply chain to make a very small amount of stuff, of which the Patriots

• 10:29Speaker 02

  are one. And so, expanding manufacturing of Patriots isn't just an issue of building another factory to assemble a Patriot. You have to double, triple, quadruple the entire supply chain of inputs that allows you to build that in the first place. You don't do that in six months. That's a six-year program. So, the Trump administration at the moment is in the process of getting the funding of quadrupling the Patriot production over the next four to five years. And the people who make the Patriots say that they're trying to make a, they would never use this word, but a discount version.

• 11:04Speaker 01

  I was gonna say Patriot Lite, Diet Patriot. Yeah, sure.

• 11:07Speaker 02

  Which, instead of having 95% success, might only have 85% success, but only cost $2 million instead of $4 million a shot.

• 11:14Speaker 01

  And that's good enough for our allies. Don't worry.

• 11:18Speaker 02

  No, no, we're not going to export those because we need every single one.

• 11:21Speaker 01

  That's good enough for our grunts. No problem, guys. Don't worry.

• 11:24Speaker 02

  Exactly. Just to get back to February 28th, we need like 15 years of output at this new rate. It's just not gonna happen.

• 11:30Speaker 01

  I guess, though, if something is 80% effective instead of 95 and you've launched two of them, I'm not good at this kind of thing, but that seems okay. Yeah.

• 11:38Speaker 02

  The standard procedure for Patriot batteries is to fire two at every interesting thing coming in anyway, because they were designed not to intercept a drone or piddly pissant ballistic missiles. They were designed to intercept nukes. And a 5% chance of losing your city is not good. So our burn rate will probably not change. If anything, we might be firing three just to be sure.

• 12:02Speaker 01

  Yeah, holy smokes. Okay, well, that's not reassuring. So what happens if we run out of those? Please tell me we're not just all sitting ducks like going, okay, when's the next Patriot rolling off? Because there's some drones coming in. We must have other ways of shooting things down other than Patriots, right?

• 12:18Speaker 02

  We do. We've got the THAAD when we've used a greater percentage of those as interceptors since. So they face basically the same problem. That's a supersonic interceptor that doesn't even have a warhead. Just the kinetic hit was enough. Those are our two big systems, and they're both good for in-the-theater and for intercepting ICBMs. Before we get to that point, assuming for the moment that we don't just make colossally bad decisions on the national level, and let's just put that in a box for the moment. Before we get to that point, we just won't use them in theater defense for military operations. We will relocate everything to the homeland, except for very specific cases where we need to protect a very specific military asset.

• 12:54Speaker 01

  Okay, like a base in Saudi Arabia kind of thing?

• 12:57Speaker 02

  A very specific base, CENTCOM and GUTTER. That would be the only one in the Persian Gulf region that qualifies right now.

• 13:02Speaker 01

  Wow, okay. So what do we do with our other bases? Just sort of leave them there to rust and move the equipment out?

• 13:07Speaker 02

  Yes.

• 13:07Speaker 01

  Wow.

• 13:08Speaker 02

  We're talking about a broad-scale evacuation of American power in the Eastern Hemisphere. We don't have the power to defend it anymore.

• 13:13Speaker 01

  That's crazy. That's crazy. So what happens to these Gulf countries that basically have palace guard armies and then just decided that if we give the US a couple billion dollars a year for gear, they're gonna protect us?

• 13:23Speaker 02

  Well, the steady state where nothing else changes is pretty bad for them, obviously, because then you can basically have an army armed with toothpicks come in and knock them over. But it's not steady state. As the Ukrainians are showing, the rules of the game are changing, the goalposts are moving. And every state in the Persian Gulf and every front and second-line state in NATO against the Russians has already broken ground on mass manufacturing facilities to make Ukrainian drones at scale. So it's entirely possible that two years from now, every ally we have is not going to be buying meaningful military equipment from the United States because it's just not applicable anymore and we won't deliver anymore. And they'll be going with a completely new set.

• 14:08Speaker 02

  What that looks like, God knows, because the first of these new drones aren't even six months old yet.

• 14:13Speaker 01

  Right.

• 14:13Speaker 02

  And just this morning, the Ukrainians hit a target in Siberia that was 1,100 miles from the front.

• 14:20Speaker 01

  With a drone?

• 14:21Speaker 02

  With a drone.

• 14:22Speaker 01

  Wow.

• 14:22Speaker 02

  The technology is evolving so quickly that to guess what the new order of battle needs to be is kind of a stretch. But we do know that the Americans now burned through so much of their hardware that they consider to be important, like the interceptors, that they can't project power like they used to. And so everyone is having to make do with what is on hand. And you can either design your own new fifth-generation fighter jet, which is a 10-year process, and then get a half a dozen of them in year 11. Or you can work with Ukrainians and have 100,000 drones in under a year.

• 14:56Speaker 01

  Wow.

• 14:56Speaker 02

  It's not a complicated decision.

• 14:58Speaker 01

  So are we gonna have NATO drones? EU-spec, US, Ukraine-spec drones that just get, there's a million of them?

• 15:05Speaker 02

  This is maybe creaking open that little box that we put that question into, but the United States is not participating in this drone build-out.

• 15:12Speaker 01

  Oh.

• 15:13Speaker 02

  Because Trump doesn't like Zelensky.

• 15:15Speaker 01

  Yeah. Well, we'll have to play catch-up after that administration is over because it doesn't really, yeah.

• 15:21Speaker 02

  Well, that's a different political box. I'm not sure that's possible either.

• 15:24Speaker 01

  Yeah, I mean, that's crazy. So are we just building our own drones? Or are we just like, eh, we don't need those. We have other stuff?

• 15:30Speaker 02

  Yeah, I don't mean to suggest the United States is not in the drone game. We are. In fact, we're the ones who initiated it. So like the Predator, for example, fantastic platform. Same with the Reaper, but they're 20 years old. And they were based on the idea that you have an unbreakable digital tether to the platform you controlled in real time. These new drones can make limited decisions by themselves. Different type of mechanic. It's a little bit more similar to the old-style Tomahawk, where you program in the target ahead of time and it uses GPS and reads the terrain to get to where it's going. But more sophisticated now. In the case of the United States, we don't face a threat that is forcing us to innovate in the way that the Ukrainians are.

• 16:13Speaker 01

  Yeah, no one's invading the United States.

• 16:15Speaker 02

  And everyone who borders Ukraine thinks of themselves as the next target because they are. And so they're doing everything they can to push these technologies forward as quickly as possible.

• 16:25Speaker 01

  Do you think the US could license interceptor manufacturing to Europe and Ukraine or no?

• 16:31Speaker 02

  No, I mean, that's, we had the Trump administration go from informally in favor of that to informally against it in the last few days. The official reasons are IP theft and leakage makes sense. Or that the Ukrainians might be able to make the Patriots better and cheaper than we do. Reasonable concern. But the real thing is that we just need every single one ourselves. The United States will always prioritize national missile defense over any other military project they have going on in the Eastern Hemisphere. And that means we need at least another 2,500 interceptors as quickly as possible. That's the sum total of all of our projected production for at least the rest of this decade and probably well into the next.

• 17:09Speaker 01

  Jeez, wow, okay. Since the last time you were here, which, I don't know, let's say it's a year ago. Who knows?

• 17:15Speaker 02

  I've slept since then.

• 17:16Speaker 01

  Yeah. What development has forced the biggest change in your mental map? I know before we were kind of talking, Iran wasn't a thing. Ukraine probably had more or less just entered whatever phase it is where they're in their stalemate-looking kind of thing. I mean, it's been a while since you've been here. What is the most dramatic change? Because China hasn't done much other than threaten Taiwan, which they were doing before. We have the Iran conflict, obviously. Did that surprise you that we went into Iran? I was curious if you thought that was gonna happen or not. Yeah.

• 17:49Speaker 02

  Let me give you three. Let's start with Iran, since that's the one you've pointed at.

• 17:52Speaker 01

  Yeah.

• 17:52Speaker 02

  Every American president for the last 30 years has heard the Netanyahu pitch. Because Netanyahu's been at the head of the political system in Israel for that long. If you attack Iran with us, it'll be over in four days. It'll be regime change. It'll start to look like Wisconsin. Maybe you can offer it statehood. And it's always been unmitigated bullshit. And every president until this one has seen through it. And every president until this one has had advisors who have seen through it. But the Trump administration has put the analysts and the advisors from the NSA in a box and won't talk to them. It's shut down the State Department for all intents and purposes. Half of our ambassadorial positions are still unfilled.

• 18:35Speaker 02

  And the Defense Department is now headed up by an ideologue who couldn't find his ass with both hands. And so Trump was like, this sounds great. Let's do it. And so within four hours of Netanyahu leaving the White House, the carriers were dispatched. That's all the attention that was given to the decision.

• 18:53Speaker 01

  Wow.

• 18:53Speaker 02

  And the position has always been, we can't overthrow the government. It's ruled by the mullahs. There's over 10,000 of them. Even if you take out the entire leadership council, it doesn't matter. In fact, the ones that have risen to the top are the moderates. They're the ones who are willing to talk to us.

• 19:07Speaker 01

  You mean that before we killed all of them, the moderates were at the top?

• 19:10Speaker 02

  We killed, yeah, exactly. We killed all the moderates, and now we've got the really nasty ones at the top.

• 19:14Speaker 01

  Great.

• 19:14Speaker 02

  Number two, it will be run by the IRGC, which is a paramilitary arm of the government. We really don't want that. That's where we are now. We do not have the interceptors and the naval capability and amphibious capability necessary to secure the entirety of the Persian Gulf and especially the Strait of Hormuz. So we're probably gonna be looking at an energy closure. We have that now. And on top of that, we've burned through most of our interceptors. So this conflict is going to go down in history as the moment where the United States lost the ability to influence the Eastern Hemisphere. It never occurred to me that we could have an administration so out of touch with reality that we would do this on purpose.

• 19:52Speaker 01

  Yeah, yeah, wow.

• 19:53Speaker 02

  So I always thought the United States was gonna back away from the Eastern Hemisphere because it wanted to, not because it had to.

• 20:02Speaker 02

  And that changes the trajectories of a lot of things and a lot of places that have nothing to do with the Persian Gulf.

• 20:07Speaker 01

  Like what? Are you talking about China and Taiwan?

• 20:10Speaker 02

  Well, we still have somewhere between 10 and 13 million barrels of crude offline, which means we've been drawing down global reserves at that rate now for five months. We're at historical lows. We haven't had this level of crude in the system since we started building up reserves in the 1970s in the first place. How that is not manifested as a price shock kind of surprises me, but it seems that everyone I've talked to in the oil market is like, well, the outcome of what you're describing is so bad, it won't happen.

• 20:39Speaker 01

  Yeah, that seems logical.

• 20:41Speaker 02

  Really bad.

• 20:43Speaker 01

  Because really bad things never happen simply because they're so bad, they can't possibly happen.

• 20:48Speaker 02

  Because Iran has demonstrated that it can hit the terminus points of every bypass pipeline.

• 20:52Speaker 01

  Yeah.

• 20:52Speaker 02

  Out of the Persian Gulf. So we're nowhere near the worst case scenario. That's still the future.

• 20:57Speaker 01

  Right.

• 20:58Speaker 02

  That takes the East Asian manufacturing system down with it. That severs North America from global energy markets. So you actually get a three-part shock. We're at the beginning of this unraveling, nowhere near the end. So that's piece one.

• 21:10Speaker 01

  So let me pause you right here. So if this kind of energy crisis is going to screw over the East Asian manufacturing market, which is going to suck for everybody, people are thinking, ah, China can't make anything. Who cares? That means no more Amazon Prime for everything overnight because.

• 21:23Speaker 02

  That means no more a lot of.

• 21:24Speaker 01

  Yeah, no more a lot of things. But I'm talking about what the people want, which is free crap delivered within 24 hours. So you don't have to wait instant gratification. But this seems like then China is heavily incentivized to try and figure out how to stop this Iran thing.

• 21:37Speaker 02

  And what we're seeing is something I've been underlined for a long time. China has no influence outside of East Asia, except for money, maybe. And the Iranians are clearly not monetarily driven.

• 21:47Speaker 01

  They have billions of dollars in frozen, hundreds of billions of dollars in frozen assets, and they basically are taunting us by saying, so what? We'll just wait you out. That's crazy.

• 21:57Speaker 02

  Yeah, this is a culture worth 5,000 years of cultural muscle tone. That doesn't mean we have to like it.

• 22:01Speaker 01

  Yeah.

• 22:01Speaker 02

  It's just, it's durable.

• 22:02Speaker 01

  So if the East Asian manufacturing base goes down and then China, are they going to suffer a massive economic crisis because of that? I would imagine if they can't make things like this, they're in deep, deep, deep trouble. And then everyone will go, aha, that's why America did this. Those smart bastards are playing 5D chess, which is.

• 22:18Speaker 02

  Well, that brings us to the second issue. I never had the belief that Trump was a Republican, much less a pro-business Republican. But it never occurred to me that he would be so random in his policymaking. We've now had over 8,000 tariff changes under Trump, too. And every week we get new regulatory shifts that make no sense, that were not announced ahead of time and technically are illegal. So they get immediately challenged in the courts. And collectively, it's added up to be the most hostile business environment in the United States in my lifetime. And it's reduced business uncertainty to the degree that industrial construction spending, which is the money that people dedicate to

• 23:03Speaker 02

  things that are actually putting into the ground, actual building of industrial plant. It's dropped every month for 16 months now.

• 23:09Speaker 01

  So it's reduced certainty, not reduced uncertainty.

• 23:11Speaker 02

  A lot of uncertainty now.

• 23:12Speaker 01

  Yeah.

• 23:12Speaker 02

  So we are seeing deglobalization accelerating at the same time the United States is deindustrializing. If anything, we need to be sprinting in the opposite direction. We need to double the size of the industrial plant, especially if we think the plan is to break China. Instead, we're doing the opposite.

• 23:30Speaker 01

  But it seems like you mentioned the energy crisis might actually break China without a replacement in place anywhere.

• 23:36Speaker 02

  Yeah, absolutely. It's like, if you're going to break everything, make sure you're ready for it. And we're literally doing the opposite.

• 23:42Speaker 01

  So besides not being able to order, I don't know, my Sonos speaker stands overnight because they're not being made anymore. What's the actual real consequence that people will care about for more than a few days? Cheap stuff? That's a bummer. What else can't we get that we actually need?

• 23:59Speaker 02

  The United States is the largest importer of manufactured product, but we also have an incredible industrial plant, although it is now being actively weakened. Our short term, by short term, I mean, two to three years, is that the processed materials that we use to build things, steel, copper, lithium, cobalt, just to name four, about 80% of that processing is done in the PRC. And so if that is broken without a replacement system, we don't have the building blocks that we need to then build out our industrial plant.

• 24:32Speaker 01

  Okay, so, man.

• 24:34Speaker 02

  It's not that it's cheap products that won't be able to make. It's that it's products that won't be able to make. There's very, very, very few things where we have an indigenous supply chain for the base materials in North America.

• 24:47Speaker 01

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• 26:19Speaker 01

  Let me share a little behind the scenes info you might not know. Using our promo code doesn't just get you a discount, it really helps the show as well. We don't earn a commission directly from sales, but when companies see that people respond to the ads on the show, they're more likely to continue their partnership with us. So if you decide to sign up or buy something, please use our code, it's often Jordan, but please double check on the deals page at jordanharbinger.com/deals. It is a double win. You get a great deal and you help keep the show thriving. Thank you for supporting those who support the show. Now, back to Peter Zian.

• 26:50Speaker 01

  For people like me who just, you know, think, okay, at first glance, you know, that's going to be a bummer. I'll just change my consumption habits. When we say everything, we mean, what, you can't get tires for your car anymore? Like, where's the first crack where everybody goes, what do you mean I can't do X? What do you mean there's no fruit?

• 27:06Speaker 02

  Well, I mean, that's part of the problem. The things are changing so quickly and so randomly in this country that it's really hard to give you like a hit list of what's going to go down. But if China does break, no copper means no electronics. No steel means no cars. No aluminum means no electricity.

• 27:22Speaker 01

  Okay.

• 27:24Speaker 02

  It's like, things like transformers aren't going to be made in the volume that we need on a global basis, much less a national basis. We're sprinting towards a break in what made globalized manufacturing function. And while I've always been saying that we need to get away from globalized manufacturing because it's just too vulnerable, I always assumed that that would go hand in hand with us building out what we need here to be prepared for that.

• 27:50Speaker 01

  Right, reshoring or onshoring, I guess?

• 27:52Speaker 02

  Exactly. And with the limited exception of AI data centers, we're not building any new industrial plant.

• 27:58Speaker 01

  I see. So we'll have AI tell us exactly what to do and then we'll go, except, we can't do it because we don't have any copper. Thanks for the idea, though.

• 28:05Speaker 02

  There's going to be another problem. AI won't survive deglobalization either. It's the most complicated supply chain out there. I'm just saying that's the only place we're actually building something.

• 28:13Speaker 01

  Yeah, yeah. No, I'm kidding. It'll be going, hey, I need more electricity. And we'll go, about that. We don't have any of that anymore.

• 28:20Speaker 02

  I don't want to rest my hopes on artificial intelligence, but it is very good at designing more efficient products.

• 28:27Speaker 01

  Yeah.

• 28:28Speaker 02

  And processes. And so we're going to need that as long as it lasts.

• 28:31Speaker 01

  Yeah. Oh, man, that's brutal. And this is all because China can't get oil from the Middle East? Is that essentially the reason?

• 28:38Speaker 02

  There are a number of reasons why the Chinese are doomed. That is one of them. The trade war could have done this itself. It's probably going to happen before long anyway for demographic reasons. The Chinese bet was always of a limited duration.

• 28:50Speaker 01

  Right.

• 28:50Speaker 02

  It's great while it lasts. It's not going to last much longer.

• 28:52Speaker 01

  Demographic reasons being no one there is getting married and having babies at the rate that they need to be?

• 28:56Speaker 02

  Yeah. And now, according to the newest data, it sounds like they stopped actually 30 years ago.

• 29:00Speaker 01

  Yeah. But they're no longer sharing data with us, like you said, on anything. So we don't really know.

• 29:05Speaker 02

  The demographic data to their credit, I'm not sure credit's the right word, they never had. They've gone back and they've realized that all their demographic data from the last generation is basically falsified. And they're trying to get a grip on how bad the problem is. They really don't know.

• 29:19Speaker 01

  Wow. I was there recently. I asked people what the population of China was. And some people said, oh, 1.4, 1.5. And other people were like, 900. And I was like, okay, so do you just not know? And they're like, well, we hear this, but other people just say it's that. So there's this weird sort of undertone of like, the government says 1.3, 1.4, but it's probably less than a billion. And it's, that's a big difference. I mean, that's like a 33 plus percent difference in what you think your population is. That's like saying, the US either has 200 or 300 million people. Who knows? That's a huge number of people that you just don't know if they exist or not.

• 29:54Speaker 02

  Yeah. You remember Tiananmen Square?

• 29:56Speaker 01

  Yeah.

• 29:56Speaker 02

  The short version is that after Tiananmen, the Chinese government realized that blue collar workers, when they protest, they bring like wrenches. And they could literally physically disassemble a tank.

• 30:08Speaker 02

  Whereas white collar workers bring like pocket protectors and they're really easy to run over.

• 30:12Speaker 01

  Right, right.

• 30:13Speaker 02

  So for a number of reasons, the CCP made the decision to move from a blue collar manufacturing economy to a white collar services economy. But from the point that they made that decision, they had to then change the educational system and the people had to grow up and go through it. And the first year that they were expecting the first big batch of white collar workers to hit the market was 2019, which was when COVID hit.

• 30:35Speaker 01

  Right.

• 30:36Speaker 02

  And they didn't get out of COVID till 2023. So 2024 was their first year where they thought they would see in the data that the tax receipts would explode from this new generation and tax receipts went down. It turns out that the generation was never even born.

• 30:50Speaker 01

  Oh, man.

• 30:51Speaker 02

  And it took them 30 years to realize that. So now they're basically running out of people under age 40.

• 30:58Speaker 01

  That's really, really dire. And people here wonder why that's not happening is because we have a ton of immigration, which a lot of people maybe don't love, but that's what's keeping America young.

• 31:09Speaker 02

  Well, and until recently, the United States did have the highest birth rate in the rich world as well, because we have a lot of elbow room. But between COVID and the political shifts in this country on both sides, people are a lot less optimistic than they used to be. They're less willing to have kids. And then you throw the immigration crunch on top of that. So we now have a birth rate that is among the lower end, probably about 1.4 per woman, but that's very, very recent. For the Chinese, they probably had those numbers in the eighties.

• 31:38Speaker 01

  Wow. Oh, my gosh. That's really dark to think about. I mean, whether you're rooting for China to fall or not, I mean, it seems like we're so intertwined that you can't really just root for one team anymore. You kind of have to root for everybody to be at least moderately successful or go down slowly enough that you can do something about it instead of just unplugging the machine.

• 31:57Speaker 02

  And that's one of the reasons why the Iran war made my number one, because it looked there for a hot minute, like, is this it?

• 32:03Speaker 01

  Yeah. Yikes. It seems like we're in like six different objectives, right? Oh, we got to destroy their nuclear program. We got to keep the straight open. We need to restore deterrence. We need to weaken the IRGC. We need to change the regime or at least change their behavior. Those are six different wars. Which war are we actually in right now?

• 32:22Speaker 02

  We were never in any of those. Remember, this decision was made in four hours and there is no national security team. Trump says what Trump thinks and there's no one to catch him. The NSA has been sidelined, the State Department has been sidelined, military analysts have been sidelined, and the Defense Secretary is an idiot. So it's just Trump. And now, as of the last 48 hours, Trump hates Israel. So, uh.

• 32:46Speaker 01

  Okay.

• 32:47Speaker 02

  If you're looking for a resolution to this, this should tell you everything you need to know. Of all the negotiations that have happened so far in the last six months, Americans have only been present for two days.

• 32:57Speaker 01

  So we're just not trying to end this?

• 32:59Speaker 02

  We're not even negotiating with them.

• 33:01Speaker 01

  So what is going to happen? Because I hate the Iranian regime. They got to go, but obviously we can't just bomb them out of existence. How do we get out of this giant mess?

• 33:10Speaker 02

  If I was to guess, Trump is at the stage of just declaring victory and leaving the Persian Gulf and the Strait of Hormuz in Iranian hands.

• 33:18Speaker 01

  Wow.

• 33:19Speaker 02

  To be perfectly blunt, I don't think we've got the military capacity to impose a different solution. That ship sailed back in February.

• 33:27Speaker 01

  It doesn't look like we can, yeah. So if the straight closes to anybody but who Iran likes to deal with, the Chinese can then get oil, right?

• 33:35Speaker 02

  Best case scenario for the world in that environment is that the Iranian tolls, because that's what it is, are of a level that imposes a functional tax on the world, kind of like what Trump has done, but does not crunch economic activity so much that everybody collapses.

• 33:49Speaker 01

  Right.

• 33:50Speaker 02

  But that is a decision that would be made in Tehran, not here.

• 33:53Speaker 01

  And that's going to make that regime quite wealthy, I would imagine. I mean, if everybody has to pay.

• 33:58Speaker 02

  One of the dangers of making predictions in this world, which is one of the reasons that I've backed away from a lot of mine, is that so many things are changing so quickly and that the bedrock that allows you to project forward has cracked. You can't assume that one change will be allowed to exist in a vacuum. Because once Iran does that, other countries are going to react in different ways. I'd actually say it could get worse than what you're thinking, because as soon as Iran can show that it can get away with that, we're going to have something very similar in Bab al on the Bab al Mandeb, on the opposite side of Arabia. We're going to have something like that in Turkey. We're going to have something like that in Denmark with the Danish Straits. We might even have that in the Sea of Japan with the Koreans. We're going to be looking at all of these international waterways suddenly having tax regimes.

• 34:43Speaker 01

  Because North Korea will just say, look, we're going to shoot a.

• 34:46Speaker 02

  No, no, no, not North.

• 34:47Speaker 01

  Not North Korea? Oh, South Korea. Okay, really? They're just what, going to say, hey, if you don't pay the toll, we're going to take your engine out?

• 34:53Speaker 02

  Because they control the straight.

• 34:56Speaker 01

  Wow.

• 34:56Speaker 02

  We're looking at a fundamental changing of the human condition on an international basis, because the Trump administration has destroyed the old order, not replaced it with anything, and now demonstrated that the United States does not have the military capacity to protect American interests in the entire hemisphere. So everything becomes a local conversation without the Americans at the table. That's going to go a thousand different ways that I can't predict.

• 35:22Speaker 01

  Yeah, wow, this is crazy. Do you think the Iranian regime is more or less stable? I mean, we replaced Ali Khomeini with another Khomeini.

• 35:31Speaker 02

  Ali Khomeini Jr.

• 35:31Speaker 01

  Yeah, so the regime got decapitated, but it has a bunch of, like you said, there's a 10,000 heads waiting to take its place.

• 35:38Speaker 02

  You're using the word regime. You're using the right word. This is not a normal institution. This is a group of literally 10,000 people who see the world more or less through the same lens, and it really doesn't matter who the personalities at the top are.

• 35:50Speaker 01

  Yeah. What's crazy is this Islamic Republic was founded in opposition to monarchy. So I guess they don't have to worry about legitimacy problems, having a father to son succession, because no one's going to say anything.

• 36:02Speaker 02

  Also, you have an army with a million people that was designed to occupy its own population first and foremost, and you have the IRGC with 600,000 men under troops who, their first job, before they go out and target countries through regime change, their first job is to shoot protesters. So I don't want to say this can't fall, because the Iranian government has fallen twice in the last century. It can fall, but it's very durable.

• 36:28Speaker 01

  Yeah, wow. There's a lot to juggle in both hands here, right? To balance in both hands, I should say, because strong regimes typically don't kill 10,000 to 40,000 of their own people, right? It looks like control from a distance, but it also looks like an absolutely terrified government that thinks they're going to lose control at any moment if they don't take massive drastic action. So how do you tell the difference between those two things?

• 36:49Speaker 02

  It depends upon how broad the base is. So for example, in the case of the Russian system, the elite is only about 100 people. And so if Russia were to do to its population what the Iranians have done, I'm pretty sure they would be gone by the end of the weekend. Remember Prigozhin? Or Prigozhin?

• 37:05Speaker 01

  Prigozhin, yeah.

• 37:05Speaker 02

  So when he marched on Moscow, he made it 1,000 miles. He wasn't stopped. No military commander under Putin's government helped him or stopped him, which tells you everything you need to know about the true loyalty of the arms of force of the Russian government. They obey the guy who's in charge, but they're not willing to actually suffer for him. And so that's a very fragile system, brittle. That's not what we have in Iran. In Iran, we have an entire class of people who were in leadership positions, who are part of the regime, all of the mullahs. And it's a society where religion is one of the most powerful pillars. So to root that up, you need a societal uprising significantly stronger than what brought it to power back in 1979.

• 37:50Speaker 02

  Because back in 1979, it was kind of like Russia today. It was the guy at the top, the Shah, and his.

• 37:56Speaker 01

  Savak?

• 37:57Speaker 02

  Yeah, Savak.

• 37:58Speaker 01

  The secret police.

• 37:58Speaker 02

  And then a cluster of people that basically helped him loot the country. That's not the situation we're in today. The one that we're in now has a much broader base, and that base controls most of the tools of power.

• 38:10Speaker 01

  Yeah, so the IRGC, so Savak, I don't know how many people they had, but it wasn't 600,000.

• 38:15Speaker 02

  And it was a more traditional intelligence system. It didn't carry out repression on the scale that the IRG is capable of, which doesn't mean that the IRGC wasn't somewhat based on it.

• 38:24Speaker 01

  For people who don't know, IRGC is the Iranian Revolutionary Guard Corps. They're like the, both the palace guard army and the intelligence wing and the, they're basically a parallel, almost parallel government army that's job is to keep the regime in power, the mullahs in power.

• 38:40Speaker 02

  So kind of combine the covert capabilities of the CIA with the domestic law enforcement of the FBI and the numbers of the National Guard, and make them in control of electricity, energy, and the nuclear arsenal.

• 38:55Speaker 01

  Right. So it's hard to relate that to anything in any other country, because we don't want that, and we never do.

• 39:00Speaker 02

  From our point of view, if you want to be in a democracy, it's bad idea.

• 39:02Speaker 01

  Yes, bad idea, exactly. So, and then Savak was the secret police under the Shah, who was the king of Iran back in the day before the Islamic government took over. I just want to decode acronyms for people who are like, wait, what the hell are you guys talking about?

• 39:15Speaker 02

  No, I appreciate that.

• 39:16Speaker 01

  So has Iran just discovered the cheapest possible way, or actually been forced to discover the cheapest possible way to tax the global economy without having to defeat the United States? Because we talk about China, but I feel like it's fair, we should talk about the rest of Asia, because people in Vietnam, Cambodia, Thailand, Laos, Vietnam are also like, hey, guys, we also exist. They're not getting oil. I have friends over there that are like, oh, you thought a tank of gas was expensive last year? Let me tell you, if you can find it, you know, in this area now, it's 80% more expensive or whatever. So I think something like 80% of the oil and 90% of the liquefied natural gas pass through Hormuz to Asia, ship traffic can't bring it over anymore, or might not be able to bring it over without a tax.

• 40:00Speaker 01

  I mean, what happens to the rest of Asia, not just China?

• 40:04Speaker 02

  Best case scenario is prices triple.

• 40:07Speaker 01

  Oh.

• 40:07Speaker 02

  We'll have to have some degree of demand destruction because you remove the Persian Gulf, you remove one to fifth of global energy. I mean, right now, we're at one tenth, but that's assuming the war doesn't heat up again and knock another tenth out. This is an area that will have to compete for those barrels and those molecules with other parts of the world that are still able to get it out. And remember, we haven't gotten to my number three item yet because it's not all coming. It's like the Persian Gulf is only one area that's giving us an energy crisis. We've got another one that's going to happen in just a few weeks.

• 40:34Speaker 01

  Which is?

• 40:35Speaker 02

  The Ukraine war.

• 40:35Speaker 01

  The Ukraine war. Why would that give us an energy crisis?

• 40:37Speaker 02

  The third big thing are these new drones that are able, capable of limited decision making, and the Ukrainians have chosen for various reasons to primarily target the energy complex in the Russian space.

• 40:47Speaker 01

  In the Russian space. I see.

• 40:48Speaker 02

  And in the last month, they've hit over 100 shadow tankers on the Sea of Azov and the Black Sea. So in a not too distant future, we're looking at a 80% maybe shut off in Russia's ability to export crude. And unlike the Persian Gulf fields, which are large and shallow and easy to develop from a technical point of view, Russia's aren't. They're remote. They're dependent upon in physical infrastructure that the Russians can't build, much less maintain, and the Ukrainians are incessantly targeting that. So that's another 5 million barrels per day that's going to go offline real soon and

• 41:19Speaker 01

  I see.

• 41:20Speaker 02

  never come back.

• 41:22Speaker 01

  I see. You mentioned shadow tankers. I think people don't know what those are. So these are obviously oil tankers that ship oil from Russia to another place, but they are what? Transponder off secretly operating ghost tankers that are supposed to be invisible because they're under sanction?

• 41:36Speaker 02

  A normal ship is going to be registered. It's going to have an insurance policy if anything goes wrong with the vessel, or if they have a collision, or if they have a leak. And that means they sail with their transponder on so that things like search and rescue can access them. Shadow tankers can't get that insurance because the states are under sanctions. So they get a cheap insurance policy from the country that's operating them, Russia in this case. And then whenever they're sailing in an area where being seen is a problem, they turn off all their transponders. Well, because of all of that, most of the shadow tankers are in excess of 20 years old. A lot of them predate some of the safety developments that the world put in in the aftermath of the Exxon Valdez crisis. You remember that back from the eighties?

• 42:19Speaker 01

  Yeah, I remember that. The driver was drunk and hit something and leaked a gazillion gallons of oil into wherever that was.

• 42:26Speaker 02

  About a quarter million, I think, was the end number roughly.

• 42:29Speaker 01

  Oh, my God.

• 42:30Speaker 02

  Well, there's a number of problems for this. Number one, while you might be able to hide from somebody who's looking for transponders, ships are not fast. And in places like the Black Sea, they're all either going to a port or to Istanbul, because Istanbul is where the Turkish Straits are.

• 42:46Speaker 01

  So you know where to look for these things?

• 42:47Speaker 02

  Exactly. So what the Ukrainians have been doing is spending $25 a day, buying commercially available satellite photos, finding the tracks, and then sending drones and hitting them, 100 of them so far. They've shut down several of the cargo runs, and they're basically making it so that the repair bills for the remaining ships is so high that it's cheaper just to decommission them. And it's putting the Russians in a position of where we actually now have to pay out on those insurance policies. And now we have one that's literally sinking off the coast of Oman that had a million barrels on board, and it's probably going to break up within the week.

• 43:23Speaker 01

  Really? So there's currently a tanker, a shadow tanker from Russia, that will eventually leak a million gallons of oil off the coast of Oman?

• 43:30Speaker 02

  So you know, that's three or four Valdez's based on whose numbers you're using.

• 43:34Speaker 01

  Wow.

• 43:34Speaker 02

  And once that happens, and it becomes apparent that the Russians aren't going to pay restitution to the Omanis, you're going to have a much more aggressive enforcement regimen by the wider world on the shadow fleet, regardless of what the Ukrainians do.

• 43:46Speaker 01

  Right. That's smart of the Ukrainians to do this. It's an environmental disaster, but it's basically, it seems to me, Peter, and I don't follow this as closely as you do, it seems to me that we sanctioned Russia, and then they came up with a shadow fleet of all these tankers, and everyone went, eh, I'm tired. I don't want to, that seems really hard, and it's someone else's problem. And now it's, oh, these are a massive environmental hazard to possibly us? I suddenly care about this sanctions regime now. Is that kind of what we're looking at? And the Ukrainians are making that happen?

• 44:15Speaker 02

  I mean, I think you're giving everybody else a little bit too much crap.

• 44:18Speaker 01

  Too much, too much credit?

• 44:19Speaker 02

  Because there was no way to quickly replace Russia's position in global energy. But now we're in a position where you have to replace

• 44:26Speaker 01

  The entire coast of Oman?

• 44:28Speaker 02

  Russian crude, Saudi crude, Kuwaiti crude, Qatari crude, and Emirati crude, all at the same time?

• 44:33Speaker 01

  Yeah.

• 44:33Speaker 02

  No.

• 44:33Speaker 01

  Yeah.

• 44:34Speaker 02

  No, that's not going to happen.

• 44:35Speaker 01

  No, it's not going to happen. And also, Oman is, I haven't been there, but my friend went there, and he's like windsurfing. He's, oh, it's beautiful. It's going to be messed up for a long time if a million gallons of crude oil start washing up on the coast of Oman.

• 44:48Speaker 02

  That is dependent on things like sea currents, so I really can't comment on that. From my knowledge, we've got some offshore islands that are picking up crude right now, but the mainland hasn't been hit. I just don't know enough about the flow there.

• 45:00Speaker 01

  Yikes. This is going to be such a mess. This is going to be such a mess. I don't know how you, how do you clean something like that up with Iran launching drones at ships?

• 45:07Speaker 02

  In the open ocean, you can't use skimmers because it's too rough.

• 45:11Speaker 01

  Right, okay.

• 45:12Speaker 02

  So you just wait for nature to do its thing.

• 45:14Speaker 01

  Wow, you just let that oil sink to the bottom in chunks and hope it stays there, basically?

• 45:18Speaker 02

  Meanwhile, remember, oil floats on water.

• 45:21Speaker 01

  Doesn't heavy crude sink? I thought heavy crude sank to the bottom.

• 45:25Speaker 02

  Over time, it will bond with various particulates and eventually sink, but for a very long time, you're going to have a big sheen on a large volume of territory.

• 45:33Speaker 01

  Okay. For some reason, I thought unrefined product just sank. I don't know anything about petroleum.

• 45:38Speaker 02

  Yeah, I mean, there's lots of different grades of crude. The Russian crude that's in this is probably Urals Sour, so it will probably glom onto things and sink faster than, say, shale crude out of the United States would. But I'm not sure that's a lot of comfort.

• 45:52Speaker 01

  Yeah, no, especially, oh, don't worry, guys. Only a quarter million of the gallons will be on the top. The rest of it'll sink. Like, okay, not the comforting words that I thought we were going to have. Wow. So, okay, what a freaking mess this is. How do you get oil out of, like you said, Kuwait, the Gulf states, Oman? I mean, they have to also use the Strait of Hormuz, so they just pay Iran to not blow them up when they do it?

• 46:15Speaker 02

  There has to be a political deal between Iran and anyone who wants to use the Strait. That's the environment we're about to be in.

• 46:21Speaker 01

  Crazy. Oh, my gosh. How much disruption is necessary before the economic effect becomes comparable to just closing the whole strait? I mean,

• 46:29Speaker 02

  That's a great question, because the goalposts on that have really evolved. It used to be in the United States, when we got to the equivalent of, say, today's price is about $100 a barrel, that that would be enough to generate an energy-induced recession, if not depression.

• 46:44Speaker 01

  Yes.

• 46:44Speaker 02

  But, you know, that was in the 70s. Now, the United States is not as much of a manufacturing power, more of a services power. We've become, on a GDP per barrel basis, significantly more efficient, maybe three times what we were then. And we've outsourced a lot of the energy-intensive aspects of modern life to other countries, China being one of those. That's one of the things that the Trump administration has always been hammering, is we need to bring the manufacturing back. But remember, the manufacturing is the more energy-intensive part of this process. So you can have a global energy-induced depression from this, which is probably where we're headed, where individual parts of the economy and individual countries

• 47:23Speaker 02

  actually could do reasonably well. The problem now is the second order effects. So if you crash, for example, as we were discussing earlier, the Chinese with an energy crisis, that affects everyone who uses manufactured goods, which is

• 47:36Speaker 01

  Everyone.

• 47:37Speaker 02

  Everyone.

• 47:38Speaker 01

  Yikes. If global energy markets collapse, this ad may eventually be delivered by handwritten note on a donkey. Enjoy the convenience while it lasts. We'll be right back.

• 47:50Speaker 01

  If you liked this episode of the show, I invite you to do what other smart and considerate listeners do, which is take a moment and support our amazing sponsors. They make the show possible. All those deals are searchable and clickable over at jordanharbinger.com/deals. If you can't remember the name of a sponsor, you can't find the code, email us, [email protected]. We're happy to surface codes for you. It's that important that you support those who support the show. Now, back to Peter Zion.

• 48:16Speaker 01

  When I was in China recently, every car was electric. It's crazy. I was there 10 years ago, and you couldn't, it thought it was winter. I said, is it, are we in a different hemisphere? It's winter. No, that's just a giant smog cloud. No one here has seen the sun for a decade. Oh, my God. And now it's e-bikes, e-motocycles, every car was electric. I saw a gas car, and I remember hearing an engine and going, oh, that's kind of weird. And the driver of our car was like, yeah, it's an old car. And then another guy had a gas car, and the driver said, oh, look. Basically, he said, oh, look, that's a sports car from an enthusiast, right? It's like a Ford Mustang kind of thing. And the guy deliberately wanted a gas car because it was so different. This is just in a tier five city in China. I think a lot of people are going, oh, China's not going to break. Half their grid is alternate

• 49:00Speaker 01

  energy sources. They'll just step it up with solar and wind and, I don't know, nuclear. They're not going to have an energy crisis. That doesn't necessarily work in manufacturing, though. When you want to power a car, that's one thing. If you want to build a smelting

• 49:12Speaker 02

  Well, and it doesn't necessarily work in anything that's more in transport than personal transport.

• 49:17Speaker 01

  I see. Okay.

• 49:18Speaker 02

  The larger the vehicle, the more torque you need, the less EVs work. Also, keep in mind that while their build out for solar and wind is very real, it is largely in places where the people don't live.

• 49:29Speaker 01

  I see.

• 49:29Speaker 02

  China from Shanghai down actually has some of the lowest solar quotient in the world.

• 49:35Speaker 01

  On the coast there?

• 49:36Speaker 02

  Yeah.

• 49:36Speaker 01

  Oh, wow.

• 49:37Speaker 02

  Where the bulk of the population is. You have to go into the interior to get to the good-winded solar territory. So it's a transmission issue, which is a different sort of complication. Again, I'm not saying that their alternate build out isn't real and that fuel switching hasn't happened, but we're probably talking about less than a million barrels per day equivalent.

• 49:54Speaker 01

  Oh, wow.

• 49:55Speaker 02

  That's by any other country's standard a lot. But this is a country that, the last good data we had was using 14 million barrels a day.

• 50:03Speaker 01

  Yeah. What is that? 7% or something like that? 8%? Whatever. I'm not great at the math off the top of my head, but it's not super meaningful.

• 50:11Speaker 02

  It's not nothing. It's actually very impressive, but it's just that the absolute number that they have to compensate for is massive.

• 50:17Speaker 01

  I'll tell you, it was nice walking around a city with absolutely no car or other exhaust. I could enjoy the cigarette smoke that everyone puffs out without the interference of having inhaled diesel fuel or the car exhaust. What breaks first, though? Gasoline markets, electricity generation, fertilizer, petrochemicals, or cooking fuel? In Asia, sorry. What breaks first?

• 50:40Speaker 02

  Probably petro.

• 50:41Speaker 01

  Okay.

• 50:42Speaker 02

  The United States is unique in that we use natural gas for most of our petro feedstock, natural gas and liquefied petroleum gas, basically propane, butane. Everywhere else in the world, they use oil and they use oil to make naphtha. They use naphtha to make their petrochemical products. And so you remove the oil and all of that goes. Gasoline and diesel and things like that are eminently packageable and transportable. So there's always going to be an import option for those before you get to anything that allows them to salvage their refining and their petrochemical systems. I mean, they're all gonna go, but if you're looking for an order, petrochem is probably first.

• 51:16Speaker 01

  Yikes. Okay.

• 51:18Speaker 02

  And keep in mind that the Chinese massively overbuilt their petrochemical system so they could dominate the gasoline and diesel markets of everybody else in East Asia.

• 51:26Speaker 01

  Right.

• 51:26Speaker 02

  So if you're in Australia, for example, you are like optimally fucked. You might, on the numbers, be net energy independent, but that's because you imports a lot of your petrochemical and fuels from the Chinese. And if the Chinese have a choice of fueling themselves or fueling you, what do you think they're gonna do? And that's part of the bind that a lot of Southeast Asia is in right now.

• 51:47Speaker 01

  Yeah, that's, oh my gosh, this is crazy to me. There's so many moving parts to this that are pretty scary, I would say.

• 51:55Speaker 02

  I've been a critic of previous administrations, whether it was Trump or Biden or Obama or Clinton or W, that they weren't willing to shake up the system to get the US ready for what's next. But I get it. Disentangling that, it's a mess.

• 52:10Speaker 01

  Yeah.

• 52:10Speaker 02

  Now we're gonna do it at speed.

• 52:12Speaker 01

  Do we have to worry about Iran getting nukes? Because we can't get their enriched uranium. We can't destroy the knowledge that they have. We can destroy their centrifuges, but they can also just build stuff deep enough underground where we'd have to use a tactical nuke to get it, so.

• 52:25Speaker 02

  Uh, I don't think a tactical nuke would do it.

• 52:27Speaker 01

  Maybe not.

• 52:28Speaker 02

  Before the war, the system was dispersed over 100 sites. Supposedly, we hit a lot of them really hard, but a lot of them, we just destroyed the tunnels. The Iranians might not be Taiwan when it comes to technology, but they know how to dig. And so all they have to do is dig it out. And so a year after the US abandons the region, yeah, they'll have a nuke. This is 1940s technology. This is not hard.

• 52:50Speaker 01

  Yeah, yeah.

• 52:51Speaker 02

  And there was a belief among the mullahs before the war that having a nuke will invite an attack. So let's not build a nuke. Let's build a nuclear program and be six months away from having a nuke. They've been six months away for having a nuke for 25 years.

• 53:08Speaker 01

  Deliberately, though, right?

• 53:09Speaker 02

  Deliberately, yeah.

• 53:10Speaker 01

  Because people laugh and go, oh, I've heard this for 25 years. They're not close to having a nuke. No, they're deliberately really close. They're just not crossing the Rubicon because they don't want to get bombed, but oops.

• 53:20Speaker 02

  Now they've been bombed and now they know that that strategy will not work with the United States. So the only solution is to have a nuke.

• 53:28Speaker 01

  We've basically forced them to do what we really, really, really did not want them to do.

• 53:33Speaker 02

  Yes. And this is also something that was a regular talking point out of the Defense Department and the CIA and the NSA for the last 30 years, which is one of the many, many, many reasons why no previous administration pulled the trigger on the war.

• 53:47Speaker 01

  Yeah, okay, because this was just a foregone conclusion. They will end up getting a nuke and there's nothing we can do about it. So let's just, status quo is actually better despite what people say in speeches. What is Israel gonna do? Because they can't have Iran having nukes. Are they just gonna keep bombing tunnels on their own?

• 54:04Speaker 02

  They don't have the military capacity to do it without the United States. And the United States no longer has the military capacity to do it.

• 54:09Speaker 01

  Yeah.

• 54:09Speaker 02

  So if you want to talk about a really interesting political conversation between Jerusalem and Tehran, that's the next chapter of this. I don't know what that looks like yet, but keep in mind that the Israelis already have a functional alliance with Saudi Arabia. And Saudi Arabia is the power that brought us Al Qaeda. And so I can absolutely see the Jews getting full-throatedly behind Islamic terrorism.

• 54:34Speaker 01

  We should say the Israelis before I get 7,000 emails about that. Yes, we can say, wow, that's gonna be interesting. So we're gonna have the.

• 54:43Speaker 02

  A possibility.

• 54:44Speaker 01

  Okay, okay.

• 54:45Speaker 02

  Again, we're in the place where the bedrock has cracked. Lots of weird shit's gonna happen.

• 54:49Speaker 01

  The views presented on this episode of the Jordan Harbinger Show are not necessarily representative of Jordan Harbinger LLC, Jordan Harbinger himself, or of the show or team thereof. They are exclusively from this guy, Peter Zein, who, I don't know, man, anything could happen.

• 55:02Speaker 02

  He just showed up.

• 55:03Speaker 01

  Well, I'm just asking questions. Isn't that what all the grifters say on the internet when they say something that's really, really, really provocative? I'm just asking questions. So we're not allowed to ask questions? I'm pulling a Tucker Carlson defense here. Actually, that just made that a lot worse. Never mind.

• 55:20Speaker 01

  Okay, moving right along. Is China more or less likely to invade Taiwan now that the United States is busy, has fewer interceptors, but also they saw that maybe this is a really bad idea to screw things up in the world economy?

• 55:33Speaker 02

  I mean, it's a bit of a black box. The Chinese do not have enough amphibious capacity to do a meaningful landing of Taiwan without absolutely wretched casualties. I mean, easily, easily a half a million dead.

• 55:45Speaker 01

  Wow.

• 55:46Speaker 02

  Also, something to keep in mind, Chairman Xi has purged every part of the system to the point that it no longer functions.

• 55:52Speaker 01

  Right.

• 55:52Speaker 02

  And he's now working on the military. So like the equivalent of the Joint Chiefs in China, the Central Military Commission, it's only got two people now, Xi and an inquisitor. And that's it. So the idea that you can purge the entire leadership of an institution and not impact its function, Xi has killed or gotten rid of all of his advisors. He's basically become what Trump is about to become. So it's entirely possible that he doesn't realize what he doesn't realize anymore.

• 56:22Speaker 01

  I see.

• 56:22Speaker 02

  So I won't rule it out, but wow, I can't think of a faster way to destroy the PRC.

• 56:29Speaker 01

  Really? So Taiwan could be China's Iran, but with an amphibious assault instead of a bombing campaign?

• 56:35Speaker 02

  Yeah, so I mean, at a minimum, it would gut the military capacity of the PLA.

• 56:40Speaker 01

  The Chinese army.

• 56:40Speaker 02

  And that assumes no other country gets involved. And there are now a number of countries that have the military capability and the positioning to basically destroy all of China's ability to import and export anything.

• 56:52Speaker 01

  With drones.

• 56:53Speaker 02

  Well, not even, that's before you figure, put in drones.

• 56:55Speaker 01

  I see.

• 56:56Speaker 02

  We gave the Australians mid-range cruise missiles that they can launch from their mid-range fighter bombers. They can shut down the Strait of Malacca now if they want to. So India, Australia, Japan, Korea, Taiwan, Vietnam, Malaysia, Indonesia, Singapore, they could all end China in a couple of days if they want to. The question is, how would everybody respond to a Taiwanese invasion? I don't think it would go very well. And then you're talking about a country that imports 80% of their energy by water and 80% of their inputs for food by water. The disaster that would unfold over the next 12 months would just be historically apocalyptic.

• 57:33Speaker 01

  Right, so they could essentially get blockaded and then starve to death if countries decided to act.

• 57:38Speaker 02

  In a very short period of time.

• 57:39Speaker 01

  Oof, that's really.

• 57:41Speaker 02

  A decade ago, Xi understood that, but it's been eight years since he got rid of his last real advisors. Who knows what he thinks now?

• 57:47Speaker 01

  You see these tanky comments? Tankies are like authoritarian regime supporters that think they're communists. They say things like, yeah, he's getting rid of corruption. Look, he just fired 27 generals. Those guys were all on the take. But to me, it looks like coup-proofing, a loyalty purge, et cetera. That's what it looks like.

• 58:03Speaker 02

  That's exactly what it is. Does that mean that all of these people were angels? Oh, God, no.

• 58:07Speaker 01

  No, they were probably all on the take and also competent because they worked there for 30 years in the military.

• 58:12Speaker 02

  Even if they're not fully competent, they're capable of doing the basics and now the Chinese don't even have that.

• 58:18Speaker 01

  Really? I see. Okay. So does the purge tell us anything about what Xi believes was wrong with the PLA, the People's Liberation Army? So this is the Chinese military. Does that say anything about what he believes was wrong with it or just that he was afraid of it?

• 58:29Speaker 02

  I think it's just, it's the last one. He's purged every other part of the country. He started with the regional governors, then he went to the local governors, then he did the bureaucracy, then he did the CCP itself, then he did academia, then he did the press, then he did the business community. All that's left is the military. So he's basically made his entire country non-functional in any sort of crisis situation. And now we're courting crises.

• 58:53Speaker 01

  Do purged militaries, I don't know historically at all, do purged militaries become more cautious or just dangerously obedient?

• 58:59Speaker 02

  Dangerously obedient, probably the gold standard for that is Stalin and what he did to the Red Army on the eve of the Soviet invasion. He got rid of all of the generals because he didn't trust them, put in political apparatchiks. And then when the defense intelligence people started bringing in assessments on what the Germans were planning, he just started killing them because he didn't like the reports.

• 59:21Speaker 01

  Jeez.

• 59:22Speaker 02

  Actually, when Operation Barbarossa happened, it was about five days, I believe, before Stalin admitted that it actually was happening. It took cities vanishing from the map before he realized that it wasn't a lie made up by his political opponents.

• 59:37Speaker 01

  That's totally insane. I guess now there's other ways to get information, but that is crazy to think about.

• 59:43Speaker 02

  He'd shoot the messenger, then he'd send another messenger to find out, who'd say, yeah, it's real. He'd come back, he'd shoot that guy and send another one in, you know, five days.

• 59:51Speaker 01

  These people are mentally ill. Okay, so an army full of loyalists, they salute really enthusiastically, but that probably doesn't mean they can cross 100 miles of water under fire on the way to Taiwan.

• 59:59Speaker 02

  That is the guess, independent of the fact that the Chinese really don't have the amphibious hardware for that.

• 1:00:05Speaker 01

  Yeah, it seems like, I read that Chinese air activity around Taiwan has fallen, but naval and coast guard pressure is up. And you always see those videos of like ships from China spraying Filipino fishermen and trying to figure out how to increase the hold they have over the South China Sea. Is that really what it's called or is that just what China calls it? Actually, I don't know.

• 1:00:26Speaker 02

  Lots of equal help to South China Sea. You're okay on that one.

• 1:00:28Speaker 01

  All right, cool. Yeah, so that to me seems like, are they just realizing that they can't do a full amphibious invasion? They can't just bomb the place? We already know that that doesn't work. Could they blockade Taiwan? Would that work?

• 1:00:42Speaker 02

  You'll love this. This is a great example of how when you get rid of the people who know how to run a military, the people who are left just do what they think looks good. So the current Chinese plan, as demonstrated in the last couple of drills, is to take their new carrier and put it to the southeast of Taiwan in case of war to do the blockade. Okay, number one, carrier, horrible choice of a blockade military asset. Number two, that puts it beyond close air support from the mainland, which means that the Philippines could take out the carrier.

• 1:01:11Speaker 01

  Wait, why? Because it's just mostly unprotected and?

• 1:01:14Speaker 02

  It's completely exposed.

• 1:01:15Speaker 01

  That would be, talk about an upset. That's like.

• 1:01:18Speaker 02

  So whenever I see these Taiwanese encirclement drills that they're doing, I look at what's where, I'm like, oh my God, there's nobody who knows how to row a boat in charge of this.

• 1:01:27Speaker 01

  Yikes. My God. What would Taiwan have to do that Beijing could use as a pretext for war? Just existing, is that enough, essentially?

• 1:01:36Speaker 02

  That's enough.

• 1:01:36Speaker 01

  Yeah, okay.

• 1:01:37Speaker 02

  Xi's made it very clear that existing is the red line.

• 1:01:40Speaker 01

  You don't think they can blockade Taiwan? You think that that's just not possible?

• 1:01:43Speaker 02

  Oh, I think they can devastate Taiwan, but Taiwan without any help can basically set the Chinese back militarily 20 years. Even if they fall. And that assumes nobody else is involved. And if anyone is gonna get involved, the Japanese are. And the Japanese navy may be smaller than Chinese, but it's far more capable with far more power projection.

• 1:02:03Speaker 01

  Wow, so what does Japan do? Just say, hey, we need semiconductors too? Knock it off?

• 1:02:08Speaker 02

  Taiwan's semiconductor is not gonna survive de-globalization.

• 1:02:11Speaker 01

  So explain this. For people who don't know, most of the world's semiconductors, what is it, like 90% come from Taiwan?

• 1:02:16Speaker 02

  Oh, no, no, no, nowhere near that. It's less than five.

• 1:02:18Speaker 01

  Less than five? Percent?

• 1:02:19Speaker 02

  Yeah, less than five percent.

• 1:02:20Speaker 01

  Come from Taiwan?

• 1:02:21Speaker 02

  Okay, so semiconductors, think of them in nanometer, the size of the transistors. And a smaller size means you can pack more on the chip. So the chips that we're using for artificial intelligence are all two, three and four nanometer right now. Those are the best we can make. And from one until seven, you need a specific type of technology called extreme ultraviolet.

• 1:02:43Speaker 01

  The lithography thing?

• 1:02:44Speaker 02

  Technology.

• 1:02:45Speaker 01

  Yeah.

• 1:02:45Speaker 02

  And the supporting technologies enabled it to function. And the broader manufacturing supply chain to make those high end chips has a hundred thousand steps. And nine thousand companies. And half of those companies only make one product for one end user. Now roughly ninety percent of the processing chips in that category are from Taiwan.

• 1:03:08Speaker 01

  Yeah, okay, that's what I'm reading.

• 1:03:09Speaker 02

  But that's where the fabs are. That's not where the supply chain is.

• 1:03:13Speaker 01

  Okay.

• 1:03:14Speaker 02

  Looks to that is outside of Taiwan. Some are better than China, some is in the Netherlands, all we do all the design.

• 1:03:19Speaker 01

  Yeah, that UV machine is from like the Netherlands, right?

• 1:03:22Speaker 02

  Yeah, the EUV machine itself is from the Netherlands, but that thing has thirty thousand supply chain steps. It spans the world. Anyway, the bottom line is without a globalized world, none of that happens.

• 1:03:33Speaker 01

  So it seems like we would want to keep that particular system running.

• 1:03:37Speaker 02

  So you either have full globalization or you don't have those chips. That's your decision.

• 1:03:41Speaker 01

  Oh, my gosh.

• 1:03:41Speaker 02

  Or, you know, you spend twenty, thirty years rebuilding that supply chain in different places. We have always in the United States focused on the fabs. The fabs are an important part of the process, but they're not the most advanced by far.

• 1:03:53Speaker 01

  What's a fab? A place that makes the semiconductor, so it's a factory?

• 1:03:56Speaker 02

  Yeah, it takes all of these pieces, puts them together, etches a disk of silicon to make a raw semiconductor, which is then taken in somewhere else for polishing and integration into hardware to make an intermediate good that eventually makes it into your computer or your phone or whatever. So it's an essential part, but so are all the others.

• 1:04:15Speaker 01

  Right, yeah, it's crazy to think about like, oh, you need this advanced part, you need this advanced part, you need this advanced part. Hey, but we can't get this one metal that goes on the outside of the board. And well, none of the boards work until we get that. Oh, oops, where's that from? Congo, crap.

• 1:04:30Speaker 02

  Take that multiplied by five thousand, that's the modern semiconductor problem. Now, under or over seven nanometers, seven nanometers and more, uses a different technology called direct ultraviolet. And the supply chains for it as a rule are much simpler. So there's a lot of versions of those chips that will survive decglobalization, certainly not all of them.

• 1:04:51Speaker 01

  Great, so my flashlight will still get you. Good news, guys, your LED flashlight might still work. You'll be all right, you'll be cool, you could see in the dark when we don't have electricity.

• 1:04:59Speaker 02

  Well, for example, cars, most of the chips that go into cars are less than seven. Most of them are like twenty eight.

• 1:05:04Speaker 01

  Cars or like electric cars? Cause I don't know, my Tesla's got a touchscreen.

• 1:05:08Speaker 02

  Electric cars have at least a thousand dollars of the low end and at least a thousand dollars of the high end. So yeah, those go away for sure.

• 1:05:14Speaker 01

  Okay, interesting. I'm back to riding around in my lawnmower or go kart around the neighborhood. My God, this is just really, is there any good news that we can share?

• 1:05:25Speaker 02

  Well, if you really like drones, the chips that are used in these new drones are all like twenty eight nanometers or fifteen nanometers at most or bigger.

• 1:05:34Speaker 01

  Yeah.

• 1:05:34Speaker 02

  So they will continue to be iterated and improved even as globalization breaks.

• 1:05:39Speaker 01

  This is just absolutely wild. Good news, your LED flashlight may still work. Bad news, it'll be illuminating the lawnmower you now commute to work on. We'll be right back.

• 1:05:52Speaker 01

  Don't forget about our newsletter, We Bit Wiser. It is specific and practical. It'll have an immediate impact on your decisions, psychology and relationships in under two minutes just about every Wednesday. If you haven't signed up yet, I invite you to come check it out. It is a great companion to the show. JordanHarbinger.com/news is where you can find it. Now for the rest of my conversation with Peter Zion. What do you think is going to end up happening with Ukraine in terms of the war with Russia? It seems like, look, every, everybody online says, oh, there's a stalemate. Russia constantly tries to throw men to the meat grinder. They get, I don't know, fifteen meters of space in any given day or week. And then it goes back again. It also looks like, but this is just from news coverage, the tide might be turning now that Ukraine says,

• 1:06:37Speaker 01

  well, we're just going to keep blowing up oil refineries until you guys have enough pain that you stop trying to roll into us.

• 1:06:42Speaker 02

  Well, I'm going to say a series of very controversial things here because, you know, that's new for me.

• 1:06:46Speaker 01

  Great.

• 1:06:46Speaker 02

  Let's draw a line on February first. Until February first, the Russians were winning. Any battle in which the Ukrainians do not inflict an eight to one casualty ratio on the Russians is a battle the Russians won.

• 1:06:59Speaker 01

  Wow.

• 1:06:59Speaker 02

  Because Russia is so much bigger and has so much more of a stockpile from the Cold War and so many more people. That that eight to one number is what is required to overcome the demographic imbalance. And with a couple of exceptions, the Ukrainians have never been able to hit that number. They are now. Because now with these new drones, it's not so much that Ukrainians have more drones on the front line, although they do. It's that they're using these memory drones to destroy the supply chain system three hundred kilometers behind the front line. And so reinforcements can't arrive, food can't arrive, fuel can't arrive, ammo can't arrive.

• 1:07:37Speaker 02

  And so when there is a fight, the Russians are on the back foot logistically in every possible way and they get obliterated. They may still be gaining ground, but now for the first time, the cost of that is over that eight to one ratio. The question is, is whether or not the Ukrainians who now have a technological advantage of drones can leverage that long term and start to leverage that into other areas. So in the last five months, we've seen the Russians focus their military industrial complex, not on tanks or artillery for the first time, but on ballistic missiles. Because at the moment, the Ukrainians have no answer for that. The Patriots are gone, they will never be part of the equation again.

• 1:08:23Speaker 02

  And we have yet to have a counter drone system that can take out a ballistic incoming. And so the last few weeks, we've gone from the Ukrainians intercepting like half of the ballistic missiles to none. And so the Ukrainians know that right now the Russians are making about seventy of their kind of their frontline missiles a month. The Russians are probably going to try to expand it by a factor of ten within a year. Because they're putting all the stuff they used to put in tanks into that.

• 1:08:49Speaker 01

  Right, so Ukraine has to destroy those facilities that make those and also figure out a way to send a drone up against a ballistic missile and take it out before it hits Kiev.

• 1:08:57Speaker 02

  I don't know if that's possible, but there's been a lot of things that have happened the last six months that I didn't think was possible six months ago, so God knows.

• 1:09:03Speaker 01

  That's right, yeah, I mean, they have water based drones and everything.

• 1:09:06Speaker 02

  And then, of course, you've got the general degradation of the Russian industrial complex going on at the same time. So we really are in a fundamentally new conflict here. I mean, this war has changed several times in the last five years now. But in the last six months, all of the rules have shifted, all of the players have shifted. And so at the same time, we expect the Russians to suddenly be fielding a lot of these missiles is also when all of those joint production facilities are about to come online. So Ukraine might not be launching five hundred drones a day. They may be launching fifteen thousand. It's like, I don't know how that plays out.

• 1:09:41Speaker 01

  Right, it's are there going to be ballistic missiles raining down on Ukraine to the point where that turns the tide? Or are there going to be drones raining down on every major city in Russia to the point where people say, what the hell, man? I thought you were, we gotta get out of this. Or both, why not? Porque no los dos.

• 1:09:56Speaker 02

  But we need to watch this very closely because what we're seeing is this new drone technology evolving in an environment where basically if you have an industrial facility within six or eight hundred miles of a foe.

• 1:10:06Speaker 01

  Of a what?

• 1:10:07Speaker 02

  Of a foe.

• 1:10:08Speaker 01

  What's that?

• 1:10:08Speaker 02

  F O E, not an acronym.

• 1:10:10Speaker 01

  Oh, a foe, oh, God, I thought it was an acronym. Even when after you said not an acronym, I thought, what acronym is you talking about? Okay, enemy, got it, sorry.

• 1:10:18Speaker 02

  Yeah, if you're within six or eight hundred miles, your industrial plant is vulnerable now.

• 1:10:22Speaker 01

  Right.

• 1:10:23Speaker 02

  And, you know, if you look around the world, you know, that's Germany east, that's all of Japan and Korea and Taiwan. That's all of industrialized China. It's like we're entering this situation where most of the populated zones of the eastern hemisphere that have industrial plant are all of a sudden by these new rules vulnerable in a way that they've never been before.

• 1:10:41Speaker 01

  Wow, this is, this is all quite alarming. What is one geopolitical danger the public is dramatically overestimating?

• 1:10:50Speaker 02

  Well, I mean, all things China, but that's kind of passe from my point of view. And I would say all things AI.

• 1:10:55Speaker 01

  Okay.

• 1:10:56Speaker 02

  AI is a flash in the pan from an industrial point of view because we're not going to be able to maintain it. The Chinese are on borrowed time already. So anything that you're doing to prepare for the world where the Chinese dominate everything is kind of a wasted effort.

• 1:11:09Speaker 01

  Why can't we maintain AI just because of the electrical?

• 1:11:11Speaker 02

  The supply chain system. We're not going to be able to make the chips. And once a chip goes into an AI chassis and a data center, it runs constantly and it burns out in four to six years.

• 1:11:21Speaker 01

  Gotcha.

• 1:11:21Speaker 02

  From the point that the supply chain breaks, we'll probably be getting new inflow for about a year from what's already in the system. Because once you start work on the chip, you already have everything for it to bring it to completion. It'll take a year for that system to run out and then you're looking at four to six years and it's all gone.

• 1:11:38Speaker 01

  Why would this? I know we talked about this extensively in your last appearance, but why would the supply chain for this break from Taiwan and other places? Why wouldn't we be able to continue getting chips for AI, for example?

• 1:11:48Speaker 02

  Take your choice. There could be a Taiwan war in which Taiwan burns. There can be a trade war in which China breaks. That's the raw materials that go into the system. The Japanese could have a political evolution in the direction of, oh, I don't know, a Yakuza Nazi merger, which is exactly what's happening right now. And they could remove the photomass from the system. In Europe, we could have the Germans get involved with the Russians to a higher degree and that takes out the laser structures that make EV work. Maybe the natural gas field under the Netherlands decompresses like it's been doing for the last 30 years and we lose ASML in the EUV system. Maybe we have a problem with Turkey and we lose the tungsten. Maybe we have a problem with Congo and we lose the cobalt. I mean, there's endless vulnerabilities here.

• 1:12:28Speaker 01

  All just very fragile. Yeah, exactly.

• 1:12:31Speaker 02

  To keep it going, you need the United States to maintain the military structure that allows global trade to happen. And the political willingness to do that, we don't have either.

• 1:12:40Speaker 01

  We don't really have that anymore. Yeah. And by the way, you can't just say Yakuza Nazi merger in Japan without maybe explaining that one. That's a juicy one.

• 1:12:47Speaker 02

  Sure. So after World War II, the United States found itself confronted with a lot of really interesting political systems in Europe and in Asia. And unlike, say, when we invaded Iraq in 2003 and we rooted out all the bath and left a vacuum, we decided that we needed to work with what was still there. So we removed the emperor and his people. And what was left was the Yakuza. So we used the Yakuza to maintain political and strategic control of Japan for like 15 years. And of course they got into politics.

• 1:13:31Speaker 02

  And so the LDP, the one party of Japan, has different factions now. You've got the ones who want to go back to the imperial system when they went banzai on the horizon. And you've got the ones that are linked to the Yakuza. The current prime minister is from the banzai faction and most of her cabinet is from the Yakuza faction.

• 1:13:50Speaker 01

  I'd never heard of this. That is seems totally insane to me.

• 1:13:54Speaker 02

  The alternative was to use GIs to patrol at the city level throughout Japan in post-war and we had the Cold War to worry about. A lot of the decisions that you make when you're under stress determine what your next crisis will be. We saw that with Al Qaeda. We saw that with China. Maybe we'll see that with Japan next.

• 1:14:12Speaker 01

  What happens when we have this particular merger? Because Japan seems right now like a global player, an ally to the West. They're anti-China. Well, I should say they've always been anti-China. That's not exactly new. What's the danger here? I mean, Nazi-Yakuza Nazi merger sounds really scary, but if it's functionally the same thing as Japan is doing now, is it that bad? Or what do you think the change is going to be?

• 1:14:33Speaker 02

  Remember, the United States can't maintain globalization anymore. Japan is one of many countries that has to make a lot of very hard decisions about their future. And the people making the decisions have pre-existing sympathies.

• 1:14:44Speaker 01

  Right. So rearming of Japan, which is already starting to happen.

• 1:14:48Speaker 02

  Already happening.

• 1:14:48Speaker 01

  And I read an article in the New York Times about how Japan, Tokyo especially, is a hotbed of spies because they have no domestic intelligence agency.

• 1:14:56Speaker 02

  Because of us, that was our choice. We chose to force them to not develop that.

• 1:14:59Speaker 01

  Right. And the reason is because they used to have secret police that were terrorizing the population and really, really bad, like most secret police forces tend to be. And it was part of the emperor's secret police, I suppose. It was just part of the imperial system that we dismantled after World War II. So they're going to go, hey, we need this to get rid of the spies. And then that's going to maybe turn into what a fascist's secret police type of thing? Is that the prediction?

• 1:15:22Speaker 02

  One of the reasons we said you don't get to have an intelligence arm, and certainly not an intelligence defense arm, is because if they had had that, we would have probably lost control of them in the 60s. So especially if you're going to encourage the Yakuza to be part of the security apparatus, you don't want them to have meaningful international intelligence capability.

• 1:15:41Speaker 01

  Right.

• 1:15:41Speaker 02

  So that was a conscious choice made by US administrations over 70 years. But if we can't maintain the globalized structure that allows Japan to have a functional economy, they're going to have to make a lot of decisions, one of which is resurrecting or recreating an intelligence system. And that won't happen in one or two years, but it will happen. And so now you've got a country that basically has to have a sphere of influence, has to have a blue water navy, has to have carriers, has to have an intelligence system and is a little fascist Yakuza tilted on all its decision-making. I don't want to say that that guarantees a conflict with the United States, but it certainly guarantees a non-alliance.

• 1:16:18Speaker 01

  Huh. Okay. In the time that we have left, which is very minimal here, where is the positive sum opportu-- this is your real challenge. Where is the positive sum opportunity in all of this? Which country, region, technology, institution, whatever, is adapting faster than you expected? Not merely profiting from war. Who is solving a structural problem? Where are human ingenuity and institutional competence actually outrunning, I don't know, geography and demography and?

• 1:16:46Speaker 02

  If there is one and I'm looking, I'm unaware.

• 1:16:48Speaker 01

  Oh, crap.

• 1:16:49Speaker 02

  I mean, I'm going to fall back on my old thing that a lot of this passes North America by in many ways. We're self-sufficient and net exporters of energy and food. And that gives us a lot of wiggle room in many ways. But we're no longer building ourselves out for what is coming. We're going in the opposite direction. So what used to be, from my point of view, a bright spot, we saw explosions in industrial construction under Biden, not because of Biden, just the timing. But the business environment now is so unstable that that's all stopped. So we're just kind of waiting for the world to happen to us now.

• 1:17:22Speaker 01

  So of all the decisions still available to the United States and its allies, which single decision would do the most to prevent the bleakest version of your forecast from becoming reality?

• 1:17:33Speaker 02

  Entrench NAFTA as deeply and as quickly as possible.

• 1:17:35Speaker 01

  Okay.

• 1:17:36Speaker 02

  Because right now we're eyeing a world where North America has to build out industrial plant at a massive pace, double what we have. If we decide we want to do that without Mexico and Canada, then we have to triple it. And then a 25 to 30-year grind becomes something much longer.

• 1:17:52Speaker 01

  Which country looks maybe weak or chaotic or even irrelevant today, but will, I'll say will, likely surprise us by being substantially stronger in 2030?

• 1:18:03Speaker 02

  I'll give you two. Close to home, Mexico. Because regardless of what happens with the relationship with the United States, a lot of their industrial plant is already built. And if the US merges with Mexico economically with a NAFTA II, NAFTA III, whatever you want to call it, then we leverage each other's advantages and we're the two most demographically stable countries in our wage class, for lack of a better phrase. That can be a beautiful relationship. And if we don't do that, then Mexico has to do it on its own. And unlike most other countries in its peer class, it's already done a lot of the heavy lifting. So Mexico's future is going to be rough for a number of reasons, drug war, for example. But from an economic point of view, it looks really good as an industrial power. In the Eastern Hemisphere, watch Turkey. No matter what the Middle East looks like, Turkey is the most stable power.

• 1:18:48Speaker 02

  It's got the largest army in NATO after the United States. And unlike the United States, which is leaving, the Turks aren't going anywhere. They already have infrastructure in place to take crude from either Syria or Iraq or Russia or Kazakhstan or Azerbaijan. So despite being an energy importer, they're probably not going to have an energy crisis. And no matter who wins the Ukraine war, Turkey will be in an arbitrary position for whatever is next because they control the Black Sea access to the rest of the world. So they are at the beginning of a multi-decade boom in strategic and economic power. And from an industrial point of view, they versus Europe are kind of the same as us versus Mexico. So again, a lot of the hard work's already done.

• 1:19:32Speaker 01

  Wow. What does a survivable Ukraine peace agreement contain?

• 1:19:38Speaker 02

  There is no version of an independent, intact Ukraine that doesn't spell the end of Russia. And there is no version of a sustainable, defensible Russia that includes an independent Ukraine. This really is to the death.

• 1:19:54Speaker 01

  Why is that? Because Russia, I understand why you can't have Russia leave Ukraine because that would look terrible and Putin would go down in flames, which might actually happen anyways. But why is it that we can't have Russia simply say, all right, stalemate in Donbass, we're sticking with it. We hereby declare victory. This is totally what we wanted to do in the beginning, guys. Trust me. Forget all the people that died trying to expand this particular bit of land. Forget the column of stuff we lost going to Kiev. This is all we wanted. Why can't they just do that?

• 1:20:24Speaker 02

  The Russian demographic is collapsing until the Chinese overtook them. Impressively, I might add, they had the worst demographics in the world. So this is in many ways their last war. The Russians are concerned, rightly so, that if they can't get to a more defensible perimeter, that they won't be able to defend their territory with the military that they will have in five, 10, 15 years. And they're right about that. The biggest chunk of that external border is the Carpathians. And the Ukrainians are to be perfectly blunt on the wrong side of the Carpathians. So the Russians feel that they have to get to the Caucasus, they have to get to the Carpathians, they have to get to the Baltic Sea. And if they do, then instead of having roughly 5,000 miles of exposed border to potentially

• 1:21:04Speaker 02

  hostile powers, they can rely on geography to protect 4,500 miles of that and they can just pluck the gaps. They're right.

• 1:21:12Speaker 01

  Okay. But who are they afraid of?

• 1:21:14Speaker 02

  Everyone.

• 1:21:15Speaker 01

  Why though?

• 1:21:16Speaker 02

  Russia has been invaded 49 times in the last 300 years. Just because today there isn't anyone that looks like they're eyeing Russian territory doesn't mean that there won't be.

• 1:21:26Speaker 01

  Except for China, which is eyeing Russian territory, which might be Chinese territory, depending on who you ask.

• 1:21:30Speaker 02

  Absolutely. But you can replace the word China with Ukraine or Poland or Sweden or Germany and have that conversation on any part of the border.

• 1:21:39Speaker 01

  Yikes, yikes. So they have to go through Ukraine and then they also have to go through, what, Poland and the Baltics? I mean,

• 1:21:46Speaker 02

  Among others, but yes.

• 1:21:47Speaker 01

  They can't even get through Ukraine, which has way less of a developed military than Poland, and then the Baltic States, and all of which are NATO, all of which are probably, they see the writing on the wall. Russia's not going to catch them by surprise.

• 1:21:59Speaker 02

  Do you really think that NATO means anything without the United States?

• 1:22:02Speaker 01

  Yeah, probably not. But the people who are delusionally thinking that Ukraine is on their own and Europe isn't really next are going to have a wake-up call if a European country is next.

• 1:22:11Speaker 02

  Don't take this as an insult because that's not how I mean it. But every Westerner has had that position on Russia for 400 years.

• 1:22:19Speaker 01

  Yeah.

• 1:22:20Speaker 02

  And we've always been wrong.

• 1:22:21Speaker 01

  Wrong about specifically what?

• 1:22:23Speaker 02

  That what Russia wants to do is so unrealistic that they won't try.

• 1:22:26Speaker 01

  Oh, yeah. You're right. It just seems insane to me. Peter, it's so bad that it couldn't possibly happen. Wasn't that what we said at the beginning of the show? That's such a bad idea that it couldn't happen and the consequences are so bad that there's no point in thinking about it because it would never happen. Because I'm thinking, okay, so they try to go through Ukraine and it costs them 10 million more people, which they don't necessarily have. And then they're like, all right, Poland is next. Yes, they're five times, 10 times tougher than Ukraine, but we got to get to those mountains, bro.

• 1:22:53Speaker 02

  I would guess that Latvia would actually be second, but

• 1:22:56Speaker 01

  Sure.

• 1:22:56Speaker 02

  your point stands.

• 1:22:57Speaker 01

  I think you're probably right. I mean, or Estonia or something like that. I don't know. But they're just going to, what, kill every Russian on the way to defending Russia? I mean, I just, I can't wrap my head around this.

• 1:23:07Speaker 02

  Keep in mind that Russia is not a nation-state. It's a multi-ethnic empire and they have a lot of people that they consider disposable. They're using them in Ukraine right now.

• 1:23:15Speaker 01

  So, oh, gosh, this is just such a dark scenario.

• 1:23:19Speaker 02

  It's not a nice place.

• 1:23:20Speaker 01

  Yikes. My God. All right. Peter Zion, always leaving us with plenty of enthusiasm at the end of these. Appreciate you coming on, man. Once again, good to see you.

• 1:23:29Speaker 02

  No problem. Until next time.

• 1:23:33Speaker 01

  If you enjoyed this interview with Peter, here's a clip of a previous episode we did.

• 1:23:36Speaker 02

  We're kind of in this soft moment in history where everyone's holding their breath and wondering if the next time there's an incident, the US is going to intervene or not. And I would argue we are not. Safety on the waves is what allows us to have the East Asian manufacturing model. Less than 1% of that shipping happens on land. And that is a recipe for 1910s and 1930s style conflict and competition. Countries are increasingly finding in their best interest to kind of hoard what consumption they do have and not allow trade access to it and then producing more locally. We were moving this way before the Ukraine war, before the Chinese started to break down and before the German industrial model started to implode. This has just sped

• 1:24:19Speaker 02

  everything up. So we'll probably see significant drops in agricultural output next year, especially in the second half of next year, which should suggest that we're going to have significant problems with food supply on a global scale in the months that follow. I mean, the food issue is the issue that gives me nightmares because I don't see a way to fix it. The biggest loser by far is China. Everything about China's functionality is dependent on a globalization and a demographic moment that has passed. I think we're in the final decade of the European Union because without that Russian energy, there is no German manufacturing model. And without the German manufacturing model, you don't have the money that is used to keep the EU in existence. The pace of the disintegration here is really difficult to wrap your mind

• 1:25:01Speaker 02

  around. We've had a really good run the last 75 years. It was never going to last. It's going to be a rough ride. So anyone who thinks that this is going to be easy is wrong in every possible way.

• 1:25:14Speaker 01

  For more about how globalization and our way of life will change dramatically in the coming decade, check out episode 781 of The Jordan Harbinger Show.

• 1:25:25Speaker 01

  Big thanks to Peter Zion. There's geopolitics and then there's Peter turning my inability to order Sonos speaker stands overnight into the opening scene of Industrial Civilization's season finale. The central problem here isn't merely that the world is becoming more dangerous. It's that the technologies, alliances, supply chains, and assumptions underneath the old system are changing faster than governments can adapt. Cheap drones capable of limited autonomous decision-making are challenging weapons that cost millions of dollars per shot. America cannot quickly replace the interceptors it's already used. The Persian Gulf energy crisis threatens China and the entire East Asian manufacturing system. And breaking that system before building a replacement could leave us without the processed materials required for electronics, vehicles, transformers, electricity, infrastructure, and just about

• 1:26:09Speaker 01

  everything else we assumed would continue existing because the buy now button still happens to work. Even AI isn't floating safely above this mess in a magical cloud. Its most advanced chips depend on a global supply chain involving thousands of companies, tens of thousands of components, and a level of international stability we may no longer be willing or able to maintain. The closest thing Peter offered to optimism was also the most actionable. Deepen North American integration, rebuild industrial capacity with Mexico and Canada, and stop dismantling the replacement system before the old one has even finished collapsing. So yes, there is a path through this. It's just a 25-year industrial reconstruction project requiring strategic discipline, political stability, international cooperation,

• 1:26:53Speaker 01

  and competent leadership. Piece of cake. Of course, all things Peter Zion will be in the show notes on the website. Advertisers, deals, discount codes, ways to support the show, all at jordanharbinger.com/deals. Please consider supporting those who support the show. Don't forget about Six Minute Networking as well over at sixminutenetworking.com. I'm at Jordan Harbinger on both Twitter and Instagram. You can also connect with me on LinkedIn. This show was created in association with Podcast One. My team is Jen Harbinger, Jace Sanderson, Robert Fogerty, Tadusidlouskas, Ian Baird, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for the show is you share it with friends when you find something useful or interesting. In fact, the greatest compliment you can give us is to share the show with those you care about. If you know somebody who's interested in geopolitics,

• 1:27:35Speaker 01

  China, Iran, or Ukraine, definitely share this episode with them. In the meantime, I hope you apply what you hear on the show so you can live what you learn. And we'll see you next time.