Pedro Navaja -
Nice. So no one was able to actually dispute the facts. Good to know!
Reasons Why The US Will Dominate The World Economy For The Foreseeable Future
There are a couple of things going on simultaneously. First, because of demographic aging on a global scale, the United States is emerging as the only market over the long-term. Second, the United States is backing away from the world. It is reducing the American footprint overseas while its ability to intervene increases. What we have done with Special Forces, what we are doing with drones, what we are doing with satellite tech—the ability to reach out is higher than it has been for decades. But our need to do that with troops on the ground or maintaining the day-to-day order of the international system is going away. Third, Trump is taking a lot of the trends that already existed in American politics and kicked them up a notch. We are already going through this period of new isolationism and here comes a trade warrior who wants to renegotiate every trade deal on the books, specifically fingering Mexico and China, two of our three biggest trading partners.
You put these three things together and you get a United States that is transitioning from being the global guarantor of security, global trade, and energy markets to one that, at best, has stepped back from it all and, more likely, even sees a vested interest in disrupting it to a certain degree. At the same time, the U.S. is the only market. The split between successful countries and failed countries in the future is how well can you buddy up with the only country that matters? Everything else is going to be a free for all. In the United States, you have the market, the financial capital, the labor system, the consumption base, the energy—and you can project power out, rather than have to defend your own borders. That does not exist anywhere else on the planet, and is not going to exist anywhere else on the planet in the next fifty years. The only question in my mind for the last few years has been “What is the speed of the transition?” Under a President Hillary Clinton, it would have taken four to eight years. Under President-elect Donald Trump, it will probably take four to eight months. The year 2017 is shaping up to be the most dynamic year in international affairs since at least 1945.
High: Are you suggesting that some of what we are seeing with the positive reaction of the markets in the U.S. is symptomatic or emblematic of some positive economic changes for the U.S.? Are these sustainable from your perspective?
Zeihan: I would not bet too much on any specific economic trend that seems to be manifested on Wall Street for the last couple of weeks. The market had fully positioned itself for a Clinton victory and when that did not happen, everyone went scrambling in every other direction they could imagine. Whether Trump’s economic plans are good for the mid- and the long-term, we really do not know yet. The first of three things that Trump says he is going to attack in his first couple of months is corporate tax reform, which is solid. I think there is a surprising amount of bipartisan support for that in Congress already. The second is healthcare. That will be a hell of a fight, but with control over Congress, the Executive Branch and, probably very soon, the courts, that is one that Trump can win, just not in the first 30 days. The third one is immigration. In the first stage, it is going to be about capacity building. If he really is serious about doing mass deportations, then there will need to be a fair overhaul and bulking up of INS. That is not something you can do in a month. Those three policies are not going to generate short-term results. We will not see the first economic outcome for that for two years, so do not hold your breath.
High: Given the power that America will have to choose the markets in which to emphasize, where do you believe the country should focus?
Zeihan: First, I would argue that the U.S. has not had a meaningful foreign policy towards either East Asian or Western Europe since the Bush senior administration. The Clinton administration did not have a foreign policy. In the George W. Bush administration, it was all Middle East, all the time. In the Obama administration, the Russian reset and the pivot towards Asia were basically just a little bit of window dressing to cover the fact that we were cancelling our Middle East policy. So, we have really not had a functional foreign policy in any meaningful sense of the term for twenty-five years.
In my view, the two areas where it makes the most sense for the United States to engage in a constructive manner are Latin American, specifically Mexico, and Southeast Asia, specifically Singapore, Thailand, Indonesia, Myanmar and Vietnam. These are the parts of the world that have good demography and where a combination of local consumptive capacity could marry well with American technology and military policy. Anywhere else in the world, you are going to deal with collapsing demographies so there is no market to access. If you go to the Persian Gulf, you are going to be in the middle of a Saudi Arabian knife fight. If you go into Europe, you must deal with the Russian resurgence. If you go into East Asian, you must deal with what is brewing into a Japan/Korea/Taiwan/China fight. You do not have to deal with that in Southeast Asia. Half the population is under thirty. You do not have to deal with that with Mexico, which is already the U.S.’s number one or number two trade partner, depending on how you do the data. These two regions are easy. They do not have a lot of heartburn and they offer a lot in terms of resources and markets.