#447 — The Unraveling of American Power
In this episode of Making Sense, Peter Zeihan examines the impact of the Trump administration's trade and foreign policies on American manufacturing and global influence. The discussion explores how protectionist tariffs have affected different sectors of U.S. manufacturing, with simple operations showing some success in domestic relocation while complex industries face significant challenges. Zeihan also analyzes how the combination of deindustrialization and declining globalization could affect inflation and supply chains.
The conversation extends to the Trump administration's approach to international relations, particularly regarding Mexico and Venezuela. Zeihan discusses specific policy decisions, including the handling of drug cartels and maritime law enforcement, as well as questions about presidential military authority under the War Powers Act. The discussion touches on concerns about accountability and rule of law, including the controversial pardon of a former Honduran president.
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Impact of Trump's Protectionist Policies and Trade War
Peter Zeihan analyzes how Trump's protectionist tariffs have affected U.S. manufacturing, revealing a complex pattern of industrial change. While some simple manufacturing operations, like furniture and paint production, have successfully relocated within the U.S., high-value sectors requiring complex global supply chains have suffered significantly. Zeihan notes that these tariffs, coupled with policy uncertainty, have led to a notable contraction in manufacturing and decreased industrial construction spending.
Supply Chain Disruptions and Manufacturing Loss
As the U.S. prepares for what Zeihan describes as the end of globalization, the country faces significant challenges. The combination of deindustrialization and declining globalization could amplify inflation, particularly in critical sectors like GPU production. Zeihan explains that the U.S. now faces a difficult choice: accept high inflation while maintaining productivity, or risk both inflation and goods shortages.
Trump Administration's Controversial Foreign Policy
Zeihan critiques the Trump administration's approach to foreign policy, particularly regarding Venezuela and Mexico. He points out that the administration's actions, including alleged extrajudicial targeting of drug smugglers at sea, may violate international laws. Regarding Mexico, despite tough rhetoric on cartels, Zeihan notes that Trump largely continued previous administrations' policies. However, the disruption of the Sinaloa Cartel led to the rise of the more violent Jalisco New Generation Cartel.
Questions on Trump's National Security and Rule of Law
The Trump administration, like its predecessors, contested the constitutionality of the War Powers Act, which limits presidential military action without congressional approval. Zeihan discusses how the administration sidestepped the act's requirements by not justifying or ending military operations within the required 30-day timeframe. Additionally, the controversial pardon of an ex-Honduran president raised concerns about the administration's commitment to fighting narcotics trafficking and maintaining accountability for corrupt officials.
1-Page Summary
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Counterarguments
- The tariffs may have been intended to incentivize domestic production and could have had positive effects on certain industries or sectors not mentioned in the text.
- Some economists argue that short-term pain from tariffs and trade wars can lead to long-term gains, such as more favorable trade deals or the repatriation of manufacturing jobs.
- The contraction in manufacturing and industrial construction spending could be influenced by factors other than tariffs, such as automation, technological changes, or broader economic trends.
- Inflation in critical sectors like GPU production might be influenced by a variety of factors, including but not limited to deindustrialization and trade policies.
- The choice between high inflation and goods shortages is a simplification, and there may be policy measures that can mitigate both issues simultaneously.
- Foreign policy is complex, and actions taken may have strategic justifications that are not immediately apparent or are classified.
- The rise of the Jalisco New Generation Cartel could be attributed to the inherent dynamics of criminal organizations rather than a direct result of the Trump administration's policies.
- The use of executive powers, such as those related to the War Powers Act, has been a contentious issue across multiple administrations, and there are legal arguments supporting the executive branch's interpretation of its authority.
- Pardons are a constitutional power of the presidency, and their use can be seen as part of the broader debate over executive discretion and the justice system.
Actionables
- You can support local manufacturing by buying products labeled "Made in the USA," which helps simple manufacturing operations that benefit from domestic relocation. By doing this, you contribute to a demand for domestically produced goods, potentially influencing a shift in manufacturing practices that favor local over global supply chains.
- Educate yourself on the impact of foreign policy by following non-profit organizations that monitor international law and human rights. This awareness can lead to more informed voting and advocacy for policies that respect international laws and promote ethical foreign relations, particularly in areas like extrajudicial actions and narcotics trafficking.
- Consider investing in companies that focus on sustainable and localized supply chains to mitigate the risks of deindustrialization and inflation. By choosing investments that prioritize resilience in the face of global supply chain disruptions, you can contribute to a more stable economic environment and potentially safeguard your own financial future against inflationary pressures.
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Impact of Trump's Protectionist Policies and Trade War
Peter Zeihan provides insights into the effects of President Trump's protectionist tariffs and how they've contributed to the deindustrialization of U.S. manufacturing.
Trump's Tariffs Resulted In Deindustrialization of U.S. Manufacturing
Zeihan explains that the tariffs implemented under Trump’s administration have resulted in a significant shift in U.S. manufacturing.
Tariffs Eased Relocation of Simple Manufacturing Steps but Disrupted Complex, High-Value Processes Dependent on Global Supply Chains
While low-value manufacturing jobs, like those in furniture and paint, have relocated within the U.S., high-skilled, value-added sectors such as automotive and aerospace have suffered. This is due to tariffs affecting intermediate products that cross borders multiple times in complex global supply chains, leading to costlier final products.
For example, GPUs, essential for technologies like large language models (LLMs), require a globalized production system. The breakdown of globalization poses a threat to the production of these advanced components.
Deindustrialization Led To Manufacturing Contraction and Reduced Industrial Construction Spending, Indicating Business Hesitation to Invest Due to Policy Uncertainty
Zeihan notes a contraction in the manufacturing sector and a decrease in industrial construction spending. This indicates businesses are completing projects started pre-tariffs but are now hesitant to initiate new investments due to uncertainty about future policies. The turbulence caused by over 600 tariff changes since January 20 has further contributed to investment hesitancy. Companies are unsure whether new investments will yield returns under these conditions.
Supply Chain Disruptions and Manufacturing Loss to Lead To Inflation
The U.S. is bracing for an era beyond globalization, which includes expanding its industrial base—a move that is likely to lead to inflation.
U.S. Prepares For End of Globalization, Expanding Inflationary Industrial Base
Zeihan discusses that as the U.S. prepares for the end of globalization, it must expand its industrial base. However, deindustria ...
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Impact of Trump's Protectionist Policies and Trade War
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Clarifications
- Deindustrialization refers to the decline of manufacturing activity in a region or economy. In the U.S., it means fewer factories, jobs, and production output in traditional industries. This shift often results from automation, globalization, and policy changes that move manufacturing overseas or reduce competitiveness. It can lead to economic challenges like job losses, reduced economic diversity, and weakened industrial infrastructure.
- Tariffs are taxes imposed on imported goods, making them more expensive and less competitive compared to domestic products. Simple manufacturing steps can move within the U.S. to avoid these extra costs, as they often involve final or easily localized production stages. Complex products rely on multiple cross-border steps, so tariffs increase costs at each stage, disrupting the entire supply chain. This complexity makes it harder to relocate high-value manufacturing domestically without significant cost increases.
- Intermediate products are partially finished goods used as inputs in further manufacturing steps. When these products cross borders multiple times, each crossing can incur tariffs, customs fees, and delays. These added costs accumulate, making the final product more expensive. Complex supply chains rely on smooth, low-cost cross-border movement to remain efficient and competitive.
- GPUs (Graphics Processing Units) are specialized hardware designed to handle complex calculations quickly, originally for rendering images and video. They are crucial for training and running large language models (LLMs) because these models require massive parallel processing to analyze and generate human-like text efficiently. Without powerful GPUs, developing and deploying advanced AI like LLMs would be significantly slower and more expensive. The global supply chain is essential for producing GPUs due to the complexity and specialization of their components.
- Globalization in manufacturing means spreading production steps across multiple countries to use each location’s strengths, like cheaper labor or specialized skills. This creates complex supply chains where parts are made, assembled, and shipped internationally before final products reach consumers. It lowers costs and increases efficiency but depends on smooth international trade and cooperation. Disruptions to globalization raise costs and complicate production, especially for advanced technologies.
- Frequent tariff changes create uncertainty because businesses cannot predict future costs or trade rules. This unpredictability makes it hard to plan long-term investments or commit capital. Companies may delay or cancel projects to avoid losses if policies shift unexpectedly. Unstable trade environments increase financial risk, discouraging new manufacturing investments.
- Supply chain disruptions increase the cost and time needed to produce and deliver goods. Manufacturing losses reduce the overall supply of products available in the market. When supply decreases but demand remains steady or grows, prices tend to rise, causing inflation. Thus, disrupted supply chains and reduced manufacturing capacity directly contribute to highe ...
Counterarguments
- Tariffs can sometimes protect domestic industries from unfair foreign competition and can be a tool for negotiating better trade terms.
- The relocation of low-value manufacturing jobs within the U.S. could be seen as a positive development for domestic employment in those industries.
- The disruption of complex manufacturing sectors might incentivize innovation and investment in domestic supply chain resilience.
- The increase in the cost of final products could be temporary as industries adjust and find new efficiencies or supply sources.
- The contraction in manufacturing and reduction in industrial construction spending could also reflect a natural economic cycle or other global economic pressures, not solely the result of tariffs.
- Policy uncertainty is a common challenge in business investment decisions, and companies often adapt by developing strategies to mitigate risks.
- Inflation can be influenced by a variety of factors, including monetary policy and global economic conditions, not just industrial policy or tariffs.
- Expanding the industrial base could lead to long-term economic benefits, including more jobs and technological advancements, which might offset short-term inflationary pressures.
- The choice between high inflation with productivity or goods shortages is not necessarily binary ...
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Trump Administration's Controversial Foreign Policy and Consequences
Peter Zeihan analyzes the Trump administration's foreign policy, specifically towards Venezuela and Mexico, uncovering a lack of clear strategy and continuity with previous administrations, leading to unintended consequences and possible violations of international norms.
Trump's Venezuela Approach: Saber-Rattling and Unilateral Actions, Lacking Coherent Policy
Zeihan critiques the Trump administration for having an unplanned policy towards Venezuela, characterized by intimidating gestures without a clear or coherent strategy.
Administration's Alleged Extrajudicial Targeting and Killing of Drug Smugglers at Sea Violate International Laws and Norms
He notes that acts of saber-rattling, including the alleged extrajudicial killing of drug smugglers at sea, may violate international laws and norms. Zeihan also indicates that Trump and Hagseth boasted about actions that could potentially be classified as war crimes, involving attacks on unarmed enemy combatants.
Congress Lacks Adequate Briefing On the Intelligence Justifying These Actions
Zeihan reports that Congress has not received adequate briefing regarding the actions against Venezuela and the intelligence used to identify ships purportedly involved with drug smuggling.
Trump's Approach to Mexico and Drug Cartels Continues Previous Policies With No Significant New Initiatives
Despite threats to deal harshly with cartels, the Trump administration appears to continue the policies of previous administrations toward Mexico without significantly new initiatives.
Sinaloa Cartel's Disruption Fuels Violent Rise of Jalisco New Generation Cartel, Increasing Mexico's Cartel-Related V ...
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Trump Administration's Controversial Foreign Policy and Consequences
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Counterarguments
- The Trump administration's approach to Venezuela could be seen as part of a broader strategy of maximum pressure, which has been used by the U.S. in different contexts to compel a change in behavior from adversarial governments.
- The allegations of extrajudicial killings need to be substantiated with clear evidence and due process to determine the legality of the actions taken.
- Boasting about military or covert actions does not necessarily equate to war crimes; the context and legality of the actions within international law would need to be thoroughly assessed.
- The adequacy of congressional briefings is subjective, and it could be argued that the administration provided sufficient information within the constraints of national security.
- Continuity in foreign policy, such as that towards Mexico and drug cartels, can be seen as a strategic choice to maintain stability and build on existing efforts rather than introducing potentially disruptive new initiatives.
- The rise of the CJNG could be interpreted as an unintended consequence of successful law enforcement actions a ...
Actionables
- You can educate yourself on international law and human rights to better understand the implications of foreign policy decisions. Start by reading the Universal Declaration of Human Rights and familiarize yourself with the basic principles of international law through free online courses or resources from organizations like Amnesty International. This knowledge will help you critically analyze foreign policy actions and their adherence to international standards.
- Enhance your media literacy by learning to identify biases and fact-check information. When you come across news about foreign policy or military actions, use tools like Media Bias/Fact Check or AllSides to assess the reliability and political leanings of the source. Additionally, cross-reference the information with multiple reputable outlets to get a well-rounded view of the situation.
- Support organizations th ...
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Questions on Trump's National Security and Rule of Law Approach
Recent actions by the Trump administration have spurred debate over its approach to national security and adherence to the rule of law.
Trump Administration Contests Constitutionality of War Powers Act, Limiting Presidential Military Action Sans Congressional Approval
The Trump administration, like its predecessors since the War Powers Act’s inception, contends that the law is unconstitutional. However, there has not been a direct judicial challenge to this claim.
By Not Justifying or Ending Military Operations Within 30 Days, the Administration Sidestepped This Check On Executive Power
Despite requirements by the War Powers Act for presidents to justify military operations within set time frames or end them within 30 days, the Trump administration did not adhere to this 30-day threshold. Furthermore, Congress took no measures to enforce this aspect of the act, leaving questions regarding the check on executive power unresolved.
Pardon of Ex-Honduran President Raises Doubts About Administration's Commitment to Rule Of Law, Narcotics Trafficking Fight
While detailed information regarding the pardon of the ex-Honduran president is not provided in the transcript chunk, the action raises concerns about the Trump administration’s commitment to the ...
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Questions on Trump's National Security and Rule of Law Approach
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Counterarguments
- The constitutionality of the War Powers Act has been debated since its inception, and some legal scholars argue that certain provisions may indeed infringe upon the President's constitutional role as Commander-in-Chief.
- The lack of a direct judicial challenge to the War Powers Act by the Trump administration could be seen as a strategic choice to avoid a potential constitutional crisis or to maintain flexibility in foreign policy and military operations.
- The Trump administration's failure to adhere to the 30-day requirement of the War Powers Act could be defended on the grounds of national security interests or the fluid nature of military engagements that do not align neatly with legislative time frames.
- Congress's failure to enforce the War Powers Act could be attributed to a variety of factors, including political considerations, differing views on the scope of executive power, or the prioritization of other legislative matters.
- The pardon of the ex-Honduran president, while controversial, might be defended if it were part of a broader diplomatic strategy or if there were extenuating circumstances that have not b ...
Actionables
- You can educate yourself on the War Powers Act by reading the original text and current legal analyses to understand its implications on executive power. By doing this, you'll gain a deeper understanding of the checks and balances in place within the U.S. government and be better equipped to form your own opinions on its application and the debates surrounding its constitutionality.
- Start a habit of reading about international law and its enforcement to grasp the complexities of pardons in the context of global politics. This will help you appreciate the broader implications of actions like pardoning foreign officials and how they may affect international relations and law enforcement efforts.
- Engage in onlin ...
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