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Luke English (30 months) helping his dad, Drew English, in last year's wheat harvest in Rosalia. Luke will be a sixth-generation farmer.
Photo by Ashley English

Wilbur-Ellis

MARKETING

Where the US fits in a changing world

April 2021
By Trista Crossley


Peter Zeihan’s message to growers in February was simple—things are changing. Zeihan was visiting with Eastern Washington farmers as part of the Agricultural Marketing and Management Organization’s 2021 winter schedule. More than 90 participants logged onto the Zoom call to hear what the popular geopolitical strategist had to say about politics, global demographics, trade and how the U.S. fits into all of that.

Politics
Zeihan started off with a look at what’s changing in U.S. politics. He said the American political system encourages parties to be “big tent parties” made up of factions and alliances, and in the past five years, traditional relationships (think traditional Republican or Democratic alliances) are breaking down.

Then Jan. 6 happened. Zeihan explained that when the capital complex was being stormed and the president refused to deploy the national guard or even regional police to protect his own law enforcement personnel, the Republican party’s perception as the party of law and order was threatened.

“That has consequences, because the faction that cares about law and order the most is the business community,” he said. “The business community has staff and assets and supply chains and reputations, and they can’t function in a country where a political party simply doesn’t support law and order issues. The idea that the business of business is business is fading pretty aggressively. One of the things that we have seen is that it (the business community) is shifting in the general direction of the Democratic alliance.”

Zeihan was quick to add that people shouldn’t get too excited (or dejected) about this, because it’s all still “shaking out.” He said the U.S. is five years into what is normally an eight-to-12-year process of evolving and reordering politics.

“Now is the time to act, because it is gelling. This is the time you can find a lever and make it move,” he said. “We are going to manage our political system. It’ll be loud. It’ll be uncomfortable, but we’ll get through it.”

Globalization
At the end of the cold war, Zeihan said Americans changed the way the world worked by patrolling the global oceans so that “anyone could trade with anyone at any time for whatever reason they wanted.” Since then, however, we’ve been edging away from that, and we’ve reached a breaking point. He said there are three things that are needed to maintain this system:

• A political culture that is committed to globalization. Zeihan argued that in the U.S., this was gone long before Jan. 6, and America is too preoccupied with what’s happening within its own borders to worry about the rest of the world.

• You have to have global interests. Zeihan pointed out that the U.S. economy is the least internationally integrated in the world as a percent of gross domestic product (GDP).

• You need to have boots on the ground to keep everybody on the same side and the bad guys down. The U.S. has been steadily drawing down the numbers of troops it has deployed in other countries.

“Globalization is already over, and what’s left is simply running on inertia,” he said.

Economics and energy
From 1980 to 2015, the world had a general balance between young demographies, like Mexico, and older demographies, like South Korea. According to Zeihan, it was the greatest period of economic growth in human history in terms of personal incomes, national GDP and the volume and value of trade. Now it’s ending as most of the world is aging into export-led systems.

Unlike most countries, however, the U.S. baby boomers had lots of kids, which Zeihan believes will give us another 30 years.

“Global consumption, global production, they are peaking right now, and it will never recover in our lifetimes,” he said.

Pivoting to energy, Zeihan said that at the dawn of the coronavirus crisis, the U.S. was net energy independent thanks to shale oil, which is another reason the U.S. is less interested in maintaining the global order. That sector has taken a few hits in the last year, but he said production is only down about 10 percent. Depressed oil prices and the recent freezing weather that hit the southern part of the U.S. are keeping production low and will likely force smaller oil companies out of business, but he expects to see the sector rebound by next year.

Trade
The Trump Administration went after five trade deals: South Korea, Japan, Canada, Mexico and the U.K. Zeihan acknowledged that Japan is an important market for Eastern Washington wheat growers, but said that Mexico and the U.K. are going to matter more in the longer term.

“Mexico, because it’s a young, growing, up-and-coming demographic that is eating more and better food as they age and as they develop,” he explained. “And then the U.K.—first world economy, 65 million people. One-third of their food comes from the European Union; that’s now in doubt. One-third of their food is only able to be produced economically viably because of EU subsidies, which are now gone. So you are talking a potential two-thirds of the food that 65 million, first-world customers consume needs to be replaced. I can’t think of the last time American agriculture got that kind of gift.”

Things that will move the needle for ag
Zeihan detailed a number of items that he believes will “move the needle” for U.S. agriculture.

Katherine Tai, the new U.S. Trade Representative, is known for suing other countries, particularly China.

Relations with Europeans will go from bad to worse. Even before the Trump Administration, Zeihan said tensions with the EU were simmering, and a potential trade deal with the U.K. means, by default, the U.S. will be siding against Europe. “They are now an export-led system to every single country, and they can’t function in a nonglobal world, especially if the U.S. is no longer holding up the ceiling,” he explained.

Russia. Zeihan said the country is involved in lots of cyber issues and election meddling. “They’re involved in anything that makes Americans dislike other Americans,” he said. “The big difference between Biden and his predecessors is that this time around, in large part because of the shale revolution, the U.S. doesn’t care at all what happens to energy markets, so team Biden is likely to go after the Russians where it hurts because they aren’t concerned about the blowback at all.”

Iran. According to Zeihan, the Iranians are losing their leverage and influence in the world because they are running out of money and their economy is hurting, thanks to sanctions. At the beginning of the year, Iran hijacked a South Korean tanker to try to interrupt energy markets and hurt countries that are supporting the American sanctions. Zeihan pointed out that neither Trump nor Biden has responded.

“We don’t care. Ten years ago, we would have sent in the marines, but we’ve done nothing, so the Iranians are forced to do one of two things: completely capitulate or up the ante in the hopes that someone cares. Since that someone isn’t going to be the U.S., there’s a very real risk of a major global energy disruption that the U.S. doesn’t care about at all,” he said.

China. Since coming into office, Pres. Biden has continued every single sanction and every single tariff that the Trump Administration put in place against China. The appointment of Tai, who is ethnically Taiwanese, is another poke. Zeihan said the Chinese interpret these actions as a full court press against their interests. Unfortunately for farmers, agriculture is one of the few sectors where the Chinese can poke back. Zeihan anticipates several effects including:

• China has already decided not to purchase American agricultural products unless there is no other purchase option available.

• Specialty crops are going to get hit harder than staples, both because they are for specific markets and because they are more sensitive to changes in consumer status.

• It’s going to get worse before it gets better.

• There will be limits to how bad the effects on American agriculture will get because there’s only so much agriculture production globally.

“I would just underline that we all thought that 2020 was the strangest, most dangerous, craziest year in history. It has nothing on calendar year 2021,” Zeihan concluded. “In many ways, 2020 was just the opening of the deglobalization trend, and we are really going to have a much better idea of what COVID-19 can do this year compared to last year. It’s not going to happen in the U.S., it’s going to happen everywhere else, and that gives the NAFTA countries the opportunity to retune their systems for what is going to be the new reality anyway. So five years from now, we might blame COVID-19 for the end of the world we knew, but honestly, all it did was speed it up and make the transition for us a little bit quicker and a little bit easier. But wow, it’s going to be a wild ride.”