Plurk paste

Section IV: Energy Harpooning Progress
Allow me to tell a crazy little story.
In the former Soviet republic of Kazakhstan, there is an oil deposit called Kashagan. It’s located two miles under the floor of the Caspian Sea, in a zone regularly pummeled by sixty-mile-per-hour winds. In winter not only is there moving sea ice, but the winds carry sea spray, which often entombs the entire offshore production facility itself in feet of ice. Kashagan has, bar none, the world’s worst operating conditions.
Atypical for oil fields, Kashagan is a vertical deposit, over two miles from top to bottom. It sports wildly variant pressure levels, leading to frequent—and impressively terrifying—blowouts. Its oil is so high in sulfur that the crude must be processed once it makes landfall, generating mileswide sulfur beds. Kashagan boasts, bar none, the world’s most difficult technical environment.
Tapping Kashagan required that the best minds in the industry develop fundamentally new technologies to deal with the field’s unique challenges.
The consortium of companies developing it spent over $150 billion— considerably more than the entire annual GDP of Kazakhstan at the time— and fourteen years before even getting to first commercial production.
Start-up costs at Kashagan are—bar none—the world’s highest. The running joke in energy circles is that “Kashagan” is really pronounced “cash-all-gone.” Once Kashagan’s crude is pumped up, depressurized, and processed, it is piped more than one thousand miles to the Black Sea, where it is loaded onto small tankers for transit through the Turkish Straits to the Mediterranean, passing through downtown Istanbul, before sailing on through the Suez Canal to the Red Sea. It its then reloaded onto long-haul supertankers that transport the crude another eight thousand miles past Pakistan and India, through the Strait of Malacca, and by the entirety of the Vietnamese and Chinese coasts before reaching its final destination in Japan.
It’s a dicey route. Kazakhstan is a former province of Russia and the two do not get along. Turkey has fought eleven (more?) major wars with Russia and they do not get along. Egypt is a former province of Turkey and they do not get along. Saudi Arabia considers Kazakhstan an economic competitor and they do not get along. The route passes by Pakistan and India, who do not get along, and Vietnam and China, who do not get along, and China and Japan, who do not get along. Oh, and there are pirates in the Red Sea and Malacca as well. Kashagan’s export route is—bar none—the world’s riskiest.
(There are iffy plans to ship Kashagan oil east through a series of patched-together and patched-up Soviet pipes to extreme western China, before it is sent on across the two-thousandish-mile trip to the population centers on the Chinese coast. Considering that that route exposes people and infrastructure to temperature swings from 40 degrees below zero every winter to 105 degrees above zero every summer, it is unclear if this would be a logistical improvement.) Whenever I consider the history and mechanics and export routes of Kashagan, all I can think is, What. The. Hell???
The bewildering, Frankensteinian wonder that is Kashagan and its export route could only occur under the aegis of the Order. The Order has made everything so peaceable and stable and wealthy for so long that production and transport systems that would have been considered several steps beyond asinine in any other age are well within reach.
It. Will. Not. Last.
Kashagan’s half a million barrels of daily output is obviously not long for this world. But it is hardly the only production zone that faces complete collapse in the years to come. That will be crushing. Modern energy in general and oil in specific is what separates our contemporary world from the preindustrial. It separates what we define as “civilization” from what came before.
Considering the transport conundrums that have held humanity back throughout the six-millennia-long stretch of recorded history, oil is a pretty magical substance. Oil-derived liquid transport fuels increased our capacity to move objects at distance by a factor of one thousand. On-demand electricity, directly or indirectly made possible by oil, had a similar impact upon our productivity. For the first time in history, we could do anything and go anywhere at anytime. Even better, for the first time “we” didn’t mean the most powerful empire of the era, but instead every individual person. Once your home is wired, everyone can have electricity at low cost.
Unlike wood or coal, oil-based liquid fuels such as gasoline and diesel are so energy-dense and so easily stored that we store them within our modes of transport.
Without oil, the American-led global Order would have never had a chance. Nor would have passenger cars. Or global food distribution. Or global manufacturing. Or modern health care. Or the shoes most of us are wearing. Oil’s power is such that in many ways, it has almost enabled us to ignore nothing less than geography itself.
Almost. Oil is not quite that perfect. The restriction oil insists upon is not technological, but instead one of sourcing. Oil feels no obligation to exist in locations that are convenient. For the entirety of the Industrial Age, getting the oil from where it exists to where it is needed has been . . . gnarly.
In that, Kashagan is no standout.
It is best to start at the beginning. With Captain Ahab.
THE PATH TO MODERN ENERGY: WARS, WORSHIP, WHALES, AND . . . KNITTING?
There are only so many ways to advance the human condition. One is to conquer a big chunk of land and make it your own. Another is to give as many people as you can within your society a stake in the system, so their collective actions support all aspects of the government and economy. A third idea is to drive back the night, and in doing so manufacture that rarest of commodities: time.
By the late 1700s the British were playing around with textiles ever more aggressively and at an ever-larger scale. The newer looms and spindles and spinning jennies had a couple of common characteristics. They were the newest and most expensive technologies of the age. It was important to protect such assets from the elements, and working them required a very keen eye both for quality output and to avoid losing fingers.
If you’ve ever been to England, you’ll recognize the problem. English weather is often wet and dark. London is far enough north that December averages less than eight hours of light a day . . . assuming it isn’t raining.* That made the interior of the cotton mills dark. Traditional torches would have contaminated the yarn and cloth, candles don’t generate enough light, and the long-distance backpacker in me can assure you that raw cotton is an excellent fire starter.
The solution was whale oil. Clean, bright, long burning, and easily contained within an appropriate lamp, whale oil protected the staff by limiting injuries while simultaneously boosting how many shifts a facility could run. The stuff quickly became the go-to for everything from church services to cocktail parties to middle-class apartments. And with the early Industrial Revolution providing Europe with food surpluses, humanity was quickly expanding to fill all available space, demanding more oil to light more church services and more cocktail parties and more middle-class apartments.
Nor was whale oil only used for light. The early Industrial Age produced lots of machinery with lots of parts that could get stuck very easily (including the aforementioned textile equipment). To prevent damage to both man and machine, lubrication was the solution. The whale became a panacea: light, lubrication, and some steaks on the side. Everybody won.
Except the whales.
Courtesy of Captain Ahab and men like him, creatures that once existed in the literal millions were reduced in short order to the tens of thousands.
Fewer whales meant less whale oil, and the price of whale oil rose.
The solution took two forms: First, coal. One of the common dangers in coal mines is methane, a gaseous substance that we know alternatively as natural gas, cow farts, and coal gas. Managing coal gas is a constant challenge for coal miners, since every time a miner cracks into a seam, there’s a chance of releasing some hidden pocket of the stuff. Common outcomes are asphyxiation and explosion.
Yet where there’s a risk of something exploding uncontrollably, there is also a possibility of making it burn controllably. Add in a bit of Industrial Age chemistry know-how and we figured out how to process coal to generate methane on demand. We’d then pipe it into streetlamps (or textile factories) for light. We saw a fair amount of this sort of thing in southern England, the American Northeast, and Germany. The second and more widespread solution was something called kerosene. Unlike coal gas, dangers of explosion were nonexistent, and you didn’t have to be proximate to a coal supply and you didn’t need to install any infrastructure. You just needed a lamp.
Early kerosene was sourced from coal, but the distillation process was far more expensive and dangerous than getting on a wind-powered vessel and sailing halfway around the world do battle with colossal cetaceans before climbing into their corpses to hack away their insides and then boiling the bits on the same vessel and voyaging back, all while accompanied by a bunch of violently horny ex-cons. Near-simultaneous technological breakthroughs in America and Poland in the early 1850s proved it was far cheaper, faster, and safer to source kerosene from something that at the time was known as “rock oil.” Today we call it “crude oil” or simply “oil.” We then turned to sourcing. Humanity had known about crude oil “seeps” since ancient times. The Byzantines used such oil sources to make a party favor known as “Greek fire” for their enemies, while the Zoroastrians preferred to light the seeps on fire to ensure the party never ended. The problem was volume. Such seeps rarely generated more than a few quarts of the stuff a day. Humanity needed a million times more. A billion times more.
The solution bubbled up out of America. In 1858 one Edwin Drake applied some railway engine parts to a vertical drill outside of Titusville, Pennsylvania. Within a few weeks the world’s first-ever oil well was producing more crude oil in a couple of hours than most seeps would in a year. Within a few short years, kerosene proved so cheap and easy that whale oil all but vanished from the lighting and lubrication markets.
Then the real miracle arrived. We started applying material science expertise we had only recently gained from tinkering with coal to this new world of oil. It wasn’t long before whale-oil-replacement kerosene showed us the way to wind-power-replacement fuel oil and horse-replacement gasoline.* Oil was no longer merely a product needed to push back the night and slick up gears. It was the material that allowed us to do . . . everything.
Which meant we didn’t simply need more, we needed more!
Where do you look for something you need? Well, the last place you saw it, of course. The empires of the day began a hunt, global in scope, for those famous seeps that had colored cultures throughout antiquity, so that they could drill the tar out of them. The northern seeps of Zoroastrian lands (contemporary Azerbaijan) were now in Russian hands. Their southern seeps lay in Persian territory, but that didn’t stop the Brits from taking control. The Dutch asserted imperial power over the seeps of Java. The Americans had not only Pennsylvania and the Appalachian Basin, but also the wider Ohio River Valley and Texas. In the rough-and-tumble world of imperial competition up to and including World War II, control of such production sites was not simply an issue of critical importance, but often the difference between strategic strength and obsolescence.
The commonality of these early decades of the oil era were simple: either you had oil and so could field modern military gear, complete with the insane speed and range and striking power it granted, or you were . . .
on horseback. Thus oil production sites were among the world’s most jealously guarded locations. And everyone kept their oil in-house.
This last point was key. Each country had its own major oil company— Compagnie Française des Pétroles for France, the Anglo-Persian Oil Company for the United Kingdom, Standard Oil Company for the United States, and so on.
* Their first and primary responsibility was to fuel the home front. To that end, exports were sharply limited, foreign production was shipped home, and each country had its own internal pricing structure.
Prices among these sequestered systems regularly varied by in excess of a factor of three. The Americans, who produced everything they needed at home and so didn’t need a globe-spanning merchant marine, were pretty much always on the low end of the pricing scale.
Between the newness of the oil-related technologies and the criticality of the oil supply, World War II showcased resource centrality in a way unprecedented in human history. Empires used to fight over pepper because of the money its sale could generate. Empires fought over oil because they couldn’t fight a war without it. The Japanese successfully captured Java in 1942 to acquire Dutch oil resources, while America’s unrestricted submarine warfare by the end of 1944 starved the Japanese of fuel. The Germans’ desperate bid for those old Zoroastrian assets in Soviet Azerbaijan foundered at Stalingrad in the winter of 1942–43, while the Americans bombed Romanian oil fields in August 1943 to deny the Nazis their output.
On the flip side, America’s crude oil came from the Lower 48, not some far-off land dangling at the end of a vulnerable supply line. Not only did the American war machine never face large-scale fuel shortages, but the Yanks were able to keep their British and even Soviet allies fueled up. Without Pennsylvania and Texas, the war would have ended very differently.
Of course, the way the Americans rewired the world at war’s end changed everything. Oil was no exception. The Order’s Order for Oil
When the Americans killed the Imperial Age, they also killed the imperial economic structures that had managed the Imperial Age’s oil distribution system. In part this was done with an eye toward firmly condemning the old imperial system to history. After all, if the Brits no longer wholly owned Persian oil, then London would have less global heft.
But a bigger piece of it was the same economics-for-security trade that drove most of the American strategic calculus.
The American plan to contain the Soviets required allies, those allies had to be purchased with the promise of economic access and growth, that access and growth needed to be fueled, and the fuel could only be sourced from so many locations. All of a sudden, instead of British oil and Dutch oil and French oil there was only global oil . . . as guaranteed by the U.S.
Navy. Any crude could now reach any buyer. All the varied sequestered pricing models collapsed into a single global price, modified only by distance and the specific chemical peculiarities of crude from this or that field.
Oil immediately became tangled up in the new strategic environment.
Known energy producers such as Persia and the Dutch East Indies gained a new lease on life, becoming the independent countries we now know as Iran and Indonesia. Budding energy producers that were technically independent but in reality were half foreign-managed (think: Iraq and Saudi Arabia) were allowed to come into their own. Somewhat unsurprisingly, some European countries resisted decolonialization, but the Americans proved uncharacteristically patient and would often wait until revolutionary movements within the colonies reached critical mass before pressuring their allies, or until the ebb and flow of bilateral relations provided an opening. Thus countries as diverse as Nigeria (1960) and the United Arab Emirates (1971) received independence from the United Kingdom, Algeria (1962) from France, and Angola from Portugal (1975).
The end result was as intended: an increasingly diverse list of independent, significant oil suppliers to a globalized—and above all, American-managed —system.
But as much as the logic of the Bretton Woods Order demanded that the Americans build, safeguard, and expand a global oil market, it was the outcomes of Bretton Woods that made the process exhausting. The core tease of the Bretton Woods system—what made it so successful in attracting and keeping allies—was the idea of secure, steady, reliable economic growth via access to the American market and global systems. As those allied economies grew, they used more and more crude from places farther and farther away. As the United States drew more and more countries into the alliance, the Americans used more and more crude from places farther and farther away, too. By the early 1970s, economic growth back at home had reached the point that America’s own energy demands outstripped its production capacity. Not only could the Americans no longer fuel their allies, but they couldn’t even fuel themselves. In many ways it was the same problem that ultimately gutted the gold standard: success begot use begot more success begot more use begot failure. The Arab Oil Embargos of 1973 and 1979 turned what had until then been a hypothetical discussion in America into brass tacks.
When events transpired that threatened oil access, the Americans responded as if the end was nigh because, well, it was. Without sufficient volumes of affordable oil, the entire Order would collapse. American (and British!) actions included sponsoring a coup in Iran in 1953 to overthrow a semidemocratic system in favor of a pro-American monarchy. American actions included supporting of a borderline-genocidal purge in Indonesia of communist elements in 1965–66. American actions included the quiet backing of an authoritarian Mexican government against prodemocracy forces in 1968. American actions included the largest American expeditionary military action since World War II as part of the forcible ejection of Iraqi troops from Kuwait in 1992.
With the end of the Cold War, the interconnections of the Bretton Woods system were applied even more broadly, with the Americans deliberately, methodically, unrelentingly expanding the scope of oil availability. The Russian post-Soviet economic collapse hit Russian industry far harder than Russian oil production, with the surplus output reaching global markets. American firms entered former Soviet republics— most notably Kazakhstan and Azerbaijan—to bring ever-larger volumes of crude to the world. As always, the focus was on diversity and security of supply, leading the Clinton administration to push for circuitous pipeline routes to bring as much of the new flows to the global market as possible without utilizing Russian territory.
Throughout the entire period of 1945 on, the process earned the Americans no small amount of umbrage, from . . . nearly everyone. The Europeans resented losing their colonies. The newly freed colonies disliked American efforts to corral them into a bloc to contain a country, the Soviet Union, that few had had any previous contact with. The Arab world didn’t appreciate the Americans forcing their energy cog into the Bretton Woods machine (much less attempting to make them bedfellows with the Israelis).
The Mexicans begrudged Washington’s heavy-handed approach. The (postSoviet) Russians hated how the Americans expressly worked to undermine their influence in their own backyard. The Iranians really didn’t appreciate the coup.
But the scale simply kept increasing. At the dawn of the Bretton Woods era, the entire alliance (sans the United States) used under 10 million barrels per day (mbpd), the majority of which was sourced from the United States itself. By 1990 just the advanced members of the coalition were using well over double that, 90 percent of which was imported—and with the Americans all by themselves importing another 8mbpd. With the Cold War’s end and the rules of the Order going truly global, an entire new raft of countries joined the party—and added their own demands to the oil story.
Prices hit their historical high of $150 a barrel in 2008, a fifteenfold increase from just a decade earlier, even as global demand topped 85mbpd.
What had begun as an effort to subsidize a military alliance with American crude had devolved into a bloated, unsustainable, and above all expensive mess that the Americans themselves were now economically dependent upon. With the Cold War’s end, the Americans may have wanted to take a less active role in global affairs, they may have wanted to disengage, but a single global oil price meant that doing so would risk instability, supply shortages, and oil prices so high as to wreck the American economy. The Americans had become economically trapped in their own outdated security policy. The Map of Oil Contemporary Edition
The bulk of all internationally traded crude oil in 2022 comes from three regions: The first is the most important, the most obvious, and the most problematic: the Persian Gulf.
Unlike the various major regions of the past half millennia, the Persian Gulf region has aggressively not mattered. True, before roughly 1500 the region was in the middle of everything, ergo why it is called the “Middle” East. What “global” trade existed was dependent upon the lands and waters surrounding the Persian Gulf as a means of connecting the vast territories between Europe and the Far East. But the Americans were hardly the first people to find the region aggravating. In large part the very existence of the deepwater technologies owes itself to European attempts to avoid the Middle East altogether. From the time the Portuguese were able to shoot their way into India in the early 1500s, the need to pass through or stop in the region more or less evaporated, and the entirety of the Middle East from Egypt to Persia more or less slid into strategic irrelevance.
Oil changed things. The monetization of the old Zoroastrian lands made Persia matter enough to trigger British imperial attention, with the status of Persia becoming integral to war efforts in 1939–45. The real explosion of activity happened later, with the discovery and exploitation of oil deposits throughout territory that now comprises not just southwestern Iran, but also Iraq, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, and Oman. While evolutions and manipulations both market and military have varied these players’ individual output widely over the years, their collective output has been a fairly reliable 20mbpd for the past seven decades. As of 2021 that 20 million barrels is roughly one-fifth of global supplies and one-half of internationally traded crude.
These eight countries have two things in common. First, they are technologically incompetent or, at the very best, criminally lazy. Their educational systems are sad jokes, and local citizens lucky enough to gain technical degrees out-of-region tend not to return. The locals’ incompetence is hardly limited to the energy sector. These countries as a matter of course import millions of foreign workers to handle everything from their power systems to building construction to civic infrastructure. All eight countries rely on outside workers—primarily from the United States, the United Kingdom, France, Russia, Turkey, Algeria, and Egypt—to keep the crude flowing. The region doesn’t need all of these foreign players, but each inregion country at least needs one of them.
Second, as technically incompetent as these states are, they are even less competent when it comes to naval action. Few have ever domestically constructed anything more interesting than a speedboat, and in nearly all cases, not even that. Iran’s navy in particular is mostly composed of inflatable Zodiacs.* None have the capacity to patrol their own coastlines, much less their trade approaches, much less the trade lanes upon which their income—their existence—depends. Every single one of them is utterly dependent upon outside powers to get every drop of their crude production to end consumers. For more than half of those exports, that means reaching the Northeast Asian states of Japan, Korea, Taiwan, and China. For half of the remainder, it means reaching Europe or North America. The Order may not have been possible without these countries’ oil, but neither would these countries have been possible without the strategic overwatch of the Order.
The second major zone of oil production is the former Soviet space.
While this region’s politics and geopolitics are, if anything, louder and messier and heftier than the Persian Gulf’s, the calculus of the region’s oil is far simpler. The Soviet Union was a massive producer of the black stuff, but the vast majority of that output was consumed within the Soviet empire.
Things only started to get internationally interesting when the Soviet Union collapsed. Soviet industry collapsed along with it, while all the old Soviet satellites in Central Europe broke away. With Russian internal demand failing, and other former Soviet imperial demand now on the other side of international borders, the Russians had scads of spare oil output that needed to find new homes.
In the first wave of post-Soviet exports, the Russians focused not simply on what they knew, but on what their infrastructure would allow: piped exports to their former satellites, one of which was now a constituent part of a reunited Germany. The second wave expanded upon what the Russians knew, thickening and extending those pipe links through Central Europe into western Germany, Austria, the western Balkans, and Turkey.
In implementing wave two, the Russians discovered that ports like Gdansk in Poland, Ventspils in Latvia, and Constanta in Romania could serve as offloading facilities for Russian crude, enabling it to sail on to customers far and wide. Phase three was about linking up and building out Russia’s own ports to serve the same purpose: Primorsk near St. Petersburg on the Baltic Sea, and Novorossiysk and Tuapse on the Black Sea.
During these first three phases, the other former Soviet states were hardly standing still. Now divorced from their former imperial master, all needed to establish their own income streams—preferably ones that were not beholden to Moscow. Azerbaijan and Kazakhstan both courted any and all foreign investors, with BP and Exxon proving the most interested. The foreigners executed some of the most complex seismic, drilling, processing, and infrastructure programs the energy world had ever seen and began shipping crude out via whatever route proved possible. Some routes tapped into legacy Soviet infrastructure, heading north and west to places like Venspils or Novorossiysk. But as time ticked by, the flows were increasingly concentrated into a single pipe corridor that began at Baku, Azerbaijan, and ended at a supertanker port in the Mediterranean city of Ceyhan, Turkey.
What all these options have in common is that they all flow in the general direction of Eurasia’s European extremities. And since Europe was peaking demographically, there was little reason to expect European oil demand to increase ever again. Sure, the Russians were filling a larger and larger slice of that demand, but market saturation was decreasing their pricing power. The Russians hated that. So in the fourth phase, the Russians started the long, expensive process of routing fresh pipe infrastructure east to the Pacific. Problems relating to permafrost and mountains and distance abound, but if there is one thing that can be said for the Russians, they are never intimidated by size. As of 2021 there were two main lines in operation: a very long, very expensive, very economically questionable pipe that stretches from western Siberia to the Russian port of Nakhodka on the Sea of Japan, and a far shorter spur line that delivers crude direct to the old Chinese refining hub of Daqing.
Add it all up and you’re talking about 15mbpd of former Soviet oil, fully 11mbpd of which originates within Russia’s border, of which slightly over half is exported—easily the second-largest source of internationally traded crude flows on the planet.
There are problems.
Most of Russia’s oil fields are both old and extraordinarily remote from Russia’s customers. Fields in the North Caucasus are all but tapped out, those of Tatarstan and Bashkortostan are well past their peak, and even those in western Siberia have been showing signs of diminishing returns for more than a decade. With few exceptions, Russia’s newer discoveries are deeper, smaller, more technically challenging, and even farther from population centers. Russian output isn’t in danger of collapsing, but maintaining output will require more infrastructure, far higher up-front costs, and ongoing technical love and care to prevent steady output declines from becoming something far worse.
The Russians are no slouches when it comes to oil work, but they were out of circulation from 1940 through 2000. The techs involved came a long way in that time. Foreigners—most notably supermajor BP and services firms Halliburton and Schlumberger—are responsible for half(ish) of contemporary Russia’s output. Any broad-scale removal of Western firms from the mix would have catastrophic impacts upon oil production throughout the entire former Soviet space. The Ukraine War is stress-testing that theory.
For their part, the Azerbaijani and Kazakh projects are far and away the world’s most technically exacting (think: Kashagan!). Aside from the handful of folks in the world’s supermajors who designed these projects, no one on the planet can maintain them.
Then there’s the issue of export routes. All of the broader region’s oil flows first travel by pipe—in some cases for literally thousands of miles— before they reach either a customer or a discharge port. Pipes can’t . . .
dodge. Anything that impedes a single inch of a pipe shuts the whole thing down. In the Order, that’s fine and dandy. Post-Order, not so much. About half the flows terminate in end users like Germany, while the other half must be loaded on tankers for sail. That’s where things get extra dicey. In the Pacific, the Nakhodka port sits smack in the middle of Japanese, Chinese, and Korean spheres of influence. Any meaningful conflict involving any of the three and Nakhodka becomes either occupied or a crater.
* Out to the west, exports via the Black Sea ports of Novorossiysk and Tuapse are fully dependent upon sails through downtown Istanbul, so any hiccup in relations with the Turks kills a couple million barrels of daily flows. Farther north, anything out of Primorsk has to sail the Baltic Sea and the Skagerrak strait, sailing by no fewer than seven navally overcapable-to-their-size countries that tend to nurse pathological fears and hatreds toward all things Russian. In addition to Germany. In addition to the United Kingdom. Even if that were not enough, there’s one more complicating factor.
Siberia, despite getting cold enough to literally freeze your nose off in October, doesn’t get cold enough.
Most Russian oil production is in the permafrost, and for most of the summer the permafrost is inaccessible because its top layer melts into a messy, horizon-spanning swamp. Tapping oil here requires waiting for the land to freeze, building dike roads across the wasteland, and drilling in the Siberian winter. Should something happen to consumption of Russian crude, flows back up through the literally thousands of miles of pipes right up to the drill site. Should exports fail—whether due to a war far away, a war on Russia, or a war by Russia—there is but one mitigation. Shut it all down. Turning production back on would require manually checking everything, all the way from the well to the border. The last time this happened was the Soviet collapse in 1989. Thirty-three years on at the time of this writing, Russia still hasn’t gotten back to its Cold War production levels. Only during the oil-ravenous stability of the post–Cold War period of the American-led Order is the current iteration of Russia’s internationalized oil complex even possible. And with the Ukraine War, it is already over.
The third and final major source of global crude is within North America.
A lot of oil output on the continent falls into the general category of legacy: in regions that have been producing for upwards of a century. The first Mexican production dates all the way back to the 1920s and has been supplying Mexico with everything it needs and more ever since. In recent years many of Mexico’s large, old fields have been giving up the ghost. In part the reason is geology, but at least as important is Mexican state policy, which often bars foreign capital, expertise, and technology from playing much of a role at all.* Left to their own devices, the Mexicans are proving incapable at both keeping their old fields on life support and exploiting newer discoveries either on or offshore. Still, even with this glaring weakness, Mexico’s oil needs are roughly in balance. It exports some crude to the United States, and then imports a similar volume of refined product.
On balance Mexico produces—and uses—about 2mbpd.
Up north, the Canadian oil sector got its start in the 1950s, becoming globally significant in the 1970s. But it wasn’t until the 1980s that the province of Alberta started cracking the code on some seriously unconventional output. Traditionally, oil migrates through rock formations until it reaches an impermeable rock layer. For example, the crude might migrate through sandstone, but granite would stop it cold. Pressure then builds behind the impermeable layer. When a drill punches through the cap, the pressure—and oil—are released.
Most of Alberta’s oil is nothing like that.
Instead of big, pressurized liquid pools of crude locked behind tough rock, Alberta’s oil is diffused through far softer rock, functionally integrated into the rock’s matrix in solid form. Getting it out requires either injecting steam into the formation to melt the oil out or mining it and washing the oil out with hot water. From there this ultra-thick crude oil must be mixed with lighter crude grades to thin it so it can be pumped via conventional pipeline.
No matter how it is measured, Canada produces far more than it could ever use. It consumes a similar amount to Mexico, but exports that much again. Almost all of Alberta’s “oil sands” production is shipped south to the United States, mostly for processing in Texas.
In the continent’s middle latitudes, the Americans have . . . a lot going on. They have a legacy offshore sector in the Gulf of Mexico that didn’t really get going until the 1970s. There’s still conventional crude trickling out of Pennsylvania and Texas in places that have been producing oil longer than any other spots on the planet. Even California was among the country’s largest oil producers until quite recently, with one of the country’s most prolific wells located in a mall on Wilshire Boulevard while another is cleverly disguised as a synagogue. Taken together, the American conventional oil legacy remains substantial: still kicking out about 4mbpd, a volume that compares favorably to Iran at its 1970s height and is about the same as the total output from Canada today.
But the real story is the new stuff: America’s shale oil sector.
Back in the early 2000s the world of oil got slammed by four simultaneous and unrelated events. First, the U.S. subprime build was already getting out of hand, generating unhealthy levels of demand for all the things that go into home construction: lumber, concrete, copper, steel . . . and oil. Second, the Chinese boom was getting a touch insane.
Price-insensitive demand drove up the price of all globally available commodities, oil included. Third, in 2002 a very unsuccessful coup in Venezuela led to a very successful political purge of the country’s state oil firm—a purge that focused on the technocrats who produced the oil. The country’s energy sector never recovered. Fourth, in 2003 the Americans invaded Iraq, taking all its oil output offline. The country didn’t return to prewar levels of output for sixteen years. Between higher demand and lower supplies, oil prices steadily climbed from below $10 a barrel in 1998 to nearly $150 a barrel in 2008.
When your work earns you $10, you tend to stick to the tried-and-true.
When your work earns you $150, you can afford to try all kinds of things! With a few years of experimentation, the collective American energy complex was able to crack the code on something we now call the “shale revolution.” In essence, shale operators drill down as per normal, but when they reach a petroleum-rich rock strata they take a sharp turn, drilling horizontally along the entire layer. Then they pump water and sand at high pressure into the formation. Since liquids do not compress, the rock cracks apart from within, freeing untold trillions of tiny pockets of oil and natural gas that would otherwise be far too small to harvest with conventional drilling. The sand suspended in the frack fluid props the cracks open, while the now-freed oil provides reverse pressure that pushes the water back up the pipe. Once the water has cleared, the oil continues flowing. Voilà! A shale well is born.
At the dawn of the shale era in 2005, these horizontal wells were only 600 feet long per drilling platform and only produced a few dozen barrels of oil per day. As of 2022, many of the newer laterals are in excess of two miles, with many of the wells sporting a veritable tree of branches of sublaterals in excess of a mile long each, all connecting to the same vertical pipe. With improvements in everything from water management to drilling apparatuses to data processing to seismic imaging to pump power, it is now common to have individual wells kick out in excess of 5,000 barrels of oil a day—a figure that puts individual American shale wells on par with some of the most prolific oil wells in Iraq and Saudi Arabia.
Collectively these changes have added some 10mbpd, making the United States the largest producer of oil in the world, while simultaneously enabling it to achieve net oil independence. Now there are a veritable forest of yes-buts in that statement, ranging from complications as regards crude quality, natural gas, infrastructure, and climate change—and we will get to them all—but the central takeaway is easily graspable: the world’s energy map is radically different in 2022 compared to how it looked just fifteen years ago because the world’s largest importer has become a net exporter. The shale revolution has changed the strategic math that underpins the global energy sector, and with it, globalization as a whole. Put very simply and very directly, both production and exports from both the Persian Gulf and the former Soviet space are dependent upon both America’s global security architecture and the ability of foreign technicians to access both regions. In contrast, production within North America is dependent upon neither.
There are no end of possibilities of where this can all go horribly wrong.
Here’s a sampling.
The United States has pulled its forces—land-based and naval—out of the Persian Gulf, leaving it to the Iranians and Saudis to argue over who is really in charge. At risk: 26.5mbpd.
India reacts to rising oil prices by seizing tankers bound for East Asia.
No East Asian power has the capacity to project naval force to the Persian Gulf without active Indian complicity. At risk: 21mbpd of export flows from Hormuz, plus another 1.5mbpd from Nigeria and Angola that head to Asia.
Egypt restricts cargo transiting the Suez. Again. At risk: 4.25mbpd of export flows, about 60 percent of which is transshipped via canal bypass pipelines and so could prove vulnerable to internal Egyptian political violence.
In the absence of American naval power, piracy blooms off the coasts of West and East Africa. At risk: 3.5mbpd of West African oil exports, plus any longer-haul shipments from the Persian Gulf to Europe that unwisely sail too close to shore.
The Russians have very different views from the Norwegians, Swedes, Finns, Poles, Estonians, Latvians, Lithuanians, and Danes as to how regional security issues should be resolved. At risk: 2mbpd of Russian export flows via the Baltic Sea and 2mbpd of Norwegian oil production. Relations between the major suppliers of oil expertise—the United Kingdom and United States—and the Russians tank. Perhaps because there’s a war. At risk: 5mbpd of Russian oil production, and another 1mbpd each from Azerbaijan and Kazakhstan.
Islamist-related security concerns discourage foreign oil workers from remaining in Iraq and Saudi Arabia. At risk: 2mbpd of Iraqi oil production and 6mbpd of Saudi production.
The internal politics of the West and central African nations are . . .
exceedingly violent. From 1967 to 1970 Nigeria fought a civil war over who got to control the country’s oil, resulting in the deaths of some two million people. Remove the American overwatch and things could get nasty fast. At risk: 2mbpd of flows from Nigeria plus another 1.5mbpd from the other regional producers.
Without Russia and China bonding over their hatred of the United States, oil shipments from the former to the latter are hardly sacrosanct. The two nearly nuked each other in the late 1960s over a territorial dispute, both peoples are impressively racist toward one another, and if Russia never uses energy leverage over China, well then, China would be the only country the Russians haven’t played that card with. At risk: roughly 1.8mbpd of direct Russian shipments, and another 200kbpd of Central Asian shipments that the Russians could easily interfere with. Even this list assumes that the United States will take a fully hands-off approach to the world, instead of being perhaps a disruptor. Americans love levying sanctions. On technology. On transport. On finance. On insurance.
Any of those sanctions can impact product flows anywhere, anytime, to anyone. And as the ongoing security guarantors of the Western Hemisphere, it will be up to the Americans to decide if any regional oil headed out of the hemisphere actually makes it.
While it is true that any of these restrictions could have happened under the Order, there are a few things to keep in mind: First, the United States had a vested interest in maintaining global oil flows, both for its own economic well-being as well as for its broader strategic goals. Those concerns no longer apply and no other country has America’s technical energy acumen or military reach. Second, producing oil is never free, and oftentimes it isn’t even cheap.
Venezuelan oil production is so difficult that up-front investments amount to roughly $4,000 per barrel of long-term oil production. In the late Order of cheap capital, that’s eminently doable. In the constrained financial conditions of the Disorder, not so much.
Third, due to the concentration of supply, oil is the product that sails the farthest to reach its destination. The longer the sail, the more important it is to have a calm security environment.
Fourth, oil projects are not quick. A typical onshore project requires three to six years between first evaluation and first production. Offshore projects typically take a decade or more.
By far the best example of these four factors working together during the Order is none other than Kashagan. But the same logic applies to energy production throughout the former Soviet world and the Persian Gulf.
Recovering from any disruptions in the world to come will be difficult.
Achieving the magic constellation of security factors, cost inputs, technical skill access, and a sufficiently long time frame to produce the crude in the first place simply won’t be viable for large portions of the world. Once production goes offline, a bounceback simply won’t be in the cards for the vast majority of locations. Certainly not a quick one.
The specifics will be as wild and unpredictable as the rest of the postOrder chaos, but a good starting point is to assume that 40 percent of global supplies fall into the Kashagan-style bucket: too-dangerous export routes to survive globalization’s end, too-expensive projects to maintain without outside financing, too difficult technically to operate without an army of out-of-region workers. Such projects will go away and not come back for decades. If ever. And oil’s absence for a few weeks, never mind a few decades, would be more than enough to crash modern civilization as we know it.
That’s not even a remotely sufficient foreshadowing of the scope of the disruptions to come. There’s More to Oil than Oil
Oil is no “normal” product. Of the myriad ways in which it is unique, seven bear consideration for the utter change in circumstance the world is about to find itself in.
INELASTICITY
Quick Economics 101 lesson. Under normal circumstances, prices are the result of the relationship between supply and demand. Should supply rise while demand remains constant, prices will drop. Similarly, should demand rise while supplies remain constant, prices will rise. The inverse for both statements is true as well. This concept is called price elasticity and it holds true for everything from skateboards to bread to potted plants to construction workers.* Oil is different. Because oil is central to everything from the shingles on your roof to the phone in your hand to the spatula in your kitchen to the pipes and hoses in your plumbing to the diapers on your kid to the paint on your walls to your daily commute to how products cross the ocean, a slight increase in demand for oil or a slight decrease in supply for oil results in wild price swings that are most assuredly not proportional. Perhaps even more important, oil is the transport fuel. No oil and your car doesn’t work.
Neither does that giant container ship bringing you that shiny new washing machine from Korea. You. Must. Have. It. The details vary from place to place and time to time, but a good rule of thumb is that a change in demand of about 10 percent results in a price shift around 75 percent.
During the 2000s, when supply and demand were particularly out of whack, it didn’t take long for prices to increase by 500 percent. Similarly, when the American subprime bubble burst in the context of a global financial crisis, the subsequent drop in demand quickly made oil give back some four-fifths of those price gains.
DISRUPTABILITY
All products travel the ocean, so all products face a degree of risk moving forward, but all products are not created equal. Whether you’re evaluating the supply chain of cut lumber or mixing bowls, pretty much everything has different sources and supply routes that can become active as the market dictates.
Oil is different. Since everyone has to have it, and since only a few places produce it in exportable volumes, the transport routes are far more concentrated. Even more problematic, the thickest of these supply lines are very long. Flows out of the Persian Gulf must travel between 5,000 and 7,000 miles to East Asian destinations, between 3,000 to 6,000 miles to European destinations, and 5,000 to 9,000 miles to North American destinations. Other minor suppliers aren’t any better. Venezuela, for example, has on occasion shipped crude around South America and across the Pacific to northern China—a 12,000-mile journey that is the world’s longest supply run, literally longer than halfway around the planet.
This is obviously a problem. Oil tankers are pretty easy to identify, they travel slowly, and they have little choice but to stick to the shortest possible route, which is already pretty long. For most of those oil shipments, there are no good alternatives. Nearly all oil that originates in the Persian Gulf must use the Strait of Hormuz. Even bypass pipelines have limited use since they terminate either on the eastern side of Hormuz or in the Red Sea, where shipments still need to go through either Suez or the Bab el-Mandeb.
Bypassing the Strait of Malacca still requires punching through the Indonesian archipelago at a different location. And in the end, the terminus point for a lot of these shipments is an unavoidable location-of-difficulty, whether it be in the South China Sea, the East China Sea, the Sea of Japan, the Mediterranean, or the North Sea. INSEPARABILITY
One of the many transformative impacts of the Order was the combining of the entire world into a single market. With few exceptions, products can flow from areas of high supply to high demand. For most products, this mellows any price shocks because there is typically extra stuff somewhere that can be used to pour fresh supply oil on troubled demand waters.
Oil, with its price inelasticity, does the opposite. Any sudden change in supply or demand rapidly ripples throughout the entire system. For example, the Asian financial crisis of 1997–98 may have only impacted oil demand on the margin and only on a regional basis, but those small changes crashed the price of crude by more than half. Globally. This locks much of the world into a bit of a suicide pact. Any disruptions that occur in any production zone or along any transport route will reverberate through the entire world.
There will be a few exceptions, which fall into two general categories: First are those proto-empires that are able to militarily command shipments out of specific nearby production areas. Such interjections will not typically be clean, easy, or welcomed by the oil producers, but they will happen nonetheless. The second set of exceptions involves the major powers who produce the crude they need internally and so can block exports with a few pen flicks or switch flips.
In both types of regional systems, the economics of oil will echo models established in the pre-Order world. Each system will have its own supply and demand mechanics, its own security risk premiums, its own crude grade patterns, and above all its own pricing logic.
The easiest of these pockets to predict is the United States. Most conventional oil wells take years of work to bring online, but shale wells only need a few weeks. Expect any price spikes in the soon-tobe-sequestered American market to be easily ameliorated, with a fairly even-keeled price structure topping out at roughly $70 a barrel.
(Canada will be brought along for the ride since all meaningful Canadian export infrastructure terminates on U.S. territory.) A close second is Russia. While Russian civilian technological acumen has all but collapsed since the Cold War’s end, so too has Russian industrial capacity. The end result has freed up five million barrels of oil and around 10 billion cubic feet of natural gas for daily export. The Russians have never been slaves to modern capitalistic norms, and the future will be no exception. I have exceedingly high confidence that in time, Russian shortages in capital, labor, and technical command will erode away all of those exports. The key words here, however, are “in time.” Under any scenario that doesn’t involve mushroom clouds or extreme civil breakdown, the Russians will have more than sufficient energy for their own needs at least until the early 2040s. And since Russia will in essence be a closed system, internal energy prices will be precisely what the Kremlin decrees them to be.
Argentina is likely to experience an oil system not all that different from the United States. Despite some wildly . . . creative approaches to economic management, Argentina already has the world’s secondmost-advanced shale sector as well as all the infrastructure necessary to bring local shale output to its population centers.
France and Turkey also look fairly good. Both are proximate to regional energy producers—Algeria and Libya for France, Azerbaijan and Iraq for Turkey—as well as sporting the local technical skills required to make those oil patches work. That said, securing said output will require a neocolonial approach to their regions, and that will generate . . . drama.
The United Kingdom, India, and Japan are up next. All need to venture out, but all have naval forces more or less right-sized to reach potential sources. In this the Brits have the easiest jaunts to make; Norway provides local supplies, while the British navy can easily reach West Africa for the balance. The Indians look good, too: the Persian Gulf is only a short hop away. Japan gets a bit dicey. Sure, Japan sports the world’s second-most-powerful long-reach navy, but the Persian Gulf oil fields are a daunting seven thousand miles away. Of the countries that can secure their needs, it is Japan that will face the greatest risk of disruptions, shortages, and high prices.
Outside of this short list of states, the picture darkens in every conceivable way. Without the supply redundancy and variety that has dominated the post-1945 world, any single shipment interruption spells immediate price explosions. Even worse, many of the world’s oil suppliers are not in what I’d call particularly stable areas.
* Should a field become damaged—either by militancy, war, incompetency, or lack of maintenance —it doesn’t simply go offline, it goes offline for years.
Expect prices to be wildly erratic, dropping below $150 a barrel only on painfully rare occasions. Assuming supplies can be sourced at all.
THE BACKUP ISN’T MUCH OF A BACKUP
There is far more to global oil than just the major production zones in the Persian Gulf, former Soviet Union, and North America. It feels like some of them should be able to help smooth out the problems of the future. There is a little truth to this, but only a little.
Consider the candidates: Let’s start with the good news: the Western Hemispheric countries of Colombia, Peru, and Trinidad and Tobago. None are huge producers but all are reasonably stable ones. In a post-Order world the Americans will establish a security cordon around the entire hemisphere to keep the Eurasian powers from dabbling. Trade will be allowed. Even the export of Latin American oil products to the Eastern Hemisphere will be seen as harmless—so long as no Eastern Hemispheric power establishes a footprint that the Americans perceive as strategic. This trio might not be big players —collectively we’re not talking about much more than one million barrels per day—but at minimum the Americans can and will ensure maritime security for any transport on their side of the planet.
Brazil is a bit more complicated. Most of Brazil’s production is offshore and most of its truly promising fields are not simply under two miles of ocean, but under an additional two miles of seabed. Brazilian energy presents very difficult operating environments, very high production costs, and a very challenging political backdrop. The problem is nothing less than the future coherence of Brazil as a state. The Order has been perfect for Brazil: large global markets, bottomless Chinese demand, cheap global financing. As Brazil’s tropical and rugged geography saddles it with among the world’s highest development costs for . . . everything, that has been fantastic. It’s all going away, and it just isn’t clear if there will be sufficient technically capable, capital-flush foreign partners on the other side of the Order. Even if the answer proves to be an enthusiastic “yes,” large-scale Brazilian output sufficient to generate large exports is a minimum of two decades and hundreds of billions of dollars of investment away.
Venezuela used to matter. It used to be among the world’s most reliable producers and exporters. By many measures, decisions made in Caracas ultimately broke the Arab Oil Embargos of the 1970s. Those days are long past. Two-plus decades of horrific, deliberate, and increasingly creative and violent mismanagement all but destroyed the country’s energy complex.
Output is down by more than 90 percent from peak, extraction and transport infrastructure is crumbling, and internal government leaks suggest irreparable damage to the country’s petroleum reservoirs.
Most of Venezuela’s oil used to go to the United States, but American refiners have given up on Venezuela ever returning to the market, and so have retooled their equipment to operate using different input streams. With the Americans no longer interested, Venezuela no longer even has dedicated buyers for its specific ultraheavy crude grades. Government finances have collapsed and taken down both food production and food imports within them. Famine is now among the country’s better-case scenarios, with outright civilizational collapse more likely.
If Venezuela—and the correct word is “if”—is to contribute to global oil supplies, someone will need to deploy forces to the country to impose security, arrest the fall, and bring in billions of dollars of supplies to support the population and tens of billions to overhaul the energy infrastructure, all while convincing the Americans that they won’t try anything cute.
Impossible? No. But at a minimum it would be a three-decade reconstruction project. A slightly more likely outcome would be if one of Venezuela’s oil regions—specifically the Maracaibo—were to secede from Venezuela and seek foreign protection, most likely either from the United States directly, or from neighboring Colombia. That could potentially bring a couple of million barrels of daily output back to markets with an investment of “only” a few years and $30 billion or so.
The western African states of Nigeria, Equatorial Guinea, and Angola have always been sketchy operating environments for foreign oil firms. It is largely a security issue. The African states have a poor track record of controlling their own territories, which often leaves foreigners prey to kidnapping, sabotage, or worse—and even that assumes oil production does not fall prey to internal political squabbles. Which it does. Constantly. In a post-Order world such internal security concerns are all but certain to intensify, which will force most foreign players to focus on very specific sorts of production: those in the deep offshore, dozens of miles from the coastline. Such offshore platforms will by necessity need to be militarized to prevent pirate assault. The Western countries most likely to play are those that have the most proximity to the West Africans as well as the technical and military capacity to reach them: the United Kingdom and France. There definitely are rough seas ahead, but it is this trio of African states that is likely to generate what little good news the oil markets of the Eastern Hemisphere will see in the next few decades.
In Southeast Asia, the countries of Australia, Brunei, Indonesia, Malaysia, Thailand, and Vietnam are all reasonable producers. However, in recent decades these countries have experienced sufficient economic growth that rising regional oil demand has gobbled up nearly all available regional supply. Collectively, these countries are no longer significant net exporters of oil. And that’s before geopolitical preferences are factored in.
This region is tightly bound together with not only manufacturing integration, but a series of largely friendly and cooperative political and security pacts. They would really prefer that the rest of an increasingly chaotic world would just butt out. They’d dig a hole and pull it in after them if they could.
The North Sea is Europe’s only significant remaining production zone, with the vast bulk of the output lying in the sea’s Norwegian sector. The Norwegians enjoy excellent relations with their cultural cousins in Sweden, Finland, and Denmark, as well as their primary maritime neighbor, the United Kingdom. To be perfectly blunt, this entire roster of countries is likely to find themselves on opposite sides of the table from both the French and Germans moving forward, and they are already on the opposite sides of barbed wire from the Russians. In order to preserve themselves, this collective is all but certain to take joint action to prevent North Sea energy from going anywhere except to the members of their group. That’s great if you’re in the club. Less so if you’re not.
Algeria has been a major producer for decades, and its output has helped mitigate some of the pricing chaos the Persian Gulf so reliably creates. That’s not going to happen for much longer. In the post-Order world there will be exceedingly few countries that can look out for their own economic and security needs, and the country at the top of that very short list is France . . . which sits directly across the Mediterranean from Algeria. France was Algeria’s former colonial master and the breakup was . . . rough. The best Algerian move will likely be to approach either Spain or Italy and offer them supplies so that Algiers won’t have to deal with the French. It might even work. Barring that, the Algerians can look forward to the French gobbling up their entire energy export capacity. At least the French will pay for it. Probably.
Libya will get messier because it is, well, Libya. Home to at least three major insurrections, in the middle of an ongoing civil war, it is a place my gut tells me to simply write off completely. But then there’s Italy. In a world in which former Soviet and Persian Gulf crude becomes constricted and France de facto takes over Algerian fields, Libya becomes Italy’s only source of oil. Unless the Italians choose to give up on their country’s existence, they will have no choice but to venture forth to secure Libya’s major ports, Libya’s production sites deep in the desert, and all the connecting infrastructure in between. Considering Italy’s trademark disorganization, general out-of-practiceness when it comes to colonial occupations, and flat-out racism when it comes to Arabs, this little chapterette of history is certain to be entertaining. And horrifying.
So how much is left?
Factor out captive supplies in places like North America, the North Sea, North Africa, or Southeast Asia, and eminently disruptable supplies from the Persian Gulf and former Soviet space, then put supplies for local demand in places like North America and Russia into a different bucket, and total exportable, kinda-sorta-reliable supplies globally only amount to a paltry 6 million barrels per day . . . versus a global demand of 97 million.
THERE IS MORE TO OIL THAN OIL
No one simply puts raw oil in their tank. It must first be processed at a refinery. The supply chains of oil may not be nearly as complicated as they are for, say, computers, but the outcomes can be far more dramatic. No two crude oil streams have exactly the same chemical makeup. Some are gooey and laden with impurities, most commonly sulfur, which can make up to 3 percent of the crude oil by volume. Such crudes are called “heavy sours.” Some, like Canada’s oil sands, are so heavy that they are solid at room temperature. Others are so pure they have the color and consistency of nail polish remover and are called “light sweets.” Between these extremes lies an entire worldful of other possibilities, each with its own specific chemical makeup. Each of the world’s hundreds of refineries has a preferred input blend, which in the case of many older refineries was tailored to a specific oil field. This too is an outcome of the Order. In a safe world, there was nothing stopping crude from any particular source from reaching any particular processor. But post-Order? Anything that scrambles upstream production patterns or midstream transport patterns also scrambles everything in the energy sector’s refinery downstream.
Running the “wrong” crude in the worst case can cause major damage to multibillion-dollar facilities. Even in the best case it is certain to trigger something called run-loss, a not-so-fancy term that means exactly what it suggests: a certain percentage of the crude run through a refinery for processing is simply lost due to inappropriate input mixes. Run-loss increases quickly either when a refinery is asked to do something it was not designed to do or when it lacks access to the “correct” crude oil blend. The Europeans, for example, love diesel, and Russia’s Urals blend (a medium/sour crude) is a pretty good feedstock for refining diesel. Interrupt Urals flows, replace Urals with a different crude grade, and the Europeans are going to face serious product bottlenecks even if they can somehow keep their refineries running at their designed capacity. Considering oil’s price inelasticity issue, something as little as a 1 percent refinery loss can have massive impacts on customers.
We’re looking at a lot more than 1 percent run-loss moving forward.
Most of the world’s refineries were designed to run on lighter, sweeter crudes because they have fewer contaminants and so are easier to process.
Today most of the world’s lighter, sweeter crudes come from American shale plays. Refurbishing refineries can be done, but it takes two things the new world will have in short supply: time and money. Besides, most retooling simply locks you into a new crude formula. In an unstable world, reliability of specific crude input streams can occur only if you are very close to the secure source. For most refineries, that’s simply not a possibility. THERE’S EVEN MORE TO OIL THAN OIL
There’s also something called natural gas, which along with oil is one of the classic fossil fuels.
In many ways, the two are similar. Both have the same three concentrations of supply: the Persian Gulf, the former Soviet Union, and North America. Both have the same three concentrations of demand: Northeast Asia, Europe, and North America. Both can be used for similar things, ranging from a transport fuel to a petrochemical feedstock.
They do, however, have a critical difference that shapes their use, their prevalence, and their impact.
Oil is a liquid. It can be moved by pipe or barge or tanker or truck, and can be stored in a nonpressurized tank. Large oil tanks at major ports even have floating lids that rise and fall with the fill level.
There’s no way you are doing that with natural gas. It is a . . . gas. Gases are difficult to contain and transport, and even if the gas itself is not flammable (and natural gas most assuredly is flammable), they tend to be explosive under pressure.
This difference has a few direct outcomes.
Because gases burn far more thoroughly than liquids, natural gas is one of the world’s premier electricity-generation fuels (while hardly anyone uses oil for direct power generation any longer* ). When burned in a modern power facility, natural gas typically generates barely more than half the carbon dioxide emissions compared to coal. Most American reductions in CO2 emissions since 2005 have taken place because natural gas has been displacing coal in the American electricity fuel mix. Somewhat similar displacements are in play in much of the rest of the world, most notably in Europe and China.
Most natural gas that humans use is transported via pipe, which requires far tighter economic links between producer and consumer.
As such, most piped natural gas is produced in the country from which it is sourced, making the geopolitics of natural gas far less sexy writ large than the geopolitics of oil. Of course, there are exceptions. Russia is the world’s largest natural gas exporter, in large part due to legacy infrastructure left over from the Soviet era. But the Kremlin feels (not without merit) that piped natural gas generates geopolitical dependencies, and has extended its natural gas networks into Germany, Italy, Turkey, and China with an eye toward manipulating those countries’ strategic policies. Results (from the Russian viewpoint) tended to be positive . . . until they started invading their customers’ neighbors.
Natural gas can be chilled and pressurized and transported by ship, but that is expensive and requires specialized infrastructure and so is only done with about 15 percent of the total. The supply-demand math for this “liquefied natural gas,” or LNG, is reminiscent of that for oil.
Most LNG comes from Qatar, Australia, Nigeria, or the United States and goes to Europe or, especially, Northeast Asia. That means when it comes to LNG shipments, producers and consumers alike should expect disruptions in natural gas supply as they will for oil.
Taken together, these three differences don’t necessarily spell out a brighter future for this corner of the global energy system, but instead a different kind of dark. And dark is the word. Oil is primarily used for transport fuel, so shortages slow human interaction to a crawl. Natural gas is primarily used for electricity generation, so shortages mean the lights literally go out. The most vulnerable locations are those most dependent upon massive natural gas flows from or through the territories and waters of countries that are less than reliable: Korea, Taiwan, Turkey, China, Ukraine, Germany, Austria, Spain, Japan, France, Poland, and India, roughly in that order. One more fun fact. Natural gas is vital to places that . . . lack it: Northeast Asia and Western Europe most notably. They regularly pay $10 per thousand cubic feet for the stuff, and must navigate tetchy producers and tetchier transit states and outright hostility from neighbors. In the Ukraine War’s opening act, prices quickly topped $40.
But in the United States, natural gas is frequently a by-product of its shale sector’s oil efforts. The Americans often have to flare the stuff because they cannot build out their distribution infrastructure fast enough to capture it all. Once it is captured, it is typically sold into the system at or near zero, and even adding in processing and transport costs, most American end users get access at something less than one-quarter the cost of the rest of the world. Change the global system and the only tweak the Americans might make in their natural gas setup is to start to produce some more on purpose so that they can process it into finished products for sale abroad.
Finally, there’s the fire on the horizon.
CLIMATE CHANGE I’m sure many of you are wondering how I can go this far into a chapter on energy with barely an oblique mention of climate change. It’s not that I don’t buy the math. In a previous life I was in training to be an organic chemist. The idea that different gases sport different heat-trapping and light-reflecting* characteristics is pretty basic science, with well over a century of evidence behind it. No, that’s not the problem.
The problem is more . . . involved.
First, I work in geopolitics. Geo. Geography. Locations. The study of place. How dozens of geographic factors interconnect to shape how culture, economics, security, and populations emerge and interplay. If you tell me the whole world is going to heat up by four degrees I can tell you how that will play out. But that is not what is happening.
Just as different gases have different heat-trapping and light-reflecting characteristics, so too do different climates. And land covers. And latitudes.
And altitudes. We’re not looking at an even heating, but instead an extremely uneven heating that has more of an impact on land versus water, on the Arctic versus the tropics, on cities versus forests. That affects not only local temperatures, but regional wind patterns and global ocean currents. Such inconsistency does far more than add one more variable to the mix of latitude, elevation, humidity, temperature, soil composition, surface angle, and so on that enables me to read the planet. The entire map of everything is changing. We’ve only started parsing out the localities of climate change within the past few years. For the purposes of this specific chapter, we’ll “only” be dealing with the technicalities and applicability of greentech from the angle of energy production and substitution, as opposed to the specific economic and strategic outcomes of climate change.
* Since everything is changing, it is critical to first establish a solid baseline. That’s why I’m dealing with climate change last, rather than right out of the box.
Second, no matter what happens politically or technologically, we are nowhere near being “done” with oil. The dominant environmental concern with all things oil has been about carbon dioxide emissions, but technologies, like the internal combustion engine, that burn oil products to produce those emissions are hardly the only things that use oil. Oil is also the base material for the bulk of the world’s petrochemical needs. That sector is not a rounding error.
Modern petrochemicals are responsible for the bulk of what we today consider “normal,” comprising the majority of the inputs in food packaging, medical equipment, detergents, coolants, footwear, tires, adhesives, sports equipment, luggage, diapers, paints, inks, chewing gum, lubricants, insulation, fertilizers, pesticides, and herbicides, and the second-largest component of material inputs in paper, pharmaceuticals, clothes, furniture, construction, glass, consumer electronics, automotive, home appliances, and furnishings. Oil-derived transport fuels do constitute the majority of oil use—nearly three-fifths, to be specific—but petrochemicals account for a full one-fifth. That’s about as much as the entire Persian Gulf exports in a typical year.
Many of these products do have potential substitute inputs, but in nearly all cases that substitute . . . is natural gas. Move beyond fossil fuel possibilities and either the cost of the substitute is in excess of ten times that of the original input, the carbon footprint is in excess of ten times that of the original input, or, more likely, both. Even that assumes a substitute exists at all.
Third, greentech does not make a country immune to geopolitics. It just shifts the view. Climate, temperature, land cover, resource location, distance, and maritime choke points are hardly the only geopolitical factors.
So too are latitude, elevation, humidity, temperature, surface angle, windspeed, wind reliability, solar radiation, and seasonal weather variation.
Just as different geographic features impact deepwater navigation and industrialization differently or manufacturing and finance differently, so too do they impact greentech and conventional power generation differently.
And if the tech is of varying usefulness based on location, then there are relative winners and losers. Just as there are with deepwater transport or industrialization or oil.
Me personally? I used to live in Austin and now reside just outside Denver. I’ve put up solar systems on both homes. In hot, sunny Texas I recouped my investment in under eight years. It’ll likely take less time living in Colorado. Denver is the United States’ sunniest metro area, and at high altitude there is no humidity (and very little air) to block sunlight. I’m absolutely a believer in the technology when it’s matched to the correct geography.
There isn’t a lot of that “correct” geography.
Most parts of the world are neither very windy nor very sunny. Eastern Canada and northern and Central Europe are cloud-bound for more than nine months of the year on average, in addition to having painfully short winter days. No one goes to Florida or northern Brazil to kiteboard. The eastern two-thirds of China, the vast bulk of India, and nearly the entirety of Southeast Asia—home to fully half the world’s population—have so little solar and wind potential that a large-scale greentech buildout would emit more carbon than it would ever save. Same for West Africa. And the northern Andes. And the more populated portions of the former Soviet Union. And Ontario.
Zones for which today’s greentech makes both environmental and economic sense comprise less than one-fifth of the land area of the populated continents, most of which is far removed from our major population centers. Think Patagonia for wind, or the Outback for solar. The unfortunate fact is that greentech in its current form simply isn’t useful for most people in most places—either to reduce carbon emissions or to provide a substitute for energy inputs in a more chaotic, post-Order world.
Fourth, is the issue of density. I live in a rural area and my home sprawls accordingly. I’ve got a ten-kilowatt solar system, which covers the majority of my south- and west-facing roof lines and generates sufficient power for nearly all my needs. But what if I lived in a city? A smaller roofline means less room for panels. What if I lived in an apartment? My “roof” would be a shared space whose panels need to feed multiple units.
What if I lived in a high-rise? Minimal roof space, lots of people drawing upon very few panels. Fossil fuels are so concentrated that they are literally “energy” in physical form. In contrast, all greentechs require space. Solar is the worst of the bunch: it is roughly one thousand times less dense than systems powered by more conventional means. Consider America’s Megalopolis, the line of densely packed cities from Boston in the north to the Greater DC area in the south. Collectively, the coastal cities of this line comprise roughly one-third of the American population on a tiny footprint. They also happen to be positioned on patches of land with very low solar and wind potential. The idea they could generate sufficient volumes of electricity locally is asinine. They need to import it. The closest zone with reasonably good solar potential (not “good,” “reasonably good”) is south-central Virginia. That’s an inconvenient six hundred miles away from Boston, and Boston would be last in line for sips of electricity after D.C., Baltimore, Philadelphia, New York City, Hartford, and Providence.
It isn’t simply an issue for cities located in cloudy, still locations. It is a problem for cities everywhere. Every technological development that has brought us to our industrialized, urbanized present must be reevaluated to make today’s greentech work. But by far the biggest challenge is the very existence of cities themselves. All are by definition densely populated, while greentech by definition is not dense. Squaring that circle even in sunny and windy locations will require massive infrastructure to bridge the gap between dense population patterns and far more dispersed greentech electricity-generating systems. Such infrastructure would be on a scale and of a scope that humanity has not yet attempted. The alternative is to empty the cities and unwind six thousand years of history. Color me skeptical.
Fifth, even if solar and wind were equivalent technologies to oil, natural gas, and coal in terms of reliability, decarbonizing the grid would remain a mammoth task. Currently, 38 percent of global power generation is carbon free, suggesting we’d “only” need to roughly triple the good slice to displace the bad. Wrong. Hydropower has already used all available appropriate geographies globally. Nuclear would first need a helluva PR campaign to sufficiently improve its image. If only solar and wind are doing the lifting, they would need a ninefold buildout to fully displace fossil fuels.
Sixth, even in the geographies where greentech works well, it is at best only a partial patch. Greentech only generates electricity. Wind and solar might theoretically be able to replace coal in some specific locations, but electricity of any type is not compatible with existing infrastructure and vehicles that use oil-derived liquid fuels.
Such a restriction naturally leads to discussion of electric vehicles as a wholesale replacement for those powered by internal combustion engines.
Such is far more difficult than it sounds.
The entirety of the global electricity sector generates roughly as much power as liquid transport fuels. Run the math: switching all transport from internal combustion to electric would necessitate a doubling of humanity’s capacity to generate electricity. Again, hydro and nuclear couldn’t help, so that ninefold increase in solar and wind is now a twenty-fold increase. Nor are you even remotely done. You now need absolutely massive transmission capacity to link the locations where wind and solar systems can generate power to where that power would ultimately be consumed. In the case of Europe and China, those power lines have to jump continents. You’re also assuming minor little details break your way, such as the wind always blowing or the sun never setting or there never being hiccups in transmitting power from the Libyan desert to Berlin or the Outback to Beijing. More likely, EVs with today’s technology will work only if we double down on the very energy sources that environmentalists say we’re trying to cut out of the system.
In my not so humble opinion, we need to tackle first things first: we need to green the grid before we expand it. And unfortunately, the pace of that effort is painfully slow: From 2014, when the solar boom began, until 2020, solar has only increased to become 1.5 percent of total energy use.
Seventh, the practical aspects of a potential switchover are beyond Herculean, both in terms of technical challenges and cost, and I am not talking about the relatively simple task of installing enough solar panels and wind turbines to generate 43,000 terawatt-hours of electricity, roughly seventy times the total greentech buildout of 2010 through 2021.
Part of what makes the modern world work is on-demand electricity.
This requires something called dispatchability: the idea that a power plant can ramp its power output up and down to match demand. Not only can wind and solar not do this; they are also intermittent. Power levels vary based on that most mercurial of forces: the weather.
Hardware upgrades can prevent such surges from alternatively shorting out or browning out industrial and residential customers, but that’s not free.
Part of what makes dispatchability so attractive is that there are peaks and troughs in normal electricity demand. Specifically, in most locations peak electricity demand is between 6 p.m. and 10 p.m., with higher demand rates in the winter. However, peak solar supply is between 11 a.m. and 3 p.m., with higher supply profiles in the summer.
And that’s before considering that the same panel will generate different amounts of power based on location. My panels in the highlands of Colorado would spit out less than one-fifth the power in the doldrums of Toronto. No amount of money enables us to ignore this little geographic problem.
Unlike coal or natural gas, which can be prepositioned, the wind blows where the wind blows and the sun shines where the sun shines. Any greentech-generated electricity must then be wired to where it can be used. This is also not free, and often results in the doubling (or more) of the cost of the delivered power (the details vary massively based on where the power is coming from, where it will be consumed, the nature of the connecting infrastructure, what sort of political borders must be crossed, etc.). It’s no wonder fully 95 percent of humanity sources its electricity from power plants less than fifty miles away.
Addressing such issues requires a parallel power system. With the status of greentech technology in 2022, in most cases that parallel system is a boring, conventional system that runs on either natural gas or coal. Let me underline that: greentech today is so unreliable in most locations that those localities that do attempt greentech have no choice but to maintain a full conventional system for their total peak demand —at full cost.
Greentech in its current form simply isn’t able to shave more than a dozen or so percentage points off fossil fuel demand, and even this “achievement” is only possible within geographies fairly perfect for it. A few places with good greentech potential have attempted to replace half of their preexisting conventional power generation with greentech, but working around issues of grid capacity and intermittency and transmission results in a quadrupling of power prices.* That said, there is a complementary technology out there that might— emphasis on the word “might”—be able to square these circles: batteries.
The idea is that greentech-generated power can be stored in batteries until such time as it is needed. Intermittency? Dispatchability? Supply-demand mismatches? All solved! Even transmission distances can be shortened in some cases.
Unfortunately, what works beautifully in theory faces a couple of problems in practice. The first is supply chains. Just as oil’s production is concentrated, so too is the primary input for the best battery chemistry of the day: lithium. And just as oil needs to be refined into usable products, raw lithium must be processed into concentrate, refined into metals, and then built into battery assemblies. Today’s lithium supply chains require unimpeded access to Australia, Chile, China, and Japan. That’s a bit simpler than oil, but not by all that much. Should anything happen to East Asia writ large—and all of East Asia is due for a great deal of happening—the bulk of the value-added system for batteries will need to be rebuilt elsewhere. That will take time. And money. A lot of it. Especially if the goal is to apply lithium battery tech at scale.
That scale is the second problem. Lithium batteries are expensive. They are the second- or third-most-expensive component in the average smartphone, and that’s a battery that stores but a few watt-hours. They comprise in excess of three-quarters the cost and weight of most electric vehicles, and that’s a battery that stores but a few kilowatt-hours.
City-grid batteries require megawatt-days. Achieving meaningful greentech power storage would require grid-level battery systems that could store a minimum of four hours of power to cover the bulk of that daily highdemand period. Assuming that the technological improvements in the world of batteries that have unfolded since 1990 continue into 2026, the cost of a four-hour lithium grid storage system will be about $240 per megawatt-hour of capacity, or six times that of the standard combined-cycle natural gas plant, which is currently the most common electricity-generating asset in the United States. Important note: that 6x figure does not include the cost of the electricity-generating asset that actually charges the battery, nor the transmission asset to get the electricity to the battery. As of 2021, the United States had 1,100 gigawatts of installed electricity-generation capacity, but only 23.2 gigawatts of electricity storage. Roughly 70 percent of that 23.2 gigawatts is something called “pumped storage,” in essence using excess generated power to pump water uphill, and then allowing that water to flow down a watercourse to power a generator as needed. Most of the other 30 percent is some sort of storage capacity located in people’s homes. Only 0.73 gigawatts of storage is actually in the form of batteries. The American state that is most committed to the ideology of a green future is California. The state as a whole has but enough total storage—not battery storage, total storage—for one minute of power. Los Angeles, the American metropolitan area with the most aggressive plan for installing grid storage, doesn’t anticipate reaching one hour of total storage capacity until 2045.
Remember, that’s one hour of storage for LA’s current electricity system —not the doubling that would be required to realize the dream of universal EV adoption for cars and light trucks.
Nor would that magical four hours be anything more than the first step on a long and tortuous road. A true shift to a carbon-neutral power system would require the capacity to camel not hours, but months of electricity for the seasons that are not as windy or sunny. We don’t know everything about the world of energy, but we know for certain that there is not enough lithium ore on the entire planet to enable a rich country like the United States to achieve such a goal, much less the world writ large.
* Eighth, there is a little-discussed financial issue that might soon make this entire discussion moot.
In places with good solar or wind resources, most current price assessments suggest that the combined lifetime cost of fuel, maintenance, and installation for greentech versus conventional is more or less equal.
From a financial point of view, the primary difference is when capital must be committed. About one-fifth of the total costs for the entire life span of a conventional power are spent up front on land acquisition and facility construction, with the rest dribbled out over decades for fuel purchase and facility maintenance. In contrast, for greentech nearly the entire cost is up front, two-thirds up front in the case of onshore wind turbines. After all, fuel costs are zero. In the capital-rich world of the late Order, this is a footnote, and not a particularly important one at that. There is nothing wrong with financing twenty-five years of power bills up front when capital is cheap. But in the capital-poor world of the Disorder, this could well be everything. Should investment capital become harder to source or borrowing costs go up, all such up-front investments degrade from an easy carry to unsatisfactorily risky and expensive. In that world, the far lower installation costs of conventional systems make a great deal more sense.
Greentech in its current form simply isn’t mature enough or cheap enough to move the needle for most peoples in most locations. It is largely limited to developed countries with rich capital supplies who just coincidentally happen to have large population centers fairly close to sunny or windy locations. The southwest quarter of the United States looks great, as do the American Great Plains, Australia, and the coasts of the North Sea.
Nearly all other locations will remain dependent upon more traditional fuels for the vast majority of their energy needs. This is far worse than it sounds from the point of view of greenhouse gas emissions because the vast majority of these locations will not be able to retain access to internationally traded oil and natural gas, either. If they cannot source oil or natural gas and their geographies do not enable sufficient use of solar and wind, they will have a simple decision to make. Option A is to do without the products that have enabled humanity to advance for the past two centuries, to suffer catastrophic reductions in product access and food production, triggering massive downward revisions in standards of living and population. To go without electricity. To deindustrialize. To decivilize.
Or—Option B—to use the one fuel source that nearly all countries have locally: coal. Many particularly unlucky people will be stuck with something called lignite, a barely-qualifies-as-coal fuel that is typically onefifth water by weight and is by far the least efficient and dirtiest fuel in use today. Germany already today uses lignite as its primary power input fuel because greentech is so woefully unapplicable to the German geography, and yet the Germans—for environmental reasons—have shut down most of their other power-generation options.* As a planet, we are perfectly capable of suffering broad-scale economic collapse and vastly increasing our carbon emissions at the same time. Fueling the Future
We’re slouching into a world where energy supplies out of both the Persian Gulf and the borderlands of the former Soviet Union will be subject to highly contested strategic environments. Even if none of the regions’ issues erupt into formal wars, their instability and insecurity all but guarantees that oil and natural gas production and flows will be disrupted for years. Or more likely, decades. Even that assumes no strategic competition in East Asia, and no piracy—state or otherwise—along the coasts of Southeast Asia or Africa. The days of reliable, inexpensive oil shipments are coming to an inglorious end.
It will be worse than it sounds, and not just at the high-level, this-willhappen-to-that-country sort of way, but instead deeply personally.
Between the entrance of China into the global system and the end of the Cold War, total global oil demand has doubled since 1980—mostly due to new players starting their journeys down the roads of industrialization and urbanization. The modern, industrial, urban lifestyles of most of the human population require oil, and with the Americans having lost interest, that oil will not be there. Transport links will shrivel, which will impact everything from the coherence of manufacturing supply chains to food distribution.
Many electricity systems will fail due to lack of fuel. The physical concentrations of urbanization—what enables us to live relatively lowcarbon-impact, high-value-added lives—are simply not possible without ample energy. The end of globalization may herald the end of the world we know, but the end of global energy heralds the end of the lives we know.
The locations facing the greatest shortages are those major consumers at the very end of those vulnerable supply lines: Northeast Asia and Central Europe, with Germany, Korea, and China by far facing the greatest threats, as none have proximate oil or natural gas sourcing, nor the military capacity to venture out to secure someone else’s. There will be electricity problems as well. All three use a mix of nuclear, natural gas, and coal for the vast bulk of their electricity needs, all based upon imported fuel. Of these, China is by far the most vulnerable. Three decades of growth has strained the country’s electricity system; the country has no spare capacity—it runs all of its power generation flat-out regardless of the input fuel—so any input shortage would at a minimum lead to large-scale rotating blackouts. It’s already happened. As China struggled in late 2021 with the dual impacts of COVID and the stricter environmental rules, regions responsible for onethird of the country’s GDP faced rolling blackouts and electricity rationing.
For the countries with more means, the picture is brighter, but there are still loads of problems. Countries like the United Kingdom, France, Japan, and India do have the military wherewithal and geographic position that will enable them to go out and secure resources themselves, but all will face a price environment of terrifying proportions. Their solution is obvious: establish a degree of neo-imperial control over a supply system to keep all supplies in-house and divorce themselves from the vulgar vicissitudes of global pricing that is alternatively insultingly expensive and erratically insane. That’s great for these new proto-empires, but such actions would remove even more oil from the rest of the system.
The ironic bottom line is that the United States is one of only a handful of countries that not only will not face a protracted energy crisis, but can also attempt oil and natural gas substitutes at scale. It is the developed country closest to the equator, granting it the world’s second-best opportunities for mass solar installations (Australia is far away in the top spot). It has huge swaths of windswept lands in the Great Plains, granting it the world’s best wind resources. The Americans even have an ace in the hole in terms of their oil demand: One of the by-products from most shale oil wells is a steady flow of natural gas. The Americans, and pretty much only the Americans, can use that natural gas in lieu of oil in their petrochemical systems. Add in a relatively stable and robust capital structure and secure access to lithium deposits in Australia and Chile, and the Americans can even attempt battery systems and EV rollouts with current technologies, should they so choose.
For all the topics we’ve addressed so far—transport, finance, and energy —the United States is the lucky country. That luck is deep, rooted in geography, which means it can be applied to other situations as well. For if you think the Americans have it made on these first three topics, just wait until you see the impact of the Americans’ luck upon the next three. Section V: Industrial Materials Disassembling History
I don’t have a snazzy introduction to this chapter because the materials we rely upon to make our technology and our world work are kinda sorta embedded in the names of our eras: The Stone Age. The Bronze Age. The Iron Age. Many, reasonably, say the early twenty-first century is fully part of the Silicon Age.
Not to put too fine a point on it, but if you lack iron in the Iron Age, then history tends to forget about you. I think you see where I’m going with this. Whether oil or copper, either you have it, you can get it, or you don’t.
And if you don’t, you do not get to play.
What might not be so obvious is just how multifaceted our trade in and dependency upon the various industrial materials have become in recent decades.
Again, it’s best to dial back to the beginning.
Early conflicts over materials were not so much imperial or national, as there were no empires or nations to speak of. Instead, such struggles were about clan, tribe, and family. There also wasn’t a lot to fight over. In the Stone Age it wasn’t like you had to go that far to find . . . stone. Sure, there were certain rocks that were better for cutting or arrowheads—obsidian comes to mind—but the tyranny of transport limited everyone’s reach. You used what you had access to and that shaped your culture. We were far more likely to fight over food (and lands that could grow it reliably) than rocks.
As the age of Stone gave way to the age of Bronze, the math subtly shifted. Egypt—(in)famously—had nothing but wheat, barley, stones, sand, reeds, some copper, and a near-bottomless supply of labor. Every trade delegation sent, every war fought, was about accessing resources not on that list. The top items the Egyptians needed were the arsenic and/or tin required to forge bronze. The Mesopotamian city-states were similarly wheat- and barley-rich and material-poor, and so regularly warred and traded with one another and their upstream and up-mountain neighbors to access the ancient equivalent of iPhones.* Fast-forward to the next age—that of Iron—and the math tightened up again. Copper was nearly unique as a material in that it is one of the few materials that on occasion can be found lying about in its natural, metal form. That never happens with iron. Nor was iron nearly as common as copper. But still, it wasn’t exactly unheard-of, particularly since we’re now talking about the age of 800 BCE on. The Age of Empires was in full swing, so the governing systems of the day had the ability to reach a wide variety of source mines. Instead of facing materials shortages, the primary concern was skill shortages. Iron ore on its own is useless, and the art of turning the ore into actual iron required hundreds of someones who knew what they were doing. Most governments were more likely to launch attacks to abduct blacksmiths than to secure iron ore or copper mines.
From a technological point of view, things puttered on for another millennium before the slow, incremental progress witnessed under the technological Ages of Stone, Bronze, and Iron found itself rudely interrupted by the fall of the Roman Empire in 476 CE, the Islamic jihad of 622–750, and above all, the cultural and technological flameouts of the European Dark Ages during the sixth through eleventh centuries. The rough overlap among the three certainly was not conducive to technological preservation, much less advancement.
Salvation, of a sort, came in the most bizarre of forms: mass carnage. In 1345–46 the Mongols’ Golden Horde was laying siege to several Crimean fortress-cities in one of their stereotypical do-things-our-way-or-we-willkill-you-all-and-oh-yeah-we-want-to-trade-too-how-about-some-tea military campaigns. Once the Mongols started catapult-launching corpses into the city of Kaffa, a group of Genoese traders decided not to stick around and see how the fight would end. They fled—casually—by sea (although not before picking up one final shipment of slaves from a city where suddenly any pretense of morality had evaporated).
As has been common on all ships for the entirety of human history, the Genoese vessels had rats. Unknown to the Genoese, those rats were carrying bubonic plague. The Genoese’s first stop was Constantinople, the Singapore of the day. Within five years, nearly all of the European, Russian, and North African world was battling the worst epidemic in regional history. Ultimately, one-third of the region’s population was wiped out, with population densities not restored for 150 years.* Anywho, without the Plague, we may well have remained stuck in the Dark Ages.
Funny thing about mass death events: For those who don’t die, life . . .
continues. Food still needs to be grown, horseshoes hammered out, barns erected, stone cut. Even if a plague is indiscriminate in whom it eliminates, in the aftermath there will be regional disparities for this or that skill set.
Once the Black Death lifted, many locations lacked a sufficient number of weavers, or carpenters, or bricklayers. In every case of shortage, two things happened.
First, supply and demand: those in the relevant profession experienced an increase in take-home pay, setting the stage for our modern concept of skilled labor. Second, the need to expand the output of such skill sets led local workers, guilds, and rulers alike to increase productivity. Some did this by training new workers. Some by developing new techniques. Some by importing the long-forgotten knowledge preserved by the Arabs in the aftermath of Rome’s fall.* By the fifteenth century, such advances in process and learning had reached the critical mass we now recognize as the Renaissance. Reinforcing advances in social thought, culture, mathematics, and science culminated not simply in restarting technological development after a millennium of Dark, but also started us down the path to another technological age: the Industrial. Among the many outcomes of the broad-based expansions in knowledge and understanding of the natural world were steadily improving methods to detect, isolate, and purify this or that material from this or that ore.
Going back dozens of centuries, we had been limited to copper, lead, gold, silver, tin, arsenic, iron, and zinc. With the codification of the rules of chemistry and physics, we expanded that list to include cobalt, platinum, nickel, manganese, tungsten, uranium, titanium, chromium, tantalum, palladium, sodium, iodine, lithium, silicon, aluminum, thorium, helium, and neon. Once we knew of these materials, and knew how to separate them from rock, and knew how to purify them sufficiently for use, we developed the ability to put them back together and mix-andmatch them under controlled circumstances. Consequently, now we have everything from flamethrowers to steel that won’t melt if exposed to said flamethrowers, to meshes of copper and gold and silicon that can place more brainpower in one hand than the entire intelligentsia of the medieval world, to party balloons.
LESSONS FROM THE PAST, LESSONS FOR THE FUTURE
Every material has its own use. Every material combined with others has more uses. Some are discrete. Some allow substitution. But all share a simple characteristic. Whether used in construction or war or urbanization or manufacturing, all are children of the Industrial Age. They require Industrial Age technologies to be produced, shipped, refined, purified, alloyed, and rearranged into value-added products. Should anything happen to the sustainability or reach of the industrial technology set, all of them will simply fade away—and take all their benefits with them.
We have seen this before. Many times. Many of the world’s past empires launched specific military campaigns to secure this or that material, while others leveraged their control of this or that material to achieve breakthrough and become something more than their geographies would normally allow.
Poland became Europe’s premier power due to the income from a single salt mine (salt being the only reliable method of the 1300s for preserving large amounts of meat or fish). Spain’s experience with the Potosi silver mine easily extended its tenure as the global superpower for a century. In the late 1800s, Chile warred with Peru and Bolivia over the Atacama Desert and its rich deposits of copper, silver, and nitrates (a key component in early-industrial gunpowder). Britain made a bad habit of sailing anywhere at any time to attack anyone who had anything the Brits might fancy. The Brits were particularly fond of seizing access points like Manhattan or Singapore or Suez or the Gambia or the Irrawaddy, all locales which enabled them to take cuts of interesting regional trades in nonperishable goods.
Some of these competitions were a bit more recent.
World War II was in many ways a fight over inputs. Most of us have at least an inkling of the strategic competitions that took place for agricultural land and oil, but battles over industrial materials were just as front and center.
France had iron ore while Germany had coal. Both materials were necessary to forge steel. You can see the problem. Germany’s May 1940 invasion of France resolved the issue. For Berlin at least. Postwar, the French spearheaded the formation of the European Coal and Steel Community in an attempt to resolve the same iron-ore-here, coal-there problem with diplomacy instead of bullets. We know the ECSC today as the European Union.
The German invasion of Russia in June 1941 obviously marked the end of the German-Russian alliance, but the first big wedge in the relationship had occurred nineteen months earlier, when the Russians invaded Finland, threatening German access to what had been the Nazi war machine’s primary source of nickel, a critical input into high-grade steel.
Among the many reasons the Japanese conquered Korea in 1904–05 was for timber for use in construction. The subsequent Japanese expansion into Southeast Asia is often—and accurately—billed as an oil grab. But the Home Islands weren’t simply energy-poor; they also lack other central industrial materials that could only be sourced by physical expansion, ranging from iron ore to tin to rubber to copper to bauxite.
In all cases, the dominant technologies of the age demanded that every country either have sufficient access to all these inputs and more, or be lorded over by others.
The list of such “required” materials has expanded exponentially since 1945 . . . just as the Americans have made the world sufficiently safe for everyone to have access to everything. That suggests the materials competition of the future will be far more wide-ranging and multifaceted, while the fallout from failure to access such materials will be far more damning. Nor are any of these industrial materials evenly distributed across the globe. As with oil, each has its own geography of access.
It’s easy to draw some dotted lines based on likely trading zones and envision an Africa that has access to the inputs for electronics but not steel, a Europe with nuclear power but no greentech, or a China with old-timey batteries but lacking the capacity to transmit electricity. These sorts of disconnects will not be allowed to stand.
This will be a struggle for everything that is required to maintain a modern system. As such, every tool will be on the table. Some will attempt this-for-that trades. Others will be more . . . energetic in their efforts.
Does my obsession with state piracy make more sense now? Does piracy in general make more sense? To think we are all going to just sit in our little bubbles and make do and not venture out to at least try to get what we don’t have is to take a very creative read of human history. We’re entering a world that Jack Sparrow would find very familiar. This is not a game for the weak.
The greatest of these challenges of access will layer atop the already insurmountable challenge of dealing with climate change. Looking back, the geopolitics of oil have proven to be surprisingly . . . straightforward. Oil exists in commercially accessible and viable volumes in only a few locations. The Persian Gulf obviously comes to mind. We might not like the challenges of such locations, and those challenges may have absorbed an outsized chunk of everyone’s attention in the late-industrial and globalization eras, but at least we are familiar with them. Most important, oil is more or less a once-and-done.
That is absolutely not how it will work with greentech in a deglobalized world. In “moving on from oil” we would be walking away from a complex and often-violent and always critical supply and transport system, only to replace it with at least ten more.
Megawatt of electricity-generating capacity for megawatt of electricitygenerating capacity, greentech requires two to five times the copper and chromium of more traditional methods of generating power, as well as a host of other materials that do not feature at all in our current power plant inputs: most notably manganese, zinc, graphite, and silicon. And EVs? You think going to war for oil was bad? Materials inputs for just the drivetrain of an EV are six times what’s required for an internal combustion engine. If we’re truly serious about a green transition that will electrify everything, our consumption of all these materials and more must increase by more than an order of magnitude.
Even worse, the mixed supply chains for these inputs are not nearly as “simple” as what was required for oil. We won’t “simply” be dealing with Russia and Saudi Arabia and Iran; we will all need to engage regularly with Chile and China and Bolivia and Brazil and Japan and Italy and Peru and Mexico and Germany and the Philippines and Mozambique and South Africa and Guinea and Gabon and Indonesia and Australia and Congo and, oh yeah, still Russia. Not only does greentech fail to generate sufficient electricity in most locations to contribute meaningfully to addressing our climate concerns but also it’s laughable to think that most locations could manufacture the necessary components in the first place, simply due to the lack of inputs. In truly unfortunate contrast, one product that does exist in most places is lowquality coal. The end of globalization doesn’t just mean we are leaving behind the most positive economic environment in human history; we may soon look at our carbon emissions of the 2010s as the good ol’ days.
THE CAVEATS BEFORE THE PLUNGE
The remainder of this chapter aims to explore just how central these materials are to our way of life. Where they come from. What they are used for. What’s at stake in a degrading world.
To that end, please keep four things in mind: First, I cannot possibly communicate the end-all and be-all of all industrial materials. There are literally hundreds of them in their base forms, which combine into thousands of intermediate alloys and mixtures to create millions of end products. We’re going to focus on the top fifteen in terms of international exchange. Hopefully, that will sufficiently map out our present so we can glean some glimpses of our future.
Second, there is a more or less common thread to follow. The story of today’s industrial materials is the story of mass industrialization, which braids up with the stories of the Order and China.
The Order largely removed the geographic constraints of materials access. Anyone could access anything at any time; as with so many other sectors, the Order transformed the concept of Geographies of Success into a good of the global commons. That simple fact has inextricably bound up many of these materials with the unsustainable present of the People’s Republic. China has become the world’s biggest importer, consumer, and processor of many of them.
The world will survive China’s fall—the world of industrial materials will survive China’s fall—but many of the bounces will hurt. A lot. And not all bounces are created equal. As the Industrial Age has matured, and as industrial materials have become more numerous, discrete, and specialized, the geography of their production and processing matters far more now than when you could simply scrape up some copper during a stroll through the woods.
Third, industrialization and the Order are not the end of the story.
Beginning roughly in 1980, the human condition launched into its next technological era: the Digital Age. Just as Bronze could not have happened without Stone, and Iron without Bronze, and Industrial without Iron, mass digitization could not have happened without mass industrialization. It is industrialization that has enabled us to identify, locate, mine, refine, and purify the materials that drive modern society. Many parts of the world are on the verge of deindustrializing, which, among other things, means their access to the industrial materials is not long for this world. Perhaps more than anything else it is this looming inadequacy and incompleteness of access that will rive the world apart.
Fourth, it isn’t all (horribly) bad news. History tells us we may—may— be on the verge of a series of massive breakthroughs in materials science.
The in-progress demographic bust threatens to reduce the human population writ large over the next few decades by as much in relative terms as the Black Death effect. The impact upon working-age populations will be even bigger. No matter what specifics the future holds, we will all need to get by with fewer workers.
While we’ll be discovering the edges of our new economic models as we go, our history strongly suggests that fewer workers by definition means more expensive labor. That in turn should prompt everyone to figure out how to make that scarce labor more productive. The Black Death’s boost to labor productivity set us on the path to the materials science breakthroughs that enabled and enhanced both the Renaissance and the Industrial Revolution. Our demographic decline, holistic as it is, suggests that a possible silver (or platinum, or vanadium) lining might lurk off in the dark clouds pouring over the horizon.
This lining is dependent upon the parts of the planet that do not deindustrialize post-globalization, and we are unlikely to perceive that lining until it is far too late for me to play any personal role in a Second Renaissance, but you never know. This world surprises me. All the time.
So, with such clarifications and guidelines in place, let’s dive in. The Essential Materials
The first material is arguably the most important since it is the base material that makes everything from buildings to roads to telecom towers possible: iron ore. Regardless of variety or quality, iron ore comprises at least the majority—and often more than 90 percent—of the material in every bit of steel humans use. This makes understanding the world of iron ore very simple: you just need to understand China.
China sits squarely in the intersection of two quintessential trends of the modern age: rapid industrialization and urbanization on one hand, and China’s trademark hyperfinancing on the other. Any successful industrialization and urbanization requires new roads, new buildings, and new industrial plant, all of which require massive volumes of steel.
Hyperfinancing can help make all that happen, but in doing so it overbuilds everything, not just the roads and buildings that mean yet more steel demand, but also the industrial plant that is used to make the steel in the first place.
China’s industrialization push has proven so huge and so fast and so overfinanced that China isn’t simply the world’s largest producer of steel; it regularly ranks among the world’s top four importers of steel, particularly the product sets on the higher end of the quality scale. But that over-finance also means China produces steel with zero regard for the reality of domestic needs, and so China is also the world’s largest steel exporter—particularly steel product sets on the lower end of the quality scale.
All that requires a worldful of iron ore. China isn’t just the world’s largest importer of the stuff, it doesn’t simply take in more than the rest of the world combined. China imports more than the rest of the world combined times three. China is the global iron ore market. As to production, Australia exports half of global iron ore volumes, with Brazil exporting half the remainder. Unsurprisingly, China gobbles up nearly all these Southern Hemispheric powers’ exports, as well as additional big chunks from Russia, India, and South Africa.
Nor is China the only country that uses steel; it’s just the only country where the economics of steel are so fundamentally out of whack. Most everyone else uses iron ore produced a bit closer to home (or in many cases, at home). Their balances are rounded out by the very big business of steel recycling. Roughly 1 percent of buildings in the advanced world are torn down every year, and every scrap of the steel used to reinforce them is melted down, reforged, and given a second life. Or third. Or eighteenth.
This duality between the ravenousness of China and the rather placid pace of steel work everywhere else makes the forecast rather straightforward.
The vast bulk of the world’s iron ore production comes from countries that face limited to no security threats as the world deglobalizes: in descending order, Australia, Brazil, India, South Africa, Canada, and the United States. However, the countries that export the vastness of global steel—in ascending order, Ukraine, Germany, Russia, Korea, Japan, and above all China—are somewhere on the sliding scale between “facing severe complications” and “utterly screwed.” The world is going to have massive shortages of steel, at the same time that the supplies of the raw material to make that steel will overflow.
The solution is simple—the world will need more smelting capacity— but it is critical to understand that not all steel is created equal. Unlike most materials, all steel is 100 percent recyclable, but recycled steel is not the same as virgin steel.
Think of steel as if it were a sheet of aluminum foil. Then crumple it, and smooth it out. Hell, try ironing it. Then rinse and repeat. Recycled steel is just as strong as virgin steel, but it cannot be made as pretty. So recycled steel is used in rebar and I-beams and auto parts, but fresh steel is used in exposed applications you can see, such as appliance cladding and roofing.
First-round steel is made with coal-powered blast furnaces to up the carbon content, which makes the steel stronger. The process is extremely carbon intensive, because, you know, it uses coal. Also, steel forging demands not just any coal, but a coal derivative that’s had its impurities burned out, called coking coal. In essence the coal has to be burned twice.
Somewhat similar blast furnaces can also handle the recycling, but a far more efficient process is to use something called an arc furnace to run a current through scrap steel and literally electrify it until it melts.* That means the best economics for recycled steel involve not simply physical security and proximity to the raw inputs, but also cheap-cheap-cheap electricity.
The winner on all three counts will be the United States, with America’s Gulf Coast looking the most promising, for the triple reasons of having great electricity prices, plenty of greenfield industrial space—particularly at potential port locations—and proximity to both large local and regional markets (think Texas, the East Coast, and Mexico). Add in ample coal supplies and the Americans could get into virgin steel production, too.
Secondary locations that look very favorable for steel recycling include Sweden (hydropower) and France (nuclear power). Australia has a wonderful opportunity to surprise to the upside and move from the lowvalue business of digging up ore to the high-value business of forging virgin steel. “All” the Aussies need to do is bring their iron ore and coal together from where they are produced . . . on opposite sides of the continent. Put up an army of solar panels and wind turbines throughout the sunny, windy Outback and the Aussies could recycle steel on the cheap as well.
Outsized successes in these four countries might not sound like enough to maintain global steel supplies at their current level. You’re right. They would not even come close. But we’re not kicking around that option as feasible, or even necessary. A world without China needs less than half as much of the stuff, and that’s before considering the likely far slower paces of building and industrializing that will define the future world.
Another material integral to all things in the modern world is bauxite, the raw material that gives us aluminum.
The aluminum refining process is pretty straightforward. Strip mining produces bauxite ore, which is then boiled in sodium hydroxide to create an intermediate product called alumina. This cocaine-white powder has a variety of uses in ceramics, filters, body armor, insulation, and paint. Some 90 percent of alumina is then in essence electrified Jaws 2–style until it becomes aluminum, which goes on to be molded, bent, and extruded into everything from airplane and car parts to soda cans to frames to tubings to casings to machinery to wires—pretty much anything where low weight and/or low-cost conductivity is a primary concern. The process is also pretty predictable, assuming you begin with decent-quality ore: four-to-five tons of bauxite becomes two tons of alumina becomes one ton of finished metal. As a rule, bauxite mines and the alumina processors are owned by the same firms, while aluminum smelters are completely different entities in different countries.
China has long since mined itself out of its high-quality bauxite reserves, and is now left with a dwindling supply of low-quality mines whose output requires much more filtering and much more power to produce much less end product per ton of ore. That has turned China into a voracious importer of bauxite from everywhere. As of 2021, China absorbs two-thirds of all internationally traded bauxite, while smelting about threefifths of all aluminum. In true Chinese fashion, the majority of China’s aluminum output is almost immediately dumped on international markets.
This is both great and awful. It’s great in that it simplifies understanding of the supply chains: China’s penchant for hyperfinancing and overbuilding makes it all China, all the time. It is awful in that the global supply chain for one of the world’s most utilized metals is wrapped up in a failing system. When China cracks, the world will face global shortages of aluminum, as there simply are not sufficient smelting facilities elsewhere to cover more than a few percentage points of the pending shortfall.
The problem isn’t so much access to bauxite. The stuff is sourced in countries that will be broadly okay in the post-globalized system: Australia produces more than one-quarter of the world’s exports, with Brazil, Guinea, and India kicking in another tenth each. No, the problem is power. From shovel to final metal, electricity accounts for roughly 40 percent of the total cost—and that’s a statistic that takes into account the fact that in most places that smelt, power is ridiculously cheap and/or heavily subsidized.
Countries with ample hydropower—Norway, Canada, Russia—are big players.
Such a restriction limits the wheres for siting new smelters. The biggest new player will be an old player. Courtesy of the shale revolution, the United States already has the world’s cheapest electricity. Add in some of the world’s best greentech potential and power prices in large portions of the country are likely to go down in the years to come. The biggest competitive advantages will likely be felt in Texas, where the shale-related and greentech power generation trends overlap with plenty of port capacity to site a smelter or five.
Norway’s ample hydro capacity combined with its location just above a mainland Europe that can produce but one-third of its needs argues for massive Norwegian expansions. Luckily—for everyone—aluminum recycles very easily. In Europe, capture programs are enough to supply onethird of demand.
For humanity, copper is where it all started. Easy to smelt in nothing more complicated than a clay pot, easy to shape with nothing more complicated than hands and rocks, copper was our very first metal.
Sometimes we were even lucky enough to find it in nature as actual metal.
The love affair never ended. Dope copper a touch with either arsenic or tin and you get bronze, a firmer metal that’s better for tools. Turn it into tubing or containers and copper’s natural antiseptic and antimicrobial characteristics allow for longer-term food and drink storage, reduced disease, and extended life spans. Fast-forward our review of history to the Industrial Age and we discovered copper was also an excellent conductor of electricity, elevating the material of the ancient world to the material of the industrial world.
Today some three-quarters of copper mined ends up in some sort of electrical application, ranging from the wires in your lights to the generators in power plants to the semiconductors in your phone to the magnets in your microwave. Another quarter finds its way into construction, with plumbing and roofing materials the biggest slice. The bulk of the remainder finds its way into electric motors; with the world’s EV craze surging we’ll need a lot more copper in the decades to come.
But that’s the future. For now, the story is all China. Large country, large population, rapidly industrializing. Everything about China demands copper in large volume, and so China hoovers up both metal and ore from the world over, and houses ten of the world’s twenty largest copper smelters.
This means copper producers face a dark midterm future. Copper demand, and from it copper prices, are directly linked to very well-known demand in the sectors of electrification, construction, and transport. Melonscoop out China, the world’s largest and most rapidly expanding market in all three sectors, and most producers face years of operating in the red.
The key word, of course, is “most.” Chile and Peru run the world’s highest-quality mines along the Atacama Desert’s many fault lines, mines that also have the lowest operating costs per unit of output. Collectively the two countries supply two-fifths of global needs. Chile also smelts most of its own ore into copper metal, making it the world’s one-stop shop in a post-China world. It’s a good thing Chile is both in a good neighborhood from a security point of view and the most politically stable country in Latin America. But mind those earthquakes. The Future Materials
Cobalt is going to be a tricky one.
Like all materials, cobalt has any number of minor industrial uses, particularly in metal alloys, but all of them combined pale when compared to their big demand source: batteries—specifically the sort of rechargeable batteries that lie at the heart of the energy transition. The larger iPhones have nearly half an ounce each, while the average Tesla has fifty pounds.
You think that electrifying everything and going green is the only way forward? As of 2022, cobalt is the only sufficiently energy-dense material that even hints that we might be able to use rechargeable batteries to tech our way out of our climate challenges. It simply cannot be done—even attempted—without cobalt, and a lot more cobalt than we currently have access to, at that. Assuming all else holds equal (which is, of course, a hilarious statement considering the topic of this book), annual cobalt metal demand between 2022 and 2025 alone needs to double to 220,000 tons simply to keep pace with Green aspirations.
That won’t happen. That can’t happen.
Like with the iron ore/steel nexus, the refining of cobalt ore into finished metal is utterly wrapped up in China’s hyperfinance model. Eight of the world’s fourteen largest cobalt sources are China-owned, and nearly all cobalt refining occurs in the PRC (with Canada a very distant second).
As if that weren’t bad enough, there is no such thing as a “cobalt mine.” Cobalt is one of those tricky things formed at similar times and under similar conditions as other materials. Some 98 percent of global cobalt production is generated as a by-product of nickel and copper output. The reality is even more complicated than that, because not all nickel and copper mines generate cobalt. More than half of commercially usable cobalt comes from a single country: the Democratic Republic of the Congo (a near-dictatorial place that is neither democratic nor a republic nor all that far from being outright failed). Much of that production is generated illegally, with artisanal miners (a fancy term to describe individuals who grab a shovel, climb over barbed wire, and evade shoot-on-sight guards in order to scrape out a few bits of ore) selling their output to Chinese middlemen for pennies.
In an increasingly decentralized world, Congo is most certainly not on the list of countries that will “make it,” with its future likely to be a Hobbesian sort of famine-riddled anarchy. As goes Congo, so goes the world’s cobalt access.
There are only four options for the future, and none of them are pretty.
Option 1: Mine the tar out of the third- and fourth-largest producers, Australia and the Philippines. Even with massive production expansions into remote and geographically difficult regions, the Aussies and Filipinos can produce at most one-fifth of what the world needs. Countries with which the Aussies and Filipinos enjoy excellent relations—primarily the United States and Japan—would get first dibs, but then there would be next to nothing left over. That would remove the countries most capable of stabilizing global cobalt supplies from the list of countries that care about said stabilization of supplies.
Option 2: Someone invades the Democratic Republic of the Congo with a whole lot of troops and seizes control of a route to the mines.
Unfortunately, Congo’s cobalt is nowhere near the coast, but instead deep in the country’s southern jungles. The most expedient solution would be to partner with South Africa and establish a very long corridor all the way up the highland spine of southern Africa. This is precisely the route the Brits followed under the local leadership of Cecil Rhodes around the turn of the last century. After South Africa attained independence in 1915, Johannesburg took over the project at its attendant rail line, maintaining flat-out colonial control over the entire zone—including the portions that crossed through the supposedly independent countries of Zimbabwe and Zambia. Constant imperial intervention kept the route open until apartheid ended in the early 1990s. Since then the rail line has fallen into accelerating disrepair.
Option 3: Figure out the materials chemistry of a better battery that does not require cobalt (or at least not nearly as much). It sounds nice, and lots of smart money is chasing this option, but lots of smart money has been chasing this option for years with few meaningful breakthroughs.* There’s also the lag of operationalization to consider. If we somehow cracked the code on a better battery as you read this paragraph, it would still take more than a decade to build out the supply chain for mass production. In the bestcase scenario, we will be stuck with cobalt at least until the 2030s.
Option 4: Give up on the mass electrification the green transition says is essential.
So take your pick: go old-school imperial on multiple countries in order to strip-mine a specific material while alternatively exploiting or shooting desperate locals who try to get a bite of the action for themselves, or go without and stick to coal and natural gas. The future is full of such fun choices.
As long as we’re talking about crappy battery chemistries, let’s dive into lithium.
Lithium occupies the third spot on the periodic table, which, among other things, means it has but three electrons. Two of those electrons are locked up in an orbital zone called the inner atomic shell, a fancy way of saying they are happy in their home and aren’t going anywhere. That leaves one electron with the ability to scoot about within lithium metal, jumping from atom to atom as the mood strikes. Scooting electrons about is a slightly nontechnical way of saying “electricity.” One electron per lithium atom can so scoot. That’s pretty piss-poor.
Lithium is among the least energy-dense materials we have access to on Earth, one of the reasons why a single Tesla needs 140 pounds of it to function—and why making a lithium battery without cobalt is the greentech equivalent of pissing in the wind.
Luckily, the supply system for lithium is considerably less depressing than that of cobalt. The vast bulk of global lithium ore comes from either mines in Australia, or evaporation ponds in Chile and Argentina—none of which should face post-Order issues in production. But, reminiscent of cobalt—and reminiscent of iron ore—the real processing, some 80 percent of the total, occurs in hyperfinanced China. The future of lithium processing will likely resemble that of iron ore: the raw material supply lines are fine, but refining and value-add will need to happen in a new location where power is cheap. As with iron ore, the United States, Sweden, France, and possibly Australia look pretty good.
In the meantime, it is worth absorbing the disturbing fact that the production of lithium, its refining into metal, and the incorporation of that metal into rechargeable battery chassis is among the most energy-intensive industrial processes humanity has ever devised.
Let me smack you with some dirty Green math.
A typical 100-kilowatt-hour Tesla lithium-ion battery is built in China on a largely coal-powered grid. Such an energy- and carbonintensive manufacturing process releases 13,500 kilograms of carbon dioxide emissions, roughly equivalent to the carbon pollution released by a conventional gasoline-powered car traveling 33,000 miles. That 33,000- miles figure assumes the Tesla is only recharged by 100 percent greentechgenerated electricity. More realistically? The American grid is powered by 40 percent natural gas and 19 percent coal. This more traditional electricitygeneration profile extends the “carbon break-even” point of the Tesla out to 55,000 miles. If anything, this overstates how green-friendly an electric vehicle might be. Most cars—EVs included—are driven during the day.
That means they charge at night, when solar-generated electricity cannot be part of the fuel mix.* But for now, lithium and cobalt are all we have. To date they are the only materials we have sufficiently decoded to make rechargeable batteries out of at scale. We know that the “green” path we are on is unsustainable.
We just don’t have a better one to consider until our materials science improves.
Silver is the great unsung hero of the modern age. We obviously use it in jewelry and fine tableware and government monetary reserves, but silver is also used in often-unnoticed amounts in everything from electronics to photography to catalysts to pharmaceuticals to telecommunication towers to jet engines to electroplatings to solar panels to mirrors to desalination plants to keyboards to reflective coatings on glass. Should our greentech materials science advance enough to make better batteries or long-range power transmission lines a reality, silver will undoubtedly be integral to the superconductors that will make such technologies function.
In terms of supply, there’s both some bad and good news. First, the bad.
China’s hyperindustrialization and hyperfinancing have had a similar impact on the world of silver as they have on the world of industrial materials, writ large. Big local production, big importing of ores, big processing into metals, and big exports.
Now the good. Roughly one-quarter of silver production is from dedicated silver mines, while the remainder is coproduced with lead or copper or zinc. Silver metal—particularly from jewelry—is also eminently recyclable. In terms of extraction and processing and refining and recycling, silver’s production cycle is well distributed geographically. So while China is a big—indeed the biggest—player at all stages of silver supply, it is nowhere near the majority player, nor is it in a position to either by strength or weakness overly threaten silver supply to others. The Always Materials
Humans have always loved goooold! Its resistance to corrosion has made it useful to jewelers since the time of the first pharaohs. This association with wealth, combined with its persistent shininess, has made it a perennial favorite as a store of value and backer of currencies right up to the modern age. Until the world wars and the rise of the U.S. dollar, gold was what most countries held to back their economic systems. And even in the age of U.S. dollar supremacy, gold typically ranks third or fourth in most countries’ reserves.
In the modern age—more specifically in the Digital Age—we’ve found more prosaic uses as well. The combination of gold’s immunity to corrosion and its high electrical conductivity grants it niche applications in the semiconductor space, both for power management and information transmission.
Industrial uses? Check. Personal uses? Check. Government uses?
Check. High value? Check? Store of value? Check. Pretty? Double check!
And yet and yet and yet gold is absolutely stupid. Nearly alone among all the materials that humanity uses, there is next to no opportunity for useful metallurgy or value-add. You don’t mix gold with a better material to get better conductivity, because gold already is the best conductor. You don’t mix it with a lesser material to degrade its conductivity, because you can get the same result with cheaper substitutes. About the only time gold is alloyed is to make it so your rings don’t bend while you wear them. Aside from that, what’s gold is gold is gold. Either it is the only thing to use for a product, or its use would be pointless. Such perfect uses are so limited that athletic award medals break into the top-ten list for annual demand.
That makes its supply chain . . . simple. Ore is mined, purified, transformed into mostly pure metal, and . . . then you’re done. Well, you’re done minus one itty-bitty step. The only way not so much to add value but to establish cachet is to have someone you trust, someone you respect—someone cool—turn gold metal into those fancy, commercially traded bars that we’ve all seen in James Bond films and imagine Fort Knox is full of.* Refiners and recyclers fly gold to this final coolification step; there’s no slow boat for gold. These cool dudes melt it all down, check for purity, fashion those iconic ingots, and put their personal stamps of guarantee on the final product. Any of these dudes that matter are either Swiss or Emirati. Like I said: cool.
* China has been trying to muscle into this final step for decades. At a glance it would seem China has a shot: it is the world’s largest source of gold ore, and home to many midstream refineries. But people go to China for mass production and counterfeiting, not for exclusivity and authenticity.
Barring a series of extremely unfortunate schmelting accidents that kill most of the aforementioned cool dudes, China will not enter this stage of the industry.
In a world without China, the biggest hit would be to ore inflow, and that’s not nearly as damning for gold as it would be for anything else.
Perhaps gold’s most valuable characteristic is that gold is gold is gold; it never corrodes. Depending on overall economic circumstances, gold sourced from recycling is anywhere from one-sixth to one-half of “production” with that number ballooning in times of economic stress. The harsh light of deglobalization is certainly going to encourage a lot of people to melt down all those class rings. With a global supply chain, a simple refining process, and by far the most technical aspect of gold bar production happening elsewhere, China could harmlessly be scooped out of the entire supply chain.
Lead has long been a magical substance. Easy to mine. Easy to refine.
Easy to shape. Easy to alloy. Easy to incorporate into any chemical mix to manifest whatever properties we want. Lead is particularly resistant to corrosion by water. By the mid–Industrial Age we were using it in cars and paint and roofing and glass and pipes and glazes and coatings and gasoline.
Lead only had one downside: it makes you CRAZY! Lead’s toxicity generates no end of health complications in the brain, up to and including encouraging dissociative and violent behavior. In the United States we began purging lead from our systems in the 1970s, systematically banning its use in product after product. Over the next half century, the ambient level of lead in our air dropped by more than 90 percent. At the same time, instances of violent crimes subsided from record highs to record lows.
Correlation? Definitely. Causation? Let’s go with a strong maybe.* Once lead is removed from where it might be ingested, its remaining uses are very, very few: some metal alloys (which don’t come into contact with people), ammunition (a product for which lead’s toxicity might even be perceived as a bonus), and a bit in ceramics and some glass products.
But the big boy is lead-acid batteries, a key component in nearly every motorized vehicle regardless of size. Pre-1970 batteries took less than onethird of all lead. Now they absorb more than four-fifths.
This makes lead a bit of an odd duck from a supply chain point of view.
In advanced countries that have had car cultures for decades, the process of replacing batteries builds in provisions for recycling. In the United States and countries like it, some 90 percent of lead needs are met from recycled lead products.
In more recently industrialized countries, with China at the top of the list, the process is less . . . formalized. Most Chinese car batteries are collected, but only one-third are officially recycled. The rest seem to fall prey to the country’s omnipresent counterfeiting and simply get new labels before being sold on as new product.* Considering that old, overused lead batteries tend to leak, and that lead is still freakin’ toxic, this is not a good thing.
In any case, such mass lead recycling means the developed world can mosey right on without missing a beat. And should China find itself unable to access imported lead ore, it can at least comfort itself that an improved recycling program would both solve a big chunk of supply constraints and make for healthier living environments.
Next we come to mol-ib-den-im, mol-y-bud-um, mo-lib-de-num, oh fuck me, M-O-L-Y-B-D-E-N-U-M—we’re just going to call it “moly.” Frustrating name aside, moly is one of those materials that most of us haven’t heard of, for good reason. It doesn’t tend to pop up in your average car bumper or doorknob. Moly is valued for its ability to weather extreme temperatures without significantly shifting form. Not extreme temperatures like when you are vacationing in Vegas in August, more like extreme temperatures when you are under napalm attack. If done right, moly-alloyed steel even becomes a superalloy, a material that maintains all its normal characteristics even when within easy reach of its actual melting point. Militaries love to use moly in armor and aircraft and carbine barrels. In the civilian sector moly tends to serve in very-high-end industrial equipment and motors, as well as sorts of stainless steels that need to be as tough as physically possible, whether in construction, roll cages, high-end Asian cooking knives, or super-high-end lightbulbs. In powdered form moly is used to . . . fertilize cauliflower?* The future of moly is likely a-okay. Moly is produced in a series of steps, often different for each different type of source ore, often in different facilities, often in the Western Hemisphere, and often linked to the specific steel foundries that alloy it. The result is a supply system far more segmented and resistant to vertical integration than something like bauxite.
No Chinese stranglehold here. The Funky Materials
Finished platinum is so very pretty and as such is often used in high-end jewelry (like my you-are-mine-for-life-so-don’t-try-anything-stupid commitment band). Other platinum-group metals—palladium, rhodium, and iridium, for example—aren’t nearly as shiny, but that hardly means they aren’t hella useful.
The entire group are regular stars in anything that requires the facilitation or regulation of chemical reactions. Such uses include, but are hardly limited to, the exhaust systems of anything that burns anything in order to shift emissions profiles in less toxic directions, platings to impede corrosion (particularly at high temperatures), dental work (given time, teeth and human saliva can destroy nearly anything), and any product that needs to be able to selectively encourage or discourage the flow of electricity, most notably semiconductors of all types.
Some three-quarters of the world’s platinum-group metals (PGMs) are sourced from a single country—South Africa—where nearly everything comes from a single rock formation, the Bushveld Igneous Complex.
Imagine if a six-year-old made a twenty-layer cake and then somehow was able to inject frosting up from the bottom, alternatively adding internal frosting layers as well as frosting . . . explosions. Now do it all with magma.
That’s the Bushveld. It’s a weird-ass geological hiccup that to our collective knowledge hasn’t been replicated anywhere else on Earth, but its odd combination of consistency and variation has made it arguably the most valuable mineral deposit humanity has ever discovered. The Bushveld practically leaks chromium, iron ore, tin, and vanadium, but the South Africans brush right by all these world-class deposits to go after the good stuff: the platinum-group ores that here—and only here—exist in an unadulterated state, unmixed with other, lesser ores. Lesser ores like freakin’ titanium. Everywhere else PGMs are found, they are a by-product of other ores, most commonly copper and nickel. After South Africa, Russia is by far the world’s largest producer, with nearly one-fifth of global PGMs coming out of Norilsk, a Soviet-built Arctic penal colony whose workers toil a mile underground. So many things have gone so horribly wrong at Norilsk in recent years that the entire place is a cross between a Superfund site and a frigid Tibetan hell.
Third through last place combined account for the remaining 5 percent of output.
Even if you can source the appropriate ore, you’re hardly out of the woods: it takes a minimum of seven tons of ore and six months of work to extract a single troy ounce of platinum or its sister metals.
Simply put, if you want platinum or its sister materials, you deal with the South Africans, or the Russians, or you probably go without. And if you do go without, on a clear, breezy day, your vehicle exhaust will be nastier than the nastiest smog ever recorded. Rarities of rarities: China isn’t a topfive producer, importer, or exporter of a single one of the raw or finished PGMs. The technologies that use PGMs are simply beyond the Chinese.
Rare earth elements are simultaneously very complicated and very simple.
Complicated in that there isn’t just one “rare earth.” As the word “elements” suggests, rare earths are a category of materials that include lanthanum, neodymium, promethium, europium, dysprosium, yttrium, and scandium, among others.
Complicated in that rare earths are used in almost everything in the modern era, from sunglasses to wind turbines to computers to metal alloys to lights to televisions to petroleum refining to cars to computer hard drives to batteries to smartphones to steel to lasers.* Complicated in that modern life cannot happen without them. Complicated in that rare earths are produced by either uranium decay, or . . . wait for it . . . exploding stars.
Yet rare earths are simple. Simple in that several of the rare earth elements are not rare at all; cerium is more common in Earth’s crust than copper. Simple in that the ores of rare earths are often a by-product of many other sorts of mining. Simple in that we know precisely how to fish each individual rare earth element out of the mixed ore that is mined, and simple in that the problem is that no one wants to do the work.
There are two issues. First, the refining process requires hundreds—and in some cases thousands—of separation units, a fancy term for vats of mostly acid, to slowly encourage each individual element to move away from its similardensity siblings. Beyond being, you know, incredibly dangerous, even if everything works well, refiners will be left with a lot of waste product.
After all, the primary source of rare earths on the actual Earth is from the messy, radioactive decay of uranium. None of this is news to those in the industry. The techniques for rare earth extraction date back to before World War II. No trade secrets there.
Second, China has done all the dirty work for the rest of us. In 2021 some 90 percent of global rare earth production and processing was in the PRC. Chinese environmental regulations would make Louisianans blush, while Chinese hyperfinancing and subsidization schemes mean that no production elsewhere in the world can compete on the numbers. The Chinese started producing rare earths en masse in the late 1980s, and had forced pretty much all other producers out of business by the 2000s.
From some points of view, the Chinese have done us all a favor. After all, they have sucked up all the pollution and all the risk, while providing the world with refined rare earth metals at roughly one-quarter of the pre1980 cost. Without those cheap and ample supplies, the Digital Revolution would have taken a very different course. Computing and smartphones for the masses may have never occurred.
The question is whether the world has become irrecoverably dependent upon Chinese output, and whether the sudden disappearance of that output —due to either Chinese collapse or dickishness—would doom us all. China first publicly threatened Japanese firms (and implicitly threatened American firms) with rare earths cutoffs back in the 2000s.
I vote “no” on that particular concern. First, the real value of rare earths isn’t in the ore (that’s pretty common) or even the refining (that process was perfected nearly a century ago), but instead in turning the rare earth metals into components for end products. The Chinese are at best so-so at that. The Chinese have taken all the risks and subsidized all the output, while nonChinese firms do most of the value-add work and reap most of the rewards.
Second, because the ore isn’t rare and because the processing isn’t a secret and because the first Chinese threats were more than a decade ago, there are already backup mining and processing facilities in existence in South Africa, the United States, Australia, Malaysia, and France. They just don’t see a lot of activity, because the Chinese stuff is still available and still cheaper. If Chinese rare earths were to vanish from global supplies tomorrow, processing facilities on standby would start up right away and likely be able to replace all Chinese exports within a few months. A year on the outside. And any company that uses rare earths led by any person who isn’t a complete moron already has months of rare earths stockpiled.
Hiccups would abound; Armageddon would not call.
Rare earths are a great example of the world just waiting for China to fall, and for once actually being ready for it. The Reliable Materials
Nickel is one of those materials that have few uses by themselves but are integral to a single process with a single companion material that makes it absolutely essential to every single economic sector. Standard steel bends and rusts and corrodes and warps and loses some of its coherence with high or low temperatures. But add about 3.5 percent nickel and a splash of chromium to the steel mix, and you get an alloy that is both stronger and largely eliminates those concerns. We colloquially know this product as “stainless”—the backbone of nearly all steel used in every single application. The forging of such stainless accounts for more than two-thirds of total global nickel demand. Other nickel metal alloys account for another fifth. One-tenth goes into electroplating, with the balance going into batteries.
As one might expect, China is the world’s largest importer, refiner, and user of nickel ore, but the ubiquitous nature of steel in pretty much everything, everywhere, means that even China’s large-scale, breakneck industrialization and urbanization cannot dominate the entire market.
Unlike aluminum, where much of the resulting finished metal is exported, the bulk of the nickel ore the Chinese refine and blend into steel is used at home. So whereas China’s impact on the aluminum market is an ALLCAPS issue that has destroyed the capacity of competitors the globe over, China’s nickel-related steel habits are “merely” highly distortionary.
Nickel is one of those rare materials where the implosion of global trade will not automatically result in the implosion of the market. Four of the top five producers—Indonesia, the Philippines, Canada, and Australia—are ones that have alternative markets for their nickel sales in their own neighborhoods. The last of the top five—the French territory of New Caledonia—is highly likely to see its output plunge as internal debates over whether it wants to be a failed colony or a failed country override all other thinking.
The number six slot goes to Russia, which produces nearly all its nickel from a single complex near that godawful city of Norilsk. Add in Russia’s building geopolitical, financial, demographic, and transport complications, and I’d not count on Norilsk being a major source of global metals supplies a couple of decades from now.
Add it all up and the nickel market might actually achieve something that much of the soon-to-be world will become eminently unfamiliar with: balance.
I’m not going to bother with the more blasé uses for silicon. The silicon that goes into glass is typically sourced from normal sand. Purification is required, obviously, but we cracked the code for that process nearly two millennia before Rome, and in modern times it doesn’t require a particularly sophisticated industrial base to churn out glass at volume. Nor am I going to look at the other big use for “sand”—part of the input process for unconventional oil production (aka “fracking”). After a few years, the oil services firms discovered that nearly any basic sand will work just fine. No, we’re going to instead focus on the silicon products that are much higher up on the value-add scale and more integral to day-to-day life in the modern world.
First, the good news. The really good news. Silicon is wildly common, accounting for something like one-quarter of the earth’s crust. We think of silicon most commonly as sand because we immediately and emotionally attach sand to beaches and lakes, but in reality most of the world’s silicon is locked up in quartz and silica rocks. Such rocks are far better than beach sand because they aren’t contaminated with algae, plastics, hypodermic needles, or pee. If you’re making glass, 98 percent purity is a-okay, but the absolute lowest grade for silicon as an actual industrial input is 99.95 percent pure. Getting there requires a blast furnace, which typically requires a lot of coal. Overall, the process isn’t all that complicated—you basically just bake the quartz until anything that is not silicon burns away—which means some 90 percent of this firststep processing tends to be done in countries like Russia and China, countries with a lot of surplus industrial capacity that don’t give two shits about environmental issues.
This quality level is more than fine for most of what we use silicon for.
Roughly one-third of production ends up in things we know as silicones—a broad category that includes everything from sealants to kitchen utensils to gaskets to coatings to fake boobs—and silicates, which go into ceramics, cement, and glass. Nearly half is alloyed with aluminum to make the creatively named silumins, which have largely replaced steel in any product where shedding a lot of weight is more important than being able to take a tank shell, most notably in train and automobile frames.* Such products are both important and omnipresent, but they aren’t the sexy part of the story. That comes from the final two product categories.
First up are solar panels. The 99.95 percent purity of “standard” silicon isn’t anywhere enough. A second round in the blast furnace gets the silicon up to 99.99999 percent pure.
* Round two is far more sophisticated than round one’s bake-it-pure. China’s GCL Group is the only Chinese entity that can manage such precision at scale, making it responsible for one-third of global supply. The rest comes from a smattering of developed-world companies. This pure silicon is incorporated into the solar cells that make solar panels do their thing, with the assembly work more often than not done in China.
Second are semiconductors, with silicon being by far the biggest input by volume. And since some of the newer semiconductors are shaped at nearly the atomic level, the silicon must be 99.99999999 percent pure.
* No way that gets done in China. Once some first-world company makes this ultra-rarified, electronic-grade silicon, it is sent on to somewhere in the East Asian Rim to be melted into a clean-room vat and grown into the crystals that form the foundation of all semiconductor manufacture.






In a post-globalized world, all this back-and-forth-and-back-and-forthand-back-and-forth, with most stuff cycling through China at least twice, will be a solid no bueno. Expect the Chinese and Russians to get largely cut out of global processing simply due to issues of security and supply chain simplicity. Anything shy of solar and electronics applications should be more or less okay. The base work isn’t technically challenging.
That’s where the good news ends. Figure half the population of the planet can kiss the very idea of solar panels goodbye. The problem isn’t the quartz. We already produce solar-quality quartzes in Australia, Belgium, Canada, Chile, China, France, Germany, Greece, India, Mauritius, Norway, Russia, Thailand, Turkey, and the United States. The problem is the purification: it is only done in China, Japan, the United States, Germany, and Italy. But the real problem will be the semiconductors. Some 80 percent of the world’s high-quality quartz that ultimately makes up electronic-grade silicon comes from a single mine in North Freakin’ Carolina. Want to remain modern? You pretty much must get along well with the Americans.
They will soon have something they have never had: resource control over the base material of the Digital Age. (They’re also going to do pretty well dominating the overall high-end semiconductor space, but that particular breakdown is in the next chapter.) Uranium is a bit nonstandard because until recently a leading source of uranium demand went to efforts to blow up the planet with the push of a button. Humanity certainly still has problems, and with the end of the Order it will have many, many, many more, but at least no one is stockpiling tens of thousands of strategic atomic warheads. The reality is even better than it sounds. Starting in 1993, the Americans and Russians started not only separating their warheads from their delivery systems, but also removing the uranium cores from those warheads and spinning them down into the sort of material that can be transformed into fuel for nuclear power plants.
By the time this megatons-to-megawatts program was completed in 2013, the two countries had transformed some twenty thousand warheads, leaving each side with “only” about 6,000 apiece.
Great for global peace? Certainly! But the effort skewed the uranium market. The Americans and Russians used this warheads-turned-fuel program to power their civilian nuclear reactors. In the United States, such spun-down weapons material powered 10 percent of the grid for nearly two decades, and since large portions of nuclear power fuel are recyclable, the uranium market will remain distorted for decades to come.
If you’re not American or Russian, your only source of nuclear power fuel is to source uranium ore, grind it into a powder called yellowcake, heat it to a gaseous state to separate the uranium from the waste ore, and spin that uranium gas through a series of centrifuges so the different isotopes of uranium at least partially separate. Split them up partially and you get a civilian-grade mix of uranium that is roughly 3–5 percent fissile material, which can be processed into power reactor fuel rods. Spin them up to the 90 percent fissile level for a warhead and the U.S. government is likely to throw you a surprise party complete with some high-caffeinated Special Forces troops and a few thoughtfully live, precision-guided munitions. In a post-Order world, uranium is likely to become more popular as a power fuel. While running a 1-gigawatt coal power plant for a year requires 3.2 million metric tons of coal, a 1-gigawatt nuclear power plant requires only 25 metric tons of power-fuel-enriched-uranium metal, making uranium the only electricity input that could theoretically be flown to its end user.
There’s also unlikely to be all that crazy a shakeup to the world’s civilian nuclear fleet, or at least not one due to access restrictions. The world’s top four nuclear-power-generating countries are the United States, Japan, France, and China. The United States we’ve covered. Japan and France both have the capacity to go out and source their needs without assistance. China’s uranium comes from neighbors Kazakhstan and Russia.
So long as there is a China it will be able to get its hands on uranium.
The locations that face the most risk in sourcing sufficient supplies will be those middle powers that both lack the military capacity to source their own inputs and live in geographic locations that utterly preclude safe shipments—Switzerland, Sweden, Taiwan, Finland, Germany, Czech Republic, Slovakia, Bulgaria, Romania, Hungary, Ukraine, and Korea. The likelihood of insufficient supplies increases as you move through the list.
Lowly zinc has been with us for a long time. Zinc ore is often found commingled with copper, and smelting them together generates brass.
We’ve been making that stuff (on purpose) for at least four thousand years, although it wasn’t until the most recent millennium that we truly understood the physical chemistry of it all (copper and zinc ions can replace one another in the crystal lattice of metal alloys).
What’s unique about zinc isn’t that it will not corrode—it corrodes very easily—but instead how it corrodes. The outer layer of a zinc object oxidizes quickly, forming a patina that prevents oxygen from penetrating any deeper. Voilà! Corrosion generates protection! In some applications, the zinc only needs to be present rather than actually bonded to the entirety of the metal object. Bolt or wire a disc of zinc onto a ship’s rudder or buried propane tank, for example, and the zinc will corrode away to nothing while protecting the tank or rudder. I know! Freaky!
Fast-forward to the electrical and chemical understandings of the Industrial Age and we’ve upgraded our use of zinc into a wide range of products.
The same electrical characteristics that protect the aforementioned propane tank make zinc a preferred component in alkaline batteries. We still use a lot of zinc-heavy brass, as it is easier to work and stronger than copper, while maintaining zinc’s magical corrosion-management characteristics. It’s useful in everything from cellular towers to plumbing to trombones. Zinc isn’t only fuss-free in merging with copper, making it a perennial favorite in products that are cold-rolled into sheets or die-cast. We also like to coat it on steel and other industrial metals. Once we decided we wanted as little to do with lead as possible, zinc stepped in as a safe, reliable substitute.
The biggest use—where we put roughly half our zinc—is in galvanization processes where we add that zinc patina. It’s a step that is particularly effective at shielding metals from the corrosive effects of weather and seawater. Such uses are in pretty much all the metal you can see every day: car bodies, bridges, guardrails, chain-link fencing, metal roofs, and so on.
Altogether zinc is our fourth-favorite metal by use, behind only steel, copper, and aluminum. It will stay in that spot in the decades to come.
Zinc is eminently recyclable. Roughly 30 percent of zinc production is from recycled material, with roughly 80 percent of all zinc capable of making a second go of it. It is found on its own, as well as with lead in many places around the world. China is the largest producer because of course it is, but almost all Chinese zinc is for its own end consumption.
Peru, Australia, India, the United States, and Mexico round out the top six.
The result is a supply system that is broadly sourced and broadly diversified, offering zinc at a lower price point than better-known metals such as copper. In a world of broken supply systems, at least we’ll still have zinc. This Is How the World Ends
For the duration of the Order—that unprecedented, brief, but above all vital moment in human history—all these materials and so many, many more have been made available in a largely free-and-fair global market. Their availability isn’t simply what our modern life is built upon; it has been a virtuous circle. The Order established stability, which fostered economic growth, which enabled technological advancement, which led to the availability of these materials, which allowed their inclusion into the products, modernity, and lifestyle of the modern age.
In the Order the only competition over materials access was over market access. Invading countries for raw materials was expressly forbidden. You simply had to pay for them. Capital-rich systems, therefore, enjoyed the best access. The Asians with their hyperfinance model kind of cheated, with the Chinese ultramegahugehyperfinanced system tending to gobble up anything it could.
Without the rules and constraints of the Order in place, money on its own just isn’t going to cut it.
Without the Order it all unwinds.
This is far worse than it sounds.
In the past seventy-five years of the Order, the list of materials critical to what we define as modern life has expanded by far more than an order of magnitude. With the exception of the United States, which will retain full access to the Western Hemisphere and Australia, as well as the military capacity to reach anywhere in the world, no one will be able to access all the necessary materials. They are simply too scattered or, alternatively, too concentrated. A few countries with local deposits or militaries with reach can try, but it is a short list: the United Kingdom, France, Turkey, Japan, and Russia. For the rest, there is a very real risk of reverting not simply to the economic and technological levels that pervaded before 1939, but to before the Industrial Revolution itself. If you lack the industrial inputs, you cannot achieve industrial outcomes. Smuggling of ores, processed materials, and/or finished products will, out of necessity, become a booming business.
Central to this devolution, once again, is American disinterest. The Americans can access what they need without massive military interventions. This will generate not the sort of heavy American involvement most countries would find distasteful, but instead large-scale American disengagement that most countries will find terrifying. If the global superpower were involved, at least there would be some rules.
Instead we will have erratic intra-regional competitions in which the Americans will largely decline participation. Erratic competition means erratic materials access, which means erratic technological application, which means erratic economic capacity. We are perfectly capable of having increased competition and warfare while also experiencing dramatic economic and technological declines.
So this is how it all falls apart. Now let’s turn to how we might—might —put it all back together. Section VI: Manufacturing Crafting the World We Know
Calendar year 2021 was an odd one in the age of globalization. We had shortages. Of everything. Toilet tissue. Cellular phones. Lumber.
Automobiles. Guacamole. Juice boxes. The paper needed to print this book!
It was all COVID’s fault.
Every time we had a lockdown or an opening, we changed what we consumed. In lockdown it was more materials for home improvements and electronic gear so we’d have something to do. In openings it was more vacations and restaurant trips. Each shift necessitated global industrial retoolings to meet the changed demand profile. Each time we got hit with a new variant or a new vaccine or a new anti-vax backlash, our demand profile changed again. Each change in our demand profile took a year to work itself out.
It was not enjoyable, and it is nothing compared to what’s coming. The supply chain agony of 2021 was primarily about whiplashing demand.
Deglobalization will instead beat us about the head and shoulders with instability in supply.
Consider the vulnerabilities within a “simple” example: blue jeans.
As of 2022, the largest suppliers of denim to the United States are China, Mexico, and Bangladesh. Go back a step and the fabric was likely dyed in Spain or Turkey or Tunisia using chemicals developed and manufactured in Germany. This is to say nothing of where the yarn for the denim cloth comes from. That would be India or China or the United States or Uzbekistan or Brazil. Go a step further back and the cotton was probably sourced from China or Uzbekistan or Azerbaijan or Benin.
But the story doesn’t stop—or begin—there. The design work behind your favorite pair likely occurred in the United States, France, Italy, or Japan . . . although many up-and-coming countries are showcasing their design talents. Bangladesh in particular is getting in on the brain work. Of course there’s more to jeans than denim fabric and colors and styles.
There are also copper and zinc rivets and buttons. They’re probably from Germany or Turkey or Mexico (although, honestly, that sort of stuff can come from anywhere). The ore required to forge those bright bits is probably sourced from mines in Brazil, Peru, Namibia, Australia, or, again, China. What about zippers? Japan is the go-to if you want one that won’t snag. Three guesses where the snag-prone ones come from. Then there’s thread, which phbbbbt . . . probably comes from India or Pakistan, but that’s another one of those products sourced from shoulder-shrugging ubiquity.
Finally, there’s the location where workers sew on the “made in” tag.
Typically, nothing is actually made there. It’s more an assembly thing. The average pair of jeans is touched by hands in at least ten countries. And God forbid you use a bedazzler to put sparkly bits on your ass—the input system for that little gadget practically involves space travel.
If you want to get really technical, all this is just the “customer facing” side. Sewing machines don’t just pop up naturally out of the earth. They use copper and steel and gears and plastics sourced the world over. Same for the ships that shuttle all this about.
And that’s for something made out of cloth that doesn’t have to do anything more than be draped across your frame. The average computer has ten thousand pieces, some of which are themselves made out of hundreds of components. Modern manufacturing is borderline insane. The more I learn about the sector, the less sure I am as to which side of the border it resides.
Modern manufacturing is eminently vulnerable to every facet of every disruption the Disorder is capable of generating.
The technical term for what has made all this and so much more possible is “intermediate goods trade.” It is quite literally globalization given physical form.
Historically speaking, intermediate goods trade was a big no-no. That requires some unpacking.
Once again, let’s start at the beginning.
STARTING FROM SCRATCH The first pair of meaningful manufacturing technologies are ones that anyone who has played Sid Meier’s Civilization knows all too well: pottery and copper. Fired pottery enabled us to store our harvest for the lean seasons, while copper is the first metal we were able to forge into tools— the first of which were sickles to help us harvest wheat. The equipment required to forge this pair of products isn’t particularly onerous. Clay can be shaped by hand (or with a pottery wheel if you’re extra fancy), whereas copper can be smelted from ore if it is heated in, you guessed it, a clay pot.
Once you’ve got your copper metal, it’s simply a matter of beating it—with a rock—into whatever shape you find relevant. Early manufacturing wouldn’t have felt all that out of place at a retiree pottery class.
Bit by bit we got better both at working materials and at pioneering the use of new ones. Copper sickles gave way to bronze scythes. Clay pots gave way to ceramics. Bronze spears gave way to iron swords. Wooden mugs gave way to glass bottles. Wool thread gave way to cotton cloth. But in a way, everything from the dawn of civilization right up to the 1700s shared a certain characteristic: organizational simplicity.
There was no Home Depot to run to (repeatedly) to source parts. Most things you made yourself. If you were lucky, you had a blacksmith neighbor, but even his supply system couldn’t be confused with complexity.
It was one dude, a forge, a hammer, some tongs, and a barrel of water. If he had an eye for the future, he had an assistant and an apprentice . . . and that was about it. Such cottage industries faced extreme limitations. Blacksmiths and skilled folks like them couldn’t just go out to the town square and recruit labor; they had to train it. For years. There was no rapid technological progress. There were no rapid capacity buildouts.
The Industrial Revolution changed the math in three critical ways.
First, the Industrial Revolution not only gifted us with steel—less brittle, more workable and durable than iron—it gifted us with huge volumes of steel so that workers could access the raw metal without having to forge it themselves. With that messy, expensive, dangerous step taken care of, skilled workers could focus on adding value and specializing further. For the first time in human history, specialists in multiple fields could meaningfully collaborate. Interaction brought advancement.
Second, the Industrial Revolution brought us precision manufacturing, both in tools and molds. One of the major drawbacks of cottage industry is that no two parts are exactly the same, so no two finished products are exactly the same. If something breaks, there is no plugging in a replacement piece. Either the entire item had to be chucked or it needed to be taken to a skilled smith to craft a fundamentally new, customized part. In war this was particularly annoying. Muskets were great and all, but if a single piece malfunctioned you were left with an expensive, low-quality club.
Advancements in precision did an end run around this restriction. Now identical parts could be made by the dozen. Or thousand. For the first time in human history, manufacturing had scale.
Third, the Industrial Revolution brought us fossil fuels. We’ve already covered their role in generating power and enabling us to move beyond muscle and water, but there is far more to oil and coal than that. Derivatives of the pair of “power fuels” often have nothing to do with energy at all: paints, pigments, antibiotics, solvents, painkillers, nylon, detergents, glass, inks, fertilizers, and plastics. For the first time in human history, we didn’t take a “minor” step forward as we did from bronze to iron; we instead experienced an explosion in materials science applications.
The three improvements dovetail nicely. If skilled workers don’t need to master every single step, they can get really good at one or two. Bam!
Increasingly diverse skill sets and increasingly complex products. Apply that hyperskill capacity to a larger scale and nearly any product can be produced en masse. Bam! Assembly lines, machinery, automobiles, and telephones. Apply those concepts to dozens of new materials and the entirety of the human condition is remade. Bam! Modern medicine, highrise cities, advanced agriculture. Taken together, these three improvements —in specialization, in scale, and in product reach—changed the math of the possible, and gave us our first real glimpse of what we today recognize as manufacturing.
There were still plenty of limitations. Not every place had good coal or good iron ore or all the other industrial inputs. And trade remained a dubious business. If you were dependent upon a foreign sovereign for something you needed, it wasn’t simply about you trusting him or her in order to get the necessary inputs; it wasn’t even about trusting him or her all the time. It was about you trusting all foreign sovereigns all the time. Any power that could reach into any part of any supply chain could wreck the whole thing, often inadvertently. Out of necessity and practicality, all manufacturing of all types was kept in-house. That naturally benefited certain geographies. Economies of scale are impossible with a skilled labor force of one. Industrialization enabled the development of industrial plants that would (a) enable skilled labor to multiply their efforts by having each worker specialize on a specific task or part, and (b) enable unskilled labor to come in and work the assembly lines.
With the industrial code cracked, the questions became: How big could that industrial plant get? Just how specialized could the skilled workers become? How much territory and population could you access within your own system? In sussing that out, the old math of transport came into play.
Any geography that could shuttle goods and people about in the preindustrial age could now shuttle about intermediate goods. In addition to all their other advantages, the imperial systems with good internal geographies could now generate manufacturing, enabling economies of scale that others could only dream of.
The first really big winner was canaled Britain, followed by Germany’s Ruhr Valley and ultimately the American Steel Belt. Unsurprisingly, the economic competition among these centers of industry was central to games geopolitical between 1850 and 1945.
But as big and important as the British, German, and American systems were, geopolitics restricted their economies of scale to within their own borders. It took the end of World War II to merge the entire planet into a single system and transform the global ocean into one gigantic safe, navigable waterway. With the United States guaranteeing security for all international commerce and preventing the alliance members from either going to war with one another or having colonial empires and opening the American consumer market to all interested parties, countries that could have never even dreamed of industrializing suddenly could. All at once, the “safe” locations favored by geography had to compete with heretofore backward, unindustrialized locations.
The rules changed. Manufacturing changed with them. A new set of criteria defined success.
HOW IT WORKS, WHY IT WORKS One of the fickle things about economic development is that the process isn’t the same for everyone. Britain was first, France and the Low Countries mushed together in second place, Germany was third, America roughly fourth, followed by Japan. But because the technologies involved are constantly evolving, even among this first broad batch the paths differed.
Britain’s process was slow because the Brits were literally making things up as they went along.
Germany’s development was far quicker, and not simply because the Brits were kind enough to blaze the path for others. Germany exists in a geopolitical pressure cooker, ringed by strategic and economic competitors.
Even worse, the habitable bits of German lands on the Rhine, Danube, Weser, Elbe, and Oder Rivers are—at best—loosely connected. It’s easy for Germany’s more consolidated neighbors to split it apart. If Germany fails to press every economic development process to the limit, it is overwhelmed.
So the German industrialization experience of the late 1800s and early 1900s was absolutely frenetic.
Germany also had some significant geographic advantages over the Brits when it came to capital generation and supply chain establishment.
The German river system—in particular the Rhine-Ruhr system of western Germany—is the densest network of naturally navigable waterways in the world. It is perfect for industrialization. In particular, the Ruhr region had some of Europe’s best coal deposits (and none of those pesky water table problems that so hindered the Brits). Add it up and German industrialization was less a meander and more a nervous, I-think-someoneis-following-me jog.
On the flip side, the Americans’ process was far slower—nearly as slow as the Brits’—but for wildly different reasons. While the German industrialization process didn’t really get going until the 1830s, the really intense part was between 1880 and 1915, well under a human lifetime. In the United States the beginning of the process—the start of the railroad era —was similarly in 1830, but American cities were not fully industrialized until the 1930s, and the American countryside not until the 1960s. In many ways the American experience was an inverse image of the German one: there was no geopolitical pressure, so no need to speed things along, and while the Germans had a very dense industrial, riverine, and population footprint, the Americans were all sprawled out. The useful lands of the United States are about twenty-five times the area of the useful lands of pre–World War I Germany, and the Americans didn’t have anything resembling a state industrial policy until they were in World War II.
For the Americans, everything is—everything has always been—rather la-di-da.
Japan was a latecomer to the first round, not really gaining traction until the Meiji Restoration of 1868 gutted the old feudal order, but like the Germans, the Japanese shot ahead quickly out of necessity. The Home Islands are poor in pretty much every imaginable raw material, whether oil or bauxite, so Japan had no choice but to forge an empire in order to secure the materials required for industrialization. Since that meant taking other people’s stuff, the Japanese had no choice but to move very quickly.
The Koreans were early victims of the Japanese expansion and remained colonized until the Hiroshima and Nagasaki bombings freed them. They then went on to be among the Order’s most enthusiastic participants, becoming the vanguard of industrialization’s second major wave. Their industrialization path can best be defined as a panicky sprint.
The Koreans—even today—are desperate to protect their sovereignty from all things Japanese. The Koreans are the people who lacked a sufficiently large drydock to build a supertanker, so they built the ship in halves and then built the drydock around the halves to finish the project.
The Southeast Asian states run the gamut. Singapore followed a nearly Korean path for similar reasons, with the part of the Japanese villain being played by Malaysia. Vietnam prioritized political unity over economic development and so remained preindustrialized and poor until the 1990s . . .
unless you’re in Ho Chi Minh City (aka Saigon), in which case you were industrialized a century ago courtesy of French capital. Even in 2022, Vietnam feels less like two different countries and more like two different planets. Thailand, far more historically confident in its ability to repel invaders (the country’s core is ringed by jungle mountains), lies somewhere between both in terms of pacing and outcome.
The point of this little diversion into the practical outcomes of economic theory is that not everyone is at the same level, developmentally speaking, or even proceeding at the same pace. This can be awful, in that countries that are further along tend to have more oomph to their economic systems in terms of productivity, wealth, and diversification and can use that oomph to lord over less advanced systems. Welcome to colonialism, neo- or otherwise. But this differentiation can also be great, in that if the macrostrategic environment doesn’t allow traditional colonialism—like, say, the Americanled global Order—there are hefty arguments to be made for manufacturing integration.
Between the changed geostrategic environment of the Order and the rise of containerized shipping, the security and cost concerns that had prevented meaningful cross-border integration since the dawn of time had finally unclenched.
In any manufactured product that has more than one piece, there are opportunities for efficiencies. Take something really simple: a wooden top.
There’s the conical spinny thing and the rodlike spindle, typically glued together. While it is reasonable to expect the cone and the rod to be fashioned by the same woodworker, said woodworker probably didn’t make the glue. Two different skill sets. Two different price points. Paint said top and we’re already up to three.
Apply that basic concept of specialization to a cell phone: Display screen. Battery. Transformer. Wiring. Sensors. Camera. Modem. Data processor. System on a Chip. (That last is a fancy little gadget that includes a video processor, a display processor, a graphics processor, and the phone’s central processing unit.) Nobody would expect one worker to be able to make all of it. Quadruply so for the System on a Chip. Nobody would expect the worker who plugs in the relatively low-tech wiring to be compensated at the same rate as the worker who fine-tunes the sensors.
Imagine if all the pieces were made in Japan, a country with a per capita income of some $41,000. That System on a Chip would be pretty fly—and it should be, the Japanese excel at complex microelectronic work—but it stretches the mind to think there might be some Japanese dude who loves to run an injection mold system to make phone cases for a dollar an hour. It would be like Lady Gaga teaching piano lessons to four-year-olds. Could she do it? Certainly. I bet she’d do great. But no one is going to pay her fifty grand for an hour of her trouble.* The combination of cheap, sacrosanct shipping and nearly endless workforce variety enabled manufacturers to split apart their supply chains into ever more complex, more discrete steps.
If you were to trace the full supply chain of a car, you’d need a bigger budget than I have, but here’s the short version: Metals including platinum and chrome and aluminum, wrapped and soldered wires, a full diagnostic and performance-enhancing computer system, rubber for the tires, synthetic fabrics made from petroleum, plastics for the interior, glass and mirrors, gears and pistons, ball bearings, and injection-molded buttons to turn the radio all the way up to 11. Each of these, and each of the thirty thousand other parts that go into a standard passenger vehicle I didn’t list, has its own highly customized workforce and its own supply chain. Each part has to be assembled into an intermediate product (air-conditioning, engine, lighting, etc.) by its own workforce, and then assembled into another intermediate product (dashboard, car frame) by its own workforce, and on and on until the whole mess of stuff reaches final assembly. The supply chains of U.S. auto maker Ford are among the most complex of any firm in existence, tapping more than sixty countries and 1,300 direct suppliers that together have more than 4,400 manufacturing sites.* At each step the need for inputs expands. At each step the differentiation of the input stream expands. At each step the demand for supporting infrastructure expands. At each step the need for petroleum to fuel everything expands. All this occurred in bits and pieces between the Americans and their core Cold War allies throughout the 1950s, 1960s, 1970s, and 1980s, but with the Cold War’s end the scope for the differentiation became truly global and the pace accelerated to lightning speeds.
Such increases in complexity and value now play out across every manufactured product. Consequently, in the twenty years following 1996— a period that includes the Great Recession—global maritime trade doubled by volume and tripled by value. Trade that to that point had required five millennia to build.
Everything didn’t simply get bigger in the post–Cold War globalized world; everything got faster as well.
JUST-IN-TIME
As recently as the 1970s, about the only way to source intermediate goods was via bulk purchases. In the bad ol’ pre-container days, not only was shipping more expensive, it was organizationally clumsy. Time would stretch out between purchases, so it was more cost-effective to purchase a lot at once and maintain a warehouse. Storage wouldn’t be cheap, but it would be cheaper than paying for lots of small orders beset by erratic delivery schedules. More important, all that inventory was necessary to prevent the unthinkable: having to halt production because you ran out of a specific widget.
Containerization changed the math by making shipping more reliable, enabling firms to push their inventorying back onto vessels, and enabling smaller orders to be produced at more reasonable costs. Toyota in particular realized that with changed shipping norms, manufacturing could evolve from a big-batch model to more of a steady product stream. This new “justin-time” inventorying system allows firms to place orders for a few-day supply of widgets as little as a month in advance, with those fresh supplies arriving just as their last orders are running out.
These systems exist for a few reasons.
The most important is to help companies with cash flow. Put simply, the less inventory a company holds, the less cash is tied up at any given time, enabling firms to do other things with the savings: useful investments, capacity expansion, workforce training, R&D, etc. To put this in perspective, consider the iPhone. In 2020, Apple sold 90 million iPhones. A cost savings of just a penny a unit via just-in-time would add up to a cool $1 million savings. In just calendar year 2004 for just U.S. firms, such inventory savings amounted to $80–90 billion annually.
In a globalized system, supply chains are not simply about achieving economies of scale; they are about matching each part and process to an economy and workforce that handle the work most efficiently, all in the shortest possible amount of time. One of the many things that makes modern computing and telephony and electronics possible is that the world is awash with workforces and economies at different stages of the development path while at the same time the macrostrategic environment enables all those various systems to interact peaceably and smoothly.
Just-in-time is the logical conclusion of humanity producing sufficient surplus foodstuffs to support people who could specialize, like that onceall-important blacksmith. And like intermediate manufactures trade in general, it is possible only because the global transport system has become so reliable. So that’s the how and the why. Let’s talk about the where. The Map of the Present
GLOBALIZATION PERSONIFIED: MANUFACTURING IN EAST ASIA
First up, East Asia is the hub for manufacturing work, largely because of the Order.
Once the Americans made the seas free and safe for all, transport costs dropped so quickly that manufacturing companies didn’t just relocate outside the major cities or the old river-based circulatory systems; at least in part they relocated outside the major economies altogether. Any country that could build a port and some surrounding infrastructure could participate in the world of low-skill, low-value-added manufacturing, processing foods and producing textiles, cement, cheap electronics, and toys while building out their industrial plant and skill sets. Add in containerization and the process kicked into high gear. In calendar year 1969, the first full year of container service from Japan to California, Japanese exports to the United States increased by nearly a quarter.
The Asians perceived Western consumption as their path to stability and wealth, and all reforged their economic and social norms around exportbased manufacturing. Japan vanguarded the process, but it didn’t take long for Taiwan, South Korea, Southeast Asia, and China to follow. Decades of exports, growth, and stability enabled most of these players to climb steadily up the value chain. Japan, for example, went from producing cheap stereos* to producing some of the most advanced industrial technology in the world. Taiwan was the original land of plastic toys but now makes the world’s most advanced computer chips. China only really entered this mix at the turn of the century, but wow did it make a splash. China had the benefit of cheaper internal transportation than the other Asian players, more resources to throw into the economy, and a labor base bigger than the rest of Asia put together.
Here’s what the Asian manufacturing constellation looks like as of 2022: Japan, Korea, and Taiwan handle the high value-add in pretty much all value-added manufactured products, everything from white goods to automotive to machinery. The trio truly excels at displays and semiconductors, most notably in the design and manufacture of highcapacity chips. The Koreans in particular are scary-good at cellular telephony.
Both the Japanese and Koreans operate via a series of sprawling, vertically integrated conglomerates, the keiretsu and chaebol, respectively.
Think Toyota and Mitsubishi, Samsung and LG. Those conglomerates do everything. Let’s just pick one: Korea’s SK. It is a major player in oil refining, petrochemicals, films, polyester, solar panels, LCD and LED lights, labels, battery components, DRAM and flash memory chips, and on the side SK does a booming business in construction, civil engineering, and IT and mobile phone services (not to be confused with phone manufacture).
Thar be whales here!
Taiwan, in contrast, is a swarm of minnows. Or, considering how hypercompetitive the Taiwanese business environment can be, maybe calling it a swarm of piranhas would be more apt. What few large firms the Taiwanese have fostered—such as semiconductor leader TSMC—are a step above world-class, in part because they tap the skills of thousands of small firms that hyperfocus on one very specific piece of the broader semiconductor industry. In essence, foreign firms or larger Taiwanese firms such as MediaTek subcontract out thousands of micro-improvements to those small firms for each new chip design, and those minnowy piranhas busy themselves with making as solid advances as possible for one tiny bit of the overall process. The larger players then combine the best-in-class outcomes from the whole constellation of Taiwanese R&D to make their best-in-world chips. It does not get higher value-added than that.
At the bottom of the quality and value scale lies China, which despite years of effort and untold billions of dollars invested has to this point not only proven unable to crack the high-end market, it cannot even build the machines that build most of the middle-market stuff. While low-cost labor in China has enabled the Chinese to dominate product assembly, nearly all high-end components (and a fair amount of middle-quality components) are imported from elsewhere. The products China makes—as opposed to assembles—tend to be on the lower end: steel and plastics and anything that can be die-cast or injection-molded.
By many measures, China is going backward. The country’s manufacturing output as a percent of GDP has been falling since 2006, which, judging by corporate profitability figures, was probably China’s peak year in terms of production efficiency.
China should have become a noncompetitive country in manufacturing in the late 2000s because it had exhausted its coastal labor pool. Instead the coast imported at least 300 million—likely as many as 400 million— workers from the interior.
* That bought the Chinese economy another fifteen years, but at the cost of hardwiring, both within the coast and between the coast and the interior, massive inequality in income and levels of industrial development.
It also makes the Chinese goal of a domestically oriented, consumptiondriven, internationally insulated economy flatly impossible to reach. Little of the income from all those Chinese exports went to the workers (especially the workers from the interior), so little can be spent on consumption. China now has a rapidly aging coastal population that has limited consumption needs and—most important—hasn’t repopulated. That coastal population is stacked against a seething migrant class from the interior that lives in semi-illegal circumstances in hypercramped, nearslumlike conditions, working grueling hours, and that cannot repopulate. It is all located next to an emptied-out interior whose primary source of economic activity is state investments into an industrial plant that is of questionable economic usefulness, populated by a demographic that is too old to repopulate. This is all in a country where decades of the One Child Policy have encouraged selective-sex abortions en masse, so there simply are not enough women under forty to repopulate the country in the first place.
The successive waves of hypergrowth—concentrated on the coastal zones where the world can see them—make China’s rise seem inevitable.
The reality is China has borrowed from its interior regions and its demography in order to achieve what, historically speaking, is a very shortterm boost. Never let anyone tell you the Chinese are good at the long game. In 3,500 years of Chinese history, the longest stint one of their empires has gone without massive territorial losses is seventy years. That’s.
Right. Now. In a geopolitical era created by an outside force that the Chinese cannot shape.
Back to Chinese manufacturing: Yes, the Chinese workforce has become more skilled, perhaps doubling, or if you interpret the data kindly, tripling in efficiency since 2000. But because of the country’s accelerating demographic collapse, labor costs have gone up by a factor of fifteen. The majority of the country’s economic growth since the turn of the century has come from hyperfinanced investment rather than exports or consumption.
That hardly makes China irrelevant or backward; it simply shapes what China can and cannot do. Having a billion workers to throw at things and heavily subsidizing everything makes China the King of the Low End and the Emperor of Assembly. If you want an Internet of Things meat thermometer that can tell your smartphone how hot your roast is, a cheap chip from China will do just fine. If you want a zippy smartphone so you can post your doctored videos to TikTok, it’s best you go with something from the other side of the Taiwan Strait.
Thailand and Malaysia form a middle tier in everything from electronics to automotive to, of course, semiconductors. They do very little assembly and instead focus on the heavy-lift stuff both literally and figuratively. If the Japanese, Koreans, and Taiwanese wire the brains, and the Chinese build the body, the Thais and Malaysians put together the guts, such as wiring, midtier processors, and semiconductors for things like cars and cranes and climate control systems. The Philippines provides the work that is too lowend for even China. At the opposite end, Singapore has evolved into an etheric, otherworldly presence that excels at finance, logistics, advanced petrochemicals, software, and manufacturing so precision-oriented it is used in the internal workings of things like clean labs.
On the edges are newer players looking to find their own niche.
Indonesia—with its 250 million people—is lurching bit by bit into China’s space. Vietnam is hoping to leverage its dense population clusters, excellent ports, rapidly evolving educational system, and top-down, no-dissentallowed political system to jump over China completely and become the next Thailand. India, with all its endless internal variation, hopes to take a bite out of everything.
If anything, the above vastly understates the Asian system’s complexity.
Think of the wild variety of economies just within the American state of California. San Francisco is a tourism and finance hub and the most economically unequal urban area in the country. Silicon Valley designs and innovates many of the products produced throughout Asia—even in hightech Japan—but has to import everything: concrete, steel, power, food, water, labor. Los Angeles’s urban sprawl disguises a wealth of small-scale industrial production sites. The Central Valley is both an agricultural powerhouse and home to some of the country’s poorest communities. And that’s just one state.
Similar patterns and diversity hold true throughout Asia, most notably within the broad swath of mainland China. Greater Hong Kong and Greater Shanghai are by far the country’s financial and technological hubs. The North China Plain—home to more than half of China’s population—is all about bulk over brains. For a point of reference, the per capita income variation in the United States between the richest and poorest states— Maryland and West Virginia—is just under two-to-one. In China the variation between richest and poorest—between ultra-urban coastal Hong Kong and ultra-rural interior Gansu—is nearly ten-to-one. Even that understates the possibilities for synergies. Since 1995, China’s major cities have added some 500 million people, mostly migrants from the country’s ultra-poor interior, absolutely swamping every urban center with ultra-lowcost labor. Multiple, varied cost structures and labor quality abound not just within the country, but within each city. No wonder China has become the workshop of the world.
Mesh the multiplicity of options within China with the multiplicity of options across Asia and it should come as no surprise that this corner of the world is home to fully half of the globe’s manufacturing supply chain steps —as well as the source of some three-quarters of the world’s electronics, cellular, and computing products.
All that’s necessary to make it work is a strategic environment that enables ships to sail without risk, enabling the region’s myriad labor cost structures to hum along, cranking out products in perfect synergy.
SMARTER, BETTER, FASTER . . . AND FOR EXPORT: MANUFACTURING IN GERMANOCENTRIC EUROPE In many ways, Europe is a reinterpretation of the East Asian system on a smaller scale and with a bit less diversity. The countries of Europe have always favored a degree of economic egalitarianism within their own borders, reducing the potential benefits of having colocated high- and lowwage structures within the same country.
With a total population of “only” a half billion, Europe doesn’t even have the theoretical capacity to generate an economic system as wildly large and divergent as China, with its 1.4 billion souls. But Europe does have a Japan, Korea, and Taiwan (Germany, the Netherlands, Austria, and Belgium). It also has its own Thailands and Malaysias (Poland, Hungary, Slovakia, and the Czech Republic).
It even has hangers-on that contribute in uniquely European ways.
Romania, Bulgaria, and especially Turkey are a bit like Vietnam in that, yes, they are low-wage, but all (and triply so for Turkey) often surprise to the upside in terms of product quality. Spain handles a lot of the heavy work as regards metal framing.
Italy is, well, Italy. Unlike the Northern Europeans, who integrated their peoples early on by extending government writ up and down river valleys into ever-larger polities and so take to things like supply chains naturally, the Italians were a series of disconnected city-states from the fall of Rome right up to formal unification in the late 1800s. Italian manufacturing is local, and viewed less as an industry and more as a point of artistic pride.
Italians don’t do assembly lines, or even regional integration. They don’t manufacture. They craft. As such, any products that come out of the Apennine Peninsula are either absolutely, shockingly ridiculous in their quality and beauty (think Lamborghini) or absolutely, shockingly ridiculous in their lack of quality and beauty (think Fiat).
Because it is Europe and so needs to be overcomplicated, the region is home to three other manufacturing circuits:
1. The French do pull a bit from the Netherlands and especially Belgium, and they do contribute to the Germanic network, but mostly the French obsess about keeping most of their manufacturing separate from the rest of their European partners. Of the European Union’s major countries, France is by far the least integrated.
2. Sweden, with a population of just 10 million, kind of kicks ass in its own way. It partners with near-peer wage levels in Denmark and Finland, while relying upon lower-wage structures in Estonia, Lithuania, Poland, and especially Latvia.
3. The United Kingdom is . . . having trouble making up its mind. It voted back in 2015 to leave the EU but didn’t complete the process until 2020 . . . and did so without setting up an alternative trading network. The Brits are now seeing long-established supply chain linkages to the Continent shattering without necessarily establishing replacement systems. The result? Shortages. In everything.
There is considerable variety in terms of firm structure as well. The French decided long ago to use a mix of state investment, exclusionary trade practices, and outright espionage to encourage industrial consolidation across the French economy into massive state champions. The Dutch did something similar, minus the exclusionary trade practices and espionage.
Those hyperefficient Germans instead favor midsized companies that specialize in specific products—say, heating units or forklifts—and draw upon scads of smaller firms throughout Central Europe to fuel their supply chains. British manufacturing is as hyperspecialized as Turkish manufacturing is hypergeneralized.
Europe’s weakest point in the game of manufactures is that its labor cost disconnects between high and low are not as wide as they are in Asia, so the Europeans are not as economically competitive in products that benefit from more varied labor structures. The spread between advanced Germany and less industrialized Turkey is $46K versus $9K, while the JapaneseVietnamese differential is $40K versus $2.7K. Europe really doesn’t have a “low end” in the Asian sense, so a great number of products that rely upon low wages for at least part of their cost structure—and that’s everything from basic textiles to advanced computers—are not made in Europe at all.
Overall, Europe produces roughly half the total value of manufactured products compared with what comes out of East Asia.
Instead, the Europeans excel at less complicated manufacturing systems. That doesn’t mean less advanced products—far from it, stuff that comes out of Germany is top-of-class—but instead products that require a narrower cost-input spread between the highest skilled labor required and the lowest (so not so much fancy computer chips down to a boring plastic case, and more high-end transmission down to an integrated, shockabsorbing bumper). Automotive and aerospace figure highly, but what the Germans are exceptionally good at is building the machines that manufacture other things. The bulk of the expansion of China’s industrial base since 2005 has been possible only because the Germans built the core machinery that made it happen.
A WORLDFUL OF OPTIONS: MANUFACTURING IN NORTH AMERICA
The world’s third major manufacturing bloc is under the North American Free Trade Agreement, an economic alliance of Canada, Mexico, and the United States. The NAFTA system is utterly unlike its competitors. There is far and away a dominant player—the United States, of course—but that player is also the most technologically advanced. Canada exists at a similar wage and tech level, so what integration exists is largely concentrated where Detroit, Michigan, meets Windsor, Ontario—the core of the northern lobe of North American automotive manufacturing. The single bridge connecting the two cities carries more cargo traffic by value than America’s total trade with all but its top three trading partners.
There are two bits of magic in the manufacturing of North America. The first is within the United States itself. America is a big place. In terms of flattish, usable land, it is easily twice the size of either Europe or China, both of which have vast swaths of nigh-useless territories that are mountainous or desert or tundra. Both have built up about as large a population as they can manage, while the Americans could easily double their population and still have loads of spare land (which is precisely what’s likely to happen by the end of the twenty-first century). America may not have the wage variation that exists throughout Asia and to a lesser degree in Europe, but it more than makes up for it with geographic variation.
Different parts of the United States have wildly different costs for food, electricity, petroleum products, and land.
Each region has its own unique characteristics:
Cascadia is known for its left-wing politics, hefty regulation, unionized environment, but most important, sky-high urban land costs. Seattle sits on an isthmus, while Portland is squashed between highlands. Both boast traffic as epic as their property prices. The only saving grace from a cost point of view is the region’s cheap electricity.
* The only play the Pacific Northwest has in the world of manufacturing is to move upmarket and provide the highest value-add possible. This is the land of Boeing and Microsoft.
The American Northeast is tight tight tight! High land costs. High labor costs. Overloaded infrastructure. High regulatory barriers.
Heavily unionized. Densely populated cities. Nearly zero green space to be had. Most manufacturing has long since decamped the region, leaving behind a weird bifurcation. First are the legacy corporations that date back nearly to the country’s industrialization, such as GE, Raytheon, and Thermo Fisher Scientific. None produce all that much locally, but corporate headquarters and intensive design work both call Massachusetts home. Second, what stuff is still built here has been shaped by ever-rising costs for siting, labor, and regulatory compliance. It is a merger of industry and brain work: biomedical, systems controls, scientific instruments, aeronautical and navigational devices, electrical systems, and the design, final assembly, and refurbishment of a variety of aerospace, maritime, and naval hardware.
Above all, the Northeast is where the training takes place for the brain work that drives all American manufacturing everywhere. After all, the Northeast is home to Yale, Harvard, and that most hallowed hall of nerds, the Massachusetts Institute of Technology.
The Front Range—where I hang my hat these days—and the Arizona Sun Corridor are a world apart. Land is dirt cheap. Regulations are for the bonfire. But there just aren’t all that many people, and the cities are certainly not close together. The combined population of the two zones’ urban corridors isn’t much more than 10 million, and the drive from Colorado Springs, the southern extreme of the (very-extended) Denver metro, to Albuquerque is a cool four hours.* Between very limited economies of scale and high in-region transport costs, standard manufacturing supply chains are almost out of the question. The solution? Tech servicing and all-in-one manufacturing hubs that don’t heavily integrate with the rest of the country unless it makes sense for the product to be flown. This is the corner of America getting into high-end semiconductor fabrication of the Japanese and Taiwanese style.
The Gulf Coast is Energy Alley. Petroleum and natural gas are both produced and processed there. The shale revolution has so deluged the region in vast volumes of low-cost, high-quality hydrocarbons that the region is busy expanding its industrial plant to make not just intermediate products like propylene or methanol, but increasingly downmarket products like safety glass, diapers, tires, nylon, plastics, and fertilizer. The biggest problem? Siting can be a bit of a bitch. Big refineries need maritime access and lots of space. Still, this region lucks out in two ways. First, the Texas coast sports an extensive chain of barrier islands that provide it with more shielded port potential than all of Asia (and the lower Mississippi in southern Louisiana isn’t even remotely shabby, either). Second, most American petrochemical facilities were built with lots of standoff distance. (Working with large volumes of oil and natural gas at high temperatures can be dangerous work.) At least some of that empty space can be converted (and is being converted) into yet more industrial capacity.
A region that consistently surprises to the upside is the American Piedmont. Sub-average educational system. Semi-rugged terrain that both increases transport and land costs while limiting opportunities for integration and economies of scale. Limited options for river transport.
It doesn’t feel like the South should be very successful. But the locals more than make up for their shortcomings with oppressively felonious levels of charm. Rather than wait for investors to come to them, southerners venture out to potential investors the world over, typically bringing with them their delegation’s combined body weight in bourbon to smooth over any cultural barriers.* Once the southerners inebriate, er, land an investor, they then set to work back home to create the perfect customized business environment. Infrastructure is expanded, the workforce is exquisitely tailored not just for the investor’s business but for specific jobs, tax laws are changed, and the southerners do what they do best: make outsiders feel like they’re part of the family. Embarrassingly little American investment drives the South, but foreign investment? Everywhere. The American South has become a playground for Germany’s VW and Mercedes-Benz; Japan’s Honda, Mazda, Nissan, and Toyota; Korea’s Hyundai and Kia; and Sweden’s Volvo. Even persnickety Airbus has facilities in Charleston, South Carolina, and Mobile, Alabama.
Florida. You go to Florida for beaches, Disney World, and retirement —not to manufacture stuff. And we’re walking . . .
The Great Lakes region was once known as America’s Steel Belt. A bit of canal work in the mid-1800s connected the Northeast to the Great Lakes and Greater Mississippi, making this region the greatest integrated manufacturing zone on the planet. For a time. During the Great Depression the Americans adopted something known as the Jones Act, which forced any cargo shipped between any two American ports to use only vessels that were American built, owned, captained, and crewed. That, put conservatively, increased the cost of water transport in the United States by a factor of five. What made this region special and successful withered. Add in international competition during the globalization age and the region has since been . . . reimagined as the Rust Belt, despite arguably having the nation’s best educational system. Manufacturing still exists of course.
Illinois is home to none other than John Deere, with the bulk of the continent’s large farm equipment even today manufactured in the Midwest. Detroit is no slouch, but neither is it the region’s norm.
Instead of mass-volume, heavily integrated systems, most players are on the small side, heavy into highly technical custom work and often supplying specialty parts to . . .
TEXAS! The Texas Triangle comprises the cities of Houston, Dallas– Fort Worth, Austin, and San Antonio. From a manufacturing point of view, the Triangle has it all: cheap food, cheap power, cheap land, no income tax, minimal corporate tax, hilariously light regulations. And that won’t change. Hell, the Texas legislature only meets once every other year, for only thirty-five days, and legislators are constitutionally barred from even considering legislation for the first half of that time window. American manufacturers of all types have flocked to the region. The single biggest subsector is automotive, but that oversimplifies a dizzying variety and dynamism. Austin operationalizes Silicon Valley’s ideas. Dallas–Fort Worth leverages its banking center to turn Austin’s brain work into mass manufacturing.
San Antonio mixes lower costs than even the Texas average with the tech of Austin to blow out anything that can be put on an assembly line. But the real star of the Texas game is Houston. It plays with Austin in tech and Dallas–Fort Worth in automation and San Antonio with mass manufacture and it is a financial capital and it is America’s energy hub and it is in the Gulf Coast region and it is America’s biggest port by value and it is really good at moving around big chunks of metal. That machine work the Germans are so good at?
Houston comes in a solid second place globally. No wonder Houston is the country’s second-largest concentration for Fortune 500 headquarters.
Most of America’s regions would do very well flying solo, but they do not need to. Add in the country’s broad-scale road and rail system for transporting intermediate products, and in many ways the American manufacturing system has more variety than even Asia, even without its northern and southern neighbors.
This brings us to the second bit of magic in NAFTA manufacturing.
America does have a neighbor that complements its system: Mexico. The wage differential between the American and the Mexican average is approximately six-to-one, less than Asia’s split, but bigger than Europe’s.
That doesn’t tell the entire story, however. Mexico is a different beast compared to many of the other countries we’ve covered. Anti-Americanism didn’t stop dictating Mexican industrial policy until the 1990s, and Mexico didn’t really start playing the industrialization game until 2000—which, incidentally, is a mere heartbeat before China was admitted to the World Trade Organization.
Being a late starter definitely generated some problems, but nothing has held Mexico back more than its topography. Mexico’s low latitude puts it firmly in the tropics. The combination of tropical heat and tropical moisture and tropical bugs makes the tropics the most problematic climate possible for industrialization; building materials are compromised, concrete often sets incorrectly due to the humidity, asphalt slides in the heat, and the population must do battle with tropical diseases. Mexicans address these issues by moving up onto the broad plateau between the Sierra Madre mountain chains, but that has generated new problems: Living at altitude means no coastal access and no navigable rivers, necessitating artificial infrastructure that must battle with the terrain at every step. Trains can only carry half their nameplate capacity when on rails that are on as little as a 0.25 percent slope, and there’s a lot more than a 0.25 percent slope on most mountains. Everything gets very expensive very quickly.
Another “problem” of moving upmountain is that the higher one climbs, the lower the humidity and the vapor pressure of water. For those of you who live at sea level, that means water not only evaporates quickly, it actually boils at a lower temperature, specifically about 15 degrees lower in Mexico City than in Miami.
These characteristics take us two places. First, Mexico does have an extreme labor-cost variation of the sort that makes East Asia work so well —the country’s fractured nature ensures it—but that variation is not easily accessible, making the point more or less moot until such time as Mexico’s infrastructure can catch up.
Second, as one moves north from Mexico City, the combination of higher latitudes plus different wind and sea currents and a shifting mountain complexion turns the land to desert. Normally this would be bad. Rainfall is so low that very little non-irrigated agriculture occurs in northern Mexico at all. That means cities are on their own. There are no hinterlands to draw tomorrow’s population from.
But that in turn creates an interesting political and economic dynamic.
When cities are, in essence, oases, the normal evolution is for a single person or small group of people to assert control over just about everything.
If infrastructure or industrial plant needs to be built, someone has to pay for it, and whoever does the paying likes to keep control over it. If the city isn’t surrounded by a belt of forest or farms, there really isn’t anywhere for rebels to hide. That makes the Mexican system—particularly the northern Mexican cities—fairly oligarchic.
Normally, oligarchic systems are neither wealthy nor dynamic, because the bosses keep the cash to themselves. In the case of northern Mexico, however, these jefes are hard up on the U.S. border and serve as gateways to the world’s largest industrial and consumer market. That changes the math. Northern Mexican businesspeople still integrate with one another, at least within their own shared metro region, but it is far more important for them to plug into an American supply system, particularly the wealthy Texas Triangle supply system.
Perhaps best of all, while the United States features the developed world’s healthiest demographic structure, Mexico features the best of the advanced developing world’s. There’s plenty of consumption on both sides of the border.
End result: the Texas–Mexico axis boasts the technological sophistication of Japan, the wage variation of China, and the integration of Germany with its neighbors, all within the footprint of the world’s largest consumption market.
That is where we are now. But now is not the future. The Map of the Future
Of the three major manufacturing environments, Asia’s is by far the least sustainable.
It is . . . somewhat difficult to know where to begin.
THE END OF ASIA INC.
There’s the neighborhood angle: The four Northeast Asian economies do not get along. Only America’s two largest overseas military deployments—in South Korea and Japan— keep the locals from being at each other’s throats. Only the threat of American naval power prevents the Chinese from trying something cute.
Whether because of local historical anger and angst or American departure, in the world unfolding there is no way on Earth the East Asians are capable of the sort of productive cooperation necessary to enable broad-spectrum, multimodal, integrated, and peaceful manufacturing supply chains. The Northeast Asians are politically, strategically, and culturally incapable of the degree of trust required to form their own version of NAFTA, much less the kind of joint decision making that defines the European Union.
There’s the demographic angle: In calendar year 2019, China suffered the greatest decline in its birth rate on record. Sad to say, it was expected. The One Child Policy had depressed China’s birth rate for long enough that China is now running out of twenty-somethings, and twenty-somethings are the people who have the kids. Generate fewer young adults and the new generation cannot have many kids. Cram them all into urban condos and even those who can have kids don’t want to. Worse was soon to come. Data from 2020 data indicated an even greater drop. Instinct credits the drop to coronavirus, but it takes nine months to generate a baby. Most of the 2020 drop, therefore, was due to circumstances and choices made in 2019. Formally, China’s birth rate isn’t simply the lowest since 1978, birth rates in Shanghai and Beijing—China’s largest cities—are now the lowest in the world. At the time of this writing we are still waiting for finalized 2021 data, but anecdotals from throughout China are beyond horrid for the dominant Han population.
They are even worse for the non-Han. Say what you will about Mao, but his version of communism had a bit of a soft spot for China’s many minorities* and allowed them exemptions to One Child. But Maoist communism is long dead, replaced by a steely neofascist ultranationalism.
As China faces the terror of disintegration in a deglobalized world, the Chinese Communist Party has begun systematic persecution of its minorities to the point of stationing CCP officials inside people’s homes to prevent them from, among other things, procreating. The Uighirs of Xinjiang saw their birth rate drop by half just between 2018 and 2020.
Instead of exceptions to One Child, some of China’s minorities are now de facto under a Zero Child Policy. Add it up and China is now the world’s fastest-aging society.
The demographic situations elsewhere in East Asia aren’t quite so graphic, but that’s not to say they are much better. Japan is already the world’s oldest demography (and was the fastest-aging one until China took up that mantle in 2020). Korea’s baby bust started twenty years after Japan’s, but has progressed faster. Taiwan and Thailand are roughly a decade behind Korea. Even populous Indonesia and Vietnam, with roughly 400 million people between them, have been bitten by the urbanization bug.
Neither is close to that “no return” point, but their demographic structure in 2021 looks remarkably similar to China’s in the 1980s.
Rapid aging strikes the Asians with a triple bind: First, aging workforces may typically be more productive, but they are also more expensive. China’s low-skilled labor supply peaked in the early 2000s.
China’s skilled labor supply is peaking at the time of this writing. The end result is as clear as it is unavoidable: higher labor costs. China is no longer the low-cost producer, and it hasn’t moved up the value chain fast enough to be the high-quality producer. Second, such rapid aging precludes the Asians in general—and the Chinese in particular—from ever breaking away from their export model.
There simply isn’t enough local consumption to even hope to gobble up everything the Asians produce. And if the Americans no longer empower the Asians to export the world over, the entire Asian model fails overnight.
Third and finally, rapidly aging workforces are perfectly capable of collapsing under their own weight via mass retirement.
There’s the question of input access: China imports more than 70 percent of its 14 million barrels of oil it needs every day; Taiwan, Korea, and Japan import more than 95 percent of their 1, 2, and 4 million barrel needs, respectively. More than two-thirds of all their inflows originate in the Persian Gulf, a region not exactly brimming with stability under the Order, much less expecting to become more stable in the aftermath of the American withdrawal. China is the biggest importer of every industrial commodity, with the Japanese and Koreans reliably showing up in the top five.
Energy aside, nearly all the industrial commodities in question come from the Southern Hemisphere, with Australia, Brazil, and sub-Saharan Africa being the biggest players. What doesn’t come from them comes from Russia, and while I wouldn’t put Chinese-Russian conflict at the top of my things-that-can-go-wrong list, it is nowhere near the bottom, either. The Russians, after all, have a time-honored tradition of using resource flows to extract geopolitical concessions.
Perhaps the biggest problem for the Chinese will be . . . the Japanese.
China’s navy is coastal and near coastal, with only about 10 percent of its surface combatants capable of sailing more than 1,000 miles from shore.
Very few can sail more than 2,000 miles. China has no real allies (except maybe North Korea), so projecting power . . . anywhere is a hilarious impossibility. Japan, in contrast, has a navy fully capable of sailing—and fighting—a continent or two away. Should push come to shove, the Japanese can simply dispatch a small task force past Singapore into the Indian Ocean and shut down Chinese resource inflows—and with them, shut down China—remotely.
There’s an economies of scale angle: The secret sauce of the Asian manufacturing model is the region’s highly variant labor markets, combined with the American-provided and - subsidized security environment and global trade network. Demographic collapse is upending the former, while the American withdrawal is ending the latter. Anything that drives up costs or increases security concerns reduces the capacity of the East Asians to mount a joint effort in the world of manufacturing. Lose what makes Asia special and there is no reason at all for Asia to continue being the global hub in that most differentiated of manufacturing markets: electronics and computing.
There’s a supply chain angle: Anything that raises the marginal cost of manufacturing or transport, or increases instability and risk in manufacturing or transport, eliminates justin-time inventorying from even theoretically working. That forces manufacturing closer to end consumption points. Since Asia Inc. is the world’s largest manufacturer and exporter, it is this part of the world that will suffer the most from the future colocation of manufacturing with consumption. And since the very concept of just-in-time means no one stores much inventory, when it goes down, it’ll all go down, all at once.
If Asian demographics and geopolitics complicate (or, more likely, breach) regional production processes, then there will be no economic reason for the subsectors of electronics, cellular phones, and computing to be monopolized here. Break Asia’s chokehold on that market, even a little, and the economies of scale that have kept East Asia the undisputed workshop of the world will erode away.
China specifically faces a follow-on challenge: China as the workshop of the world is utterly dependent upon imported technology and components. In high-value sectors such as semiconductors, telephony, and aerospace, China has published national plans to become the global leader in all, but it has proven broadly incapable of manufacturing high-value-add components like low-nanometer chips or jet engines on its own.
* Items most of us just assume the Chinese dominate in—household electronics, office equipment, and computers—actually have more than 90 percent of their value added outside of China. For ships the figure is 87 percent. For telecom gear and the guts of most electronic gadgetry it is 83 percent. Even for exceedingly lowbrow work such as paper, plastics, and rubber, upwards of half of the value-add happens elsewhere.* China’s failure to advance has simplified the country’s industrial model somewhat: China uses its hyperfinanced model to drive down the costs of the components that it can produce; it imports the parts it cannot produce, plugs them in, and sends the final product off. But this model only works if external suppliers actively participate. Anything from a security crisis to sanctions ends that pretty quickly. China has already experienced a lockout in cellular tech (Huawei) and aerospace (the C919 passenger jet). Based on how politics unfold, some version of this sort of disruption can (and will) occur in nearly every product category.
Finally, there’s a market proximity issue: The two largest destinations for Asian end products are in faraway America and Europe. The Americans are a cool 7,000 miles across the Pacific, while the Europeans are—depending upon origin, route, and destination—9,000–14,000 miles away. In a post-globalized world it is reasonable to expect some trade relations to last—France and North Africa, Turkey and Mesopotamia, Germany and Scandinavia, for example—but locality will be key.
The longer the shipping route and the more players that lie along any particular route, the more deals that need to be cut and the more opportunity for interruption. One of the reasons the goods transported via the Silk Roads were so expensive was that no single power controlled the entire route.
Typically, hundreds of middlemen all added their own fees, inflating the goods cost by a factor of 1,000 or more.
With the possible exception of Japan, there is no Asian power that has the naval capacity to reach either of the two large end markets in question, and in a post-globalized system it isn’t very likely that Asian product would be very welcome in the first place. Add in the general mutual loathing most Asians feel toward one another and the entire model that has pulled the region out of poverty and war is set to implode. The only question is whether someone will try to go out swinging. And to be crystal clear, “swinging” is exceedingly bad for supply chain security.
THE DISASSEMBLY OF EUROPE
Somewhat similarly, the European system will falter for any number of reasons. The first rationale is both the most obvious and the least manageable: Europe’s baby bust started before Asia’s, with the Europeans passing the point of demographic no return even before the new millennium. Belgium, Germany, Italy, and Austria will all age into mass retirement in the first half of the 2020s, while nearly every country in a Central European line from Estonia to Bulgaria is aging even faster and will age out in the second half.
Even worse, demographics alone ensure that Europe as we know it will collapse on a similar time schedule. When the Central European states joined the EU in the 2000s, they succeeded in convincing the Western Europeans to open their labor markets. Some one-fourth to one-third of the young worker population of the Central European region decamped for better personal economic prospects to the west. Bottom line: Western Europe’s demographic figures are far worse than they actually appear.
Whether it’s because Central Europeans return home when the going gets tough, which robs Western Europe of its workforce, or because more Central Europeans head to Western Europe when the going gets tough because those are the only jobs left, the labor balance that has enabled European economic functionality since 2008 is about to evaporate.
The demographic problem haunts in a second way. Europe has aged to the point that it cannot absorb its own products. Europe must maintain a high level of exports to maintain its system. The top destination is the United States, a country that is turning ever inward and at the time of this writing is already edging its way into a broad-spectrum trade war with the European Union. The United States is also (again, at the time of this writing) exploring a similarly broad-spectrum trade deal with the United Kingdom. As any future trade peace with the EU will soon require London’s sign-off, no one in continental Europe should count on easy rectification.
The European products that do not go to the United States instead travel to the far side of the planet: Northeast Asia. Even if, against all odds, the Northeast Asian system (as well as Northeast Asian demand for European products) survives, the Americans will no longer be guaranteeing freedom of the seas for civilian maritime shipping. The route from Shanghai to Hamburg is a breezy 12,000 nautical miles. At the zippy seventeen miles per hour that modern container ships typically sail at, that’s a cool thirtyfive-day trip. The fastest any commercial cargo vessel can sail is twentyfive knots. That’s still three full weeks—a lot of time to spend sailing through waters infested with pirates, privateers, hostile navies, or some combination of the three. Perhaps even worse, the part of Europe that maintains the most robust trade relationship with the Chinese is Germany. German product sales to China skew very heavily in the direction of machinery used to make other products . . . products for export. Even if, against all odds, Germany and China can maintain a trade relationship in a world where they lack the strategic reach to interact directly, Chinese exports will not be nearly as needed, undermining the base rationale for any sort of German-Chinese interaction.
The same broad strategic issues that face the Asians also face the Europeans, although those particular problems are of less or more concern depending on location and perspective.
First, the “more.” Most European countries started industrializing in the 1800s, with even the laggards—largely the former Soviet satellite states— beginning at the latest in the 1950s. That means most mines in Europe have been tapped out for at least a few decades. The Europeans, having been industrialized for at minimum a couple of generations, may not consume as many materials as the Asians, but they produce even fewer. The Chinese might import the vast majority of the materials they need, but typically, the Europeans must import them all.
Now, the “less.” Most of the industrial commodities required for modern life come from locations far closer to Europe than East Asia—such as the Western Hemisphere and Africa. Several European countries— France and the United Kingdom come to mind, but so too do Spain, the Netherlands, Italy, and Denmark—have sufficient naval capacity to protect occasional shipping to and from the locations in question. Just as good, most sailings from these regions to Europe are unlikely to pass through any particularly contested waters. As to Western Hemispheric sourcing, the Americans are certain to put the kibosh on any sort of piracy or privateering in their hemisphere, and European commerce is unlikely to be barred so long as it remains unmilitarized.
The trick will come from those European countries farther removed from the Continent’s far west who lack both access and naval forces. They must source materials from a different “close” location: Russia. Germany cannot maintain its position as a wealthy and free nation without the Americans, but Germany also cannot maintain its position as a modern industrialized nation without Russia. The story of all things German and Russian is about alternating chapters of begrudging cooperation and incisive conflict. As searing as that is for the Germans and Russians, it is far worse for the peoples between them—countries essential to Germany’s manufacturing supply chains. The Ukraine War is already forcing some tough questions upon all involved.
And of course, even all this assumes nothing goes wrong within Europe.
Europe suffers from one of those weird geographies where just enough of it is flat and well rivered and easy to walk across that portions of the Continent are convinced that they can and should lead a major consolidated power, while there are just enough bits that are peninsular or mountainous or island to play host to dissident powers that will always dash such dreams.
It’s only during the Order that global peace and wealth smothered the ageold contest between the two visions. Smothered. Not killed. Despite seventy-five years of healing and growth and safety and security and modernization and freedom and democracy, much internal angst and grievance remains. Brexit, occurring at the very height of globalization, is a case in point. With the American withdrawal, that smothering ends.
Simply put, the Germanocentric system cannot maintain its current position, much less grow, and no one in the world has a strategic interest in bailing it out. The challenge for Central Europe will be to keep the Germans from acting like a “normal” country. The last seven times Germany did, things got . . . historical.
A bit of a bright spot: Europe’s subsidiary trade networks look more favorable than the Germanocentric system.
The Sweden-centric system might be able to hold together. Northern Europe’s supply chains are less exposed to potential threats, its energy supplies are more local, and its demographics are less aged and sloweraging, suggesting a better match between supply and demand that would limit the need for extra-regional imports and exports in the first place. In the North Sea the Scandinavians even have sufficient oil and natural gas to meet nearly all their demand. “All” they need to do is somehow source the various industrial inputs they need from a continent away.
They have two options: The first is to partner with the French system at least in part. In addition to France boasting sufficient domestic consumption to absorb its own production, it also has sufficient geographic insulation and positioning to reach the needed inputs. Add in a competent expeditionary military and a nearly galactic volume of self-regard, and France can reasonably go its own way. Sweden & Friends would do well to find a way to work alongside the French.
The second option might feel more comfortable to the Scandinavians: work with the Anglos. Scandinavian-British cooperation against all things continental has a centuries-old history. With the Brits moving in with the Americans (organizationally speaking), some interesting possibilities are surfacing. The Americans obviously have a more powerful military and economy than anything the French boast. The Americans similarly also have far greater reach—reach to anywhere that might have necessary resources. The American-Mexican market is second to none, while the British market remains the healthiest one (demographically speaking) in Europe outside of France.
THE NORTH AMERICAN CENTURY
When it comes to the fate of the NAFTA system, most indicators look wildly positive.
Let’s begin with base structure: part of why American manufacturers feel cheated by globalization is because that was the plan. The core precept of the Order is that the United States would sacrifice economic dynamism in order to achieve security control. The American market was supposed to be sacrificed. The American worker was supposed to be sacrificed.
American companies were supposed to be sacrificed. Thus anything that the United States still manufactures is a product set for which the American market, worker, and corporate structure are hypercompetitive. Furthermore, the deliberate sacrifice means that most American manufactured products are not for export, but instead for consumption within North America.
That’s not how China works. The Chinese make everything that they are technologically capable of making, using subsidies, technology theft, and diplomatic strong-arming to expand the list of products whenever possible.
And unlike the United States, many of those products are for export. Put another way, the products the Chinese make are ones that, for whatever reason, the Americans have chosen not to make.
China’s telecom firm Huawei is a case in point. Huawei directly, and via a branch of the Chinese government, which excels at hacking foreign firms, has pursued a dual strategy for two decades: steal whatever tech is possible, and purchase whatever cannot be replicated. Sanctions enacted by the Trump administration (and doubled down upon by the Biden administration) prevented legal tech transfer to Huawei at the same time American firms wised up to the hacking threat. The result? Huawei’s corporate position imploded in less than two years, taking it from being on the cusp of the world’s largest cell phone manufacturer to not even being on the top-five list within China. Most Chinese firms simply cannot function without active American participation.
The inverse is not true. Sure, the Americans would need to build out their industrial plant to compensate for lost low-cost suppliers, and that is easier and more quickly said than done, but it isn’t like the Americans don’t know how to do things like smelt aluminum or forge glass or bend steel or craft carburetors or assemble motherboards.
Then there’s trade access: add all imports and exports together, and still some three-quarters of the U.S. economy is domestically held, limiting its exposure to all things global. Canada and Mexico are far more integrated, getting roughly two-thirds and three-quarters of their economic heft from trade, but roughly three-quarters of that trade is with the United States.
Within North America as a unit, more than 8 in 10 dollars (or pesos) of income is generated within the continent. That’s by far the most insulated system in the world.
Beyond that, the Americans have already ratified, operationalized, and implemented trade deals with Japan and South Korea, another two of the country’s six largest trading partners. Add in a pending deal with the United Kingdom (another of the six) and fully half of the United States’ trade portfolio has already been brought into a post-globalized system.
Next up is raw material supply: none of the NAFTA partners are slouches when it comes to industrial commodity or energy production. All generate globally significant volumes of multiple industrial commodities, natural gas, and oil. More is coming. As global maritime civilian transport fails, much of the raw production and intermediate processing that is done on the U. S. Gulf Coast will find its potential for global sales limited, either due to collapsing end markets, lack of security, or both. That will trap more of the output within North America. That’s not great if you’re an energy producer or processor, but it’s fantastic news if you are an energy product user. As most manufacturers are. If more supplies of anything are required, South America is a solid starting point. Extra-hemispheric sourcing is obviously more problematic, but unlike all other manufacturing regions, the North Americans have the consumption-based market and the capital and the fuel and the military reach to go out and get what they need.
Let’s talk supply chains.
Most studies in the past half decade have indicated that by 2021, most manufacturing processes were already cheaper to operate in North America than in either Asia or Europe. That might shock, but it doesn’t take a deep dive to understand the conclusions. The North American system sports high labor variation, low energy costs, low transport costs to end consumers, nearly unlimited greenfield siting options, stable industrial input supplies, and high and stable capital supplies.
Even better, the North American continent faces few security threats between its own shores and those of potential suppliers. On average, North American products face less than one-third the supply chain disruptions the Germans are likely to feel, and one-tenth that of the Asians. Now, industrial plant doesn’t manifest for free, or overnight, but the sorts of disruptions North American manufacturers are likely to experience are the sort that can be grown through.
That gap between North American manufacturing viability and that of Asian and Europe is only going to increase in the decades to come, in large part because of ongoing evolutions in electricity generation. The United States and Mexico have among the world’s best greentech options. Wind on the Great Plains, solar in the Southwest. Mexico is pretty good on both as well, particularly in the north, where the greatest integration with the American system occurs.
But perhaps most important of all, not everyone in North America has yet to toss their hat into the manufacturing ring.
First up are the Millennials. For all their many * faults, America’s Millennials are the largest chunk of population of any developed country that are of working age. Their consumption is driving the North American system now, just as in twenty years their investment will drive it. Because of them, North America faces nothing like the consumption and capital crunches that will soon define Asia and Europe.
Second, America’s manufacturing megaregions just aren’t very integrated (the sole exceptions are the Gulf Coast and the Texas Triangle). Any future in which global trade is disrupted is one in which the U.S.
federal, state, and local governments will have vested interests in improving those interconnections. With those interconnections will come smoother and more efficient integration of domestic manufacturing systems.
Third, not all of Mexico is playing. Yet. The northern Mexican cities have bet whole hog on American integration, but central Mexico is a manufacturing region in and of itself. Integration with the Americans occurs, but it just isn’t nearly as all-encompassing as what occurs in northern Mexico. Nor is southern Mexico folded in. The south is Mexico’s poorest and least technically advanced region, while also suffering from the worst infrastructure in terms of local roads and rail as well as those that might link the south to the rest of the country.
As the Canadians, Americans, and northern Mexicans build out a more integrated system, that system will naturally extend its integrative reach farther south. The Mexico City core, after all, is home to over 70 million people and is far more linked-up within itself than the northern Mexican cities are to one another. In the world we’re devolving into, adding 70 million middle-income people to any system is about as big a win as can be had.
Fourth, there may be a pending win that’s just a touch bigger. The United Kingdom voted to leave the European Union back in 2016 but didn’t actually pull the plug until 2020, and it wasn’t until 2021 that London realized it hadn’t planned for the aftermath. Like, at all. The continental Europeans have shown no propensity to extend the Brits any concessions, and Britain on its own just isn’t big or stable or diversified enough to matter. But add the United Kingdom and its sophisticated first-world manufacturing capacity to the NAFTA grouping and the math changes significantly. Extending NAFTA-esque trade links deeper into Mexico would be great, but incorporating 66 million Brits? That just might be even better. Both are on deck.
There is a problem: that all-important workforce variety. Brits are at a similar skill set and labor cost as Americans and Canadians, while central Mexicans measure up similarly to northern Mexicans. Two decades of moderate growth in Mexico combined with a gently aging demographic means that Mexico now needs a low-cost manufacturing partner. Put another way, Mexico needs . . . a Mexico. There are two options. The first is . . . iffy. The Central American states of Honduras, Guatemala, El Salvador, Costa Rica, Nicaragua, and Panama are already incorporated into a trade deal with the United States called the Central America Free Trade Agreement. The problem is infrastructure.
Running a road and rail network the entire length of Mexico’s mountainous terrain in order to connect Central America’s low-cost and low-skilled workforce to the American market seems like a stretch. It certainly wouldn’t be nearly as lucrative as the relatively short haul between the Texas Triangle and northern Mexico.
That leaves sea connections. The Central American countries are in reality individual cities—one or two per country—surrounded by a lot of bush. The trick is to find an industry in which such labor can achieve sufficient profitability to justify export. It is not clear there is one. Outside of finishing work, even textiles are not likely to be a great match. That limits the region to tropical agricultural production and processing. That’s not nothing, but it’s also not great. And those sectors certainly cannot employ sufficient numbers of locals to move these countries out of the “nearly failed” category.
A more viable option is Colombia. Like the Central Americans, the Colombians already have a trade deal with the United States. Unlike the Central Americans, the Colombians have a far more skilled labor force at a wage level that’s roughly two-thirds that of today’s Mexico. The biggest challenge, which is a pretty common challenge throughout Latin America, is infrastructure. Unlike Mexico with its single raised central plateau, Colombia has a V of highlands with the cities of Medellín and Cali on the western leg and so is more likely to integrate via the country’s Pacific ports, while the capital, Bogotá, sits on the eastern leg and is more likely to look north to the Caribbean coast. To this point, globalization has . . . crushed Colombia’s dreams. The difficulty and cost of lugging stuff up and down Colombia’s mountains has prevented meaningful supply chains from manifesting both within the country and between Colombia and the wider world. As such the country is mostly known for exporting oil, superhard coal, and coffee. But in a world where the costs of production skyrocket due to instability, and demand for industrial inputs of all types surges in North America—including labor— Colombia may be about to have its day. If Colombia were located anywhere else in the world, talk of meaningful integration with North America would be a fool’s errand. But between Colombia’s unique price point, its unique geography, and its relative proximity, it just might be able to play in the North American system in a very Asian way: just-in-time.
The whole basis of just-in-time inventorying is that the stability of the various manufacturing partners is so reliable that you can bet the future of your firm on the next shipment arriving, well, just in time. In most of Asia that entire concept is about to fail. Not so in the NAFTA region. For all their faults, Canada, America, and Mexico face no structural challenges and so can continue to use just-in-time should they choose to do so. So can Colombia.
In addition, while whatever Asian (and European) manufacturing survives is unlikely to be able to tap the economies of scale required for a mass assembly line approach, North America’s mix of integrative infrastructure and higher consumption means it can probably continue with both assembly lines and limited applications of automation. The NAFTA trio will simply need a bit of help with some of the lower-value components. Once again, enter Colombia.
Most people think of the Bretton Woods system as a sort of Pax Americana. The American Century, if you will. But that’s simply not the case. The entire concept of the Order is that the United States disadvantages itself economically in order to purchase the loyalty of a global alliance.
That is what globalization is. The past several decades haven’t been an American Century. They’ve been an American sacrifice.
Which is over. With the American withdrawal, the various structural, strategic, and economic factors that have artificially propped up the entire Asian and European systems are ending. What consumption remains is concentrated in North America. Only North America sports a demographic profile that doesn’t have to immediately adapt to a fundamentally new—and fundamentally unknown—financial reality. And so massive manufacturing reshoring to the American system is already in progress.
The real, actual American Century is only now beginning.
That hardly means there won’t be manufacturing anywhere else. A NEW CROP OF HUBS
Some 95 percent of value-added manufacturing occurs in East Asia, Europe, or North America. Most of this is due to the mix of factors we’ve already churned through: geography, demographics, transport, and globalization.
But part of it is also due to policy.
During the Cold War, two regions largely abstained from globalization writ large. The first abstinence, that of the Soviet Union, was by design.
Globalization was created to isolate the Soviets. The second to abstain, the Latin American country of Brazil, held its systems apart for a mix of political and ideological reasons.
When the Cold War ended, both opened themselves up, particularly to the inexpensive electronic and computing products of the East Asian Rim.
Shielded as they had been for decades, neither the Russians nor the Brazilians could compete. Adding insult to injury, the Chinese entered both countries to form joint ventures, and proceeded to scrape every bit of intellectual property from every firm they could in a manner that would even make Facebook blush.* By 2005 there was little left for the Chinese to steal. By 2010 the Chinese had fully incorporated all the stolen technology into their massive manufacturing system and were shoving cheaper products down the throats of both of their former “partners,” casually crushing firms that once had been global leaders. Some version of this happened to a lesser degree in much of the developing world. That, more than anything else, is why manufacturing within East Asia makes up some half of global manufacturing, while the powerhouses of Europe and North America comprise almost all of the remainder.
In the world to come, Russia and Brazil might experience a bit of a manufacturing renaissance. Anything that encourages supply chains to be shorter, simpler, and closer to consumers will benefit any manufacturing system that is not in East Asia or Europe. But even this “might” comes with a pair of major caveats. First, recovery would require the Russians and Brazilians to address a host of unrelated issues, ranging from educational systems to infrastructure. Second, any manufacturing renewal would largely be limited to servicing customers within Russia and Brazil, or at most, countries within arm’s reach. That’s not nothing, but neither country is even on a theoretical track to becoming the next China, Mexico, or even Vietnam.
The end of China similarly might help out the largely nonmanufacturing economies of sub-Saharan Africa. None of them could hope to compete with China-centric manufacturing on cost, but with China gone? There may be some room for local successes. There are still (many) problems. The African continent is composed of a series of stacked plateaus, which all but prevents the various states from linking themselves together with infrastructure and achieving regional economies of scale. Nor do very many of them get along. Nor do any of them enjoy the sort of rich capital structure that might enable them to build much infrastructure on their own.
But with China gone from the equation, there is at least a touch of hope.
The countries with the most potential for breakout are those whose local geographies enable easier integration within their own systems as well as with the outside world: Senegal, Nigeria, Angola, South Africa, Kenya, and Uganda. Of these, Nigeria—due to population size, young demographics, and ample local energy production—looks best positioned.
On a more upbeat note, there are three regions that will be able to take advantage of the changed strategic circumstances to enter or reenter the world of manufacturing in a big way. The same mix of factors— demographic, labor variation, security, resource access, and transport safety —will determine who can pull it off.
The first of these regions is Southeast Asia sans China. It has a number of factors going for it.
Southeast Asia has labor variation in spades: Singapore is ultra-hightech and heavy in banking, Vietnam and Indonesia are young, vibrant societies handling the low end, and Thailand and Malaysia occupy the middle ground . . . but this is the Asian middle ground. The Thai and Malaysian economies are arguably more technically sophisticated than a sizable minority of European countries and American states.
The Southeast Asian countries of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are very rapidly urbanizing. The region’s hypercrowded cities push down the cost of labor relative to global norms, giving the Southeast Asians a leg up in any sort of apples-toapples competition. The region has reasonable supplies of many industrial inputs; most notably it is nearly self-sufficient for its oil and natural gas needs.
Myanmar in particular has loads of minerals that have yet to be industrially produced, while Papua New Guinea practically bleeds useful materials. For what the region cannot produce itself it can rely upon Australia, a world leader in coal, lithium, iron ore, nickel, and uranium.
While it would be a stretch to say that everyone in the region always gets along, the very nature of the regional geography—heavy on jungles, mountains, peninsulas, and islands—makes it very difficult for the locals to have anything more than a border skirmish. The last meaningful fight was Vietnam’s 1980s invasion of Cambodia, and to be blunt, that conflict didn’t move the economic needle at all.
Cambodia was a nowhere before, and a nowhere it remains.
The region has a couple of significant weaknesses that, in my opinion, are perfectly manageable.
First, with everyone living in (and continuing to move to) cities, and with tropical soils being of limited fertility, this region has no hope of feeding itself. Luckily, the mass agricultural exporters of Australia and New Zealand are right next door, while the agricultural bounty of the entire Western Hemisphere is a straight shot across the Pacific.
Second, there is no obvious leader within Southeast Asia. Singapore is the richest, but also the smallest. Indonesia is the biggest, but among the poorest. The Thais are the most “with it,” unless they’re having one of their periodic military coups.
* The Vietnamese are the most organized, but that’s because their government is borderline dictatorial. This isn’t simply an issue of asking who speaks for the region, but also, who can maintain sealane security? That task is largely beyond the locals.
Luckily, there’s help at hand for this as well. Japan’s navy is very longrange capable—blue-water in the vernacular of defense-minded wonks— and could patrol the region fairly easily. It’s critical to note that this is not the age of Imperial Japan. There will be no imperial invasions. Most of Southeast Asia may be a generation or two behind the Japanese in terms of economic development, but all the countries that matter are fully industrialized. This would be a defense partnership, not an occupation. Next up is India. In the ways that work, India is a bit like China. It is a huge, sprawling country with wild variation among its heavily populated regions. The Bangalore corridor was an early entrant into the world of tech servicing, while the country also excels at petroleum refining, heavy chemicals, generic drug production, and fast-turnaround consumer goods.
India’s problem is that it might be a bit too varied and too heavily populated. India is not an ethnically defined nation-state like China or Vietnam or France or Poland, in which one group dominates the population and the government, but instead boasts more ethnic and linguistic diversity than any continent save Africa. Many of these ethnicities don’t simply have their own cultures; they have their own governments. These governments often exercise vetoes—sometimes formal, sometimes informal—over national policies. The reverse is often true as well. It isn’t a setup that argues for great connections and smooth business relations.
This is what India has looked like for a millennium and a half. Nothing as minor as the collapse of the world we know is going to change it. But if global connections falter, India’s trademark snarled bureaucracy just isn’t going to be as big a problem as a lack of long-distance maritime transport.
At a minimum the changed circumstances will enable India to build out its manufacturing capacity to serve its own 1.4 billion strong population.
India’s size alone means it doesn’t have to be a global player to be globally significant.
A common problem for both Southeast Asia and India will be capital supply. Since both players sport relatively young demographics, local capital generation is somewhat thin. Since both suffer from complex and riven terrain—all those jungles and mountains and peninsulas and islands— the need for capital to build compensating infrastructure is high, and the opportunities for land-based infrastructure to link up the region’s various workforces are weak at best. Both will pick up many pieces of many manufacturing networks as China breaks down and up, but the industrial plant will still need to be built—and that is not free. With the notable exception of Singapore, none of these economies have hard currencies or stable stock markets. Even if they can maintain political and macroeconomic stability, they will not be destinations for capital flight.
What they all need is foreign direct investment (FDI). The concept behind FDI is simple: money to purchase or build specific facilities— typically industrial plant—in order to produce a specific product. The solution to Southeast Asian and Indian capital problems is likely the same: Japan. The Japanese workforce is rapidly aging into obsolescence and Japanese consumption peaked three decades ago. But the Japanese are still loaded. While their workforce isn’t going to be building much by or for themselves, they are still eminently capable of designing products to be manufactured elsewhere and paying for the industrial plant to make it all happen. Combine Japanese tech and military strength and wealth with India and Southeast Asia’s manufacturing potential and demographic and industrial inputs and you have one of the great alliances of the twenty-first century.
The question is whether anyone else will be invited to join the party.
The Koreans would be a logical choice, but they are just as expert at holding grudges against the Japanese for the 1905–45 occupation of Korea as they are at high-tech manufacturing. It isn’t clear that the Koreans, who utterly lack the naval capacity to look after their own needs, will be willing to reach out to the Japanese in a post-American world. Taiwan, in contrast, is a slam-dunk partner. The Taiwanese and Japanese instinctively share a hostile view of Beijing and have been collaborating on all things industrial since the end of the Korean War.
There is one more region worth looking at: Buenos Aires.
For those of you familiar with Argentina, I’m sure you think I’ve suffered a stroke. Argentina has among the world’s most investorunfriendly regulatory and tariff regimes, and the country’s penchant for flatout confiscating private property has wrecked its local manufacturing base.
All true. All relevant . . . for the world that’s dying. But in the world that’s being born, a world fracturing into regional and even national trade systems, Argentina’s socialist-cum-fascist industrial policy will work much better. After all, if cheap manufactured products are no longer easily available from East Asia, the Argentines will either need to go without or make some stuff locally. And the Argentines hate going without.
That’s likely to lead to a significant regional industrial boom.
Argentines are among the world’s most educated people, so the issue has never been intellectual capacity. The Buenos Aires region is also within reach of cheaper labor markets in Paraguay, Uruguay, and southern Brazil.
The local market of 45 million Argentines is worth going after, and the rest of the Southern Cone—the region that preexisting Argentine infrastructure already links to—adds in nearly a quarter of a billion more. The combined Southern Cone is also a major producer of nearly every agricultural and industrial product under the sun, and there is no one in the Eastern Hemisphere with the capacity of breaking the American security cordon around the Western Hemisphere. In a world that will soon face shortages in everything from foodstuffs to industrial processing to coherent and sustainable manufacturing systems, Argentina & Friends checks all the boxes.
So that’s the where. Now let’s look at the how. After all, the world we’re devolving into will manufacture things not simply in different places and on different scales, but also in different ways. Manufacturing a New World
The longer and more complex the supply chain, the more likely it is to face catastrophic, irrecoverable breakdown.
That single statement contains a lot of angst and disruption.
Evolving from the manufacturing norms of the globalized world to the new norms of a deglobalized one will not be like disassembling a car and then reassembling it in a new location. It will be like disassembling a car and then reassembling it as a bread maker, an apple picker, and a Barbie dream jet. The processes we use to manufacture things will change because the environment will change. Global economies of scale will vanish. Many of the technologies we use to manufacture goods under globalization will not prove applicable to the fractured world emerging.
That means that we, today in 2022, have a lot of industrial plant that just won’t be relevant much longer.
Consider China: Total manufacturing value-add in China in 2021 was right around $4 trillion, some three-quarters of which were for export. The raw value of the underlying industrial plant is easily ten times that, not counting supporting transport and power infrastructure, nor the thousands of long-range ships that shuttle inputs into and end products out of the country, nor the value of supporting codependent supply systems that involve other countries throughout East Asia.
It is all going to become stranded. Deglobalization—whether triggered by the American withdrawal or demographic collapse—will break the supply links that make most China-centric manufacturing possible, even before consuming nations more jealously protect their home markets. Pretty much the entire export-driven industrial plant (and a not small portion of the domestically driven industrial plant) will be written off. Completely.
Not all of it will need to be replaced. Demographic decline means global consumption peaked back in the golden pre-COVID days of 2019, while the fracturing of the global system will further reduce overall global income and wealth levels. But within many of those smaller fragments, there will be a need to build replacement industrial plant. After all, tapping the global market for finished goods will no longer be a viable option.
The characteristics of this new industrial plant will reflect a fundamentally different macroeconomic, strategic, financial, and technological environment. It will be a bit different based on where that plant is located, but some common characteristics will exist across them all.
1. Mass-production assembly lines are largely out. Mass production of any type requires massive economies of scale. Even within the North American market, such production “only” needs to serve about a half billion people, with a combined economy of about $25 trillion. Yes, that’s a lot, but it’s but one-third of the pre-COVID global total and the NAFTA countries will be producing primarily for themselves, not for the world writ large.
2. Reducing economies of scale reduces the opportunities for automation.
Applying new technology to any manufacturing system adds cost, and automation is no exception. It will still happen, but only in targeted applications such as textiles and advanced semiconductors. Such automated applications are already cheaper than human labor.
3. The pace of technological improvement in manufacturing will slow.
Let me make that broader: the pace of all technological improvement will slow. Rapid tech advancement requires a large body of highly skilled workers, the opportunities for large-scale collaboration among those workers, and a metric butt-ton of capital to pay for the development, operationalization, and application of new ideas.
Demographic collapse is gutting the first, deglobalization is fracturing the second, and the combined pair are ending the third.
4. Supply chains will be much shorter. In a disconnected world, any point of exposure is a failure point and any manufacturing system that cannot snuff out its own complexity is one that will not survive. The model of dozens of geographically isolated suppliers feeding into a single, sprawling supply chain will vanish. Instead, successful manufacturing will twist into two new, mutually supportive shapes.
The first will carry out more steps within individual locations in order to eliminate as much supply chain risk as possible. This suggests that such core facilities will become far larger. The second sort of manufacturing will be tiny facilities that supply customized parts.
Machine shops in particular should thrive. They can quickly absorb capital and technology and new designs and new workers, and crank out customized or rapidly changing parts for use in those larger, core facilities.
5. Production will become colocated with consumption. With the global map fracturing, serving a consumer market means producing goods within that market. For smaller and more isolated markets, this suggests extreme production costs due to an utter lack of economies of scale, as well as difficulty sourcing the necessary range of input materials. Larger systems (NAFTA comes to mind) will do much better. After all, inputs sourced in Utah can be used to build a product in Toronto that can be sold in the Yucatan. “Colocation” is relative.
6. The new systems will put premiums on simplicity and security just as the old system put premiums on cost and efficiency. The death of justin-time will force manufacturers to do one of two things. Option A is to warehouse masses of product—including finished product—as far forward in the manufacturing process as possible, preferably at the very edge of major population centers. Option B is to abandon as much of the traditional manufacturing process as possible and do all-in manufacturing as physically close to the end consumer as possible.
One technology suited to the latter is additive or 3-D manufacturing, the idea being that a powdered or liquefied material is sprayed in thin layers over and over again until a product is “printed.” Yes, additive manufacturing is expensive in per-product absolute terms, but the goalposts have moved. Cost is no longer the driving focus, and any 3- D-printed products by definition will have next to zero warehousing costs.
7. The workforce will be very different. Between an alternating emphasis on customization and carrying out multiple manufacturing steps in one location, there isn’t much room for people who don’t know what they are doing. One of the great gains of the Industrial Age was that lowskilled labor could make a reasonable living working on an assembly line. But now? Demand for the lowest-skilled jobs within the manufacturing space will evaporate, while rewards for the highestskilled jobs will soar. For poor countries, this will be a disaster. Moving up the value-add scale means starting at the bottom. Between geopolitical devolutions, demographic inversions, and technological changes, most of those jobs will no longer exist. In addition, shorter, simpler supply chains will reduce overall employment in manufacturing in general as measured in terms of jobs per unit of product produced. The end result? Widening inequality both within and among countries.
8. Not everyone can play. Each fractured piece of the world will need to look to its own internal manufacturing system, and many will lack the capacity. The capital requirements for building out industrial plant are steep. Demographic aging will limit options within Europe. Likely restrictions on capital transfers will limit options throughout the non– East Asian developing world. The regions that can best tap outside capital will be those with the best prospects for tapping resources, producing products reliably, and maybe even selling a few out-ofregion: Southeast Asia, India, and the Greater Buenos Aires region.
The only region likely to be able to fully self-fund its own buildout is NAFTA.
9. Finally, and most depressingly, there are different sorts of losers in this world we are devolving into. It is one thing if your country loses a manufacturing system because someone else has a better Geography of Success for making this or that widget in the age unfolding. Change the map of transport, or finance, or energy, or industrial materials, and the list of winners or losers will shift with it. That’s not a happy outcome for the loser, but it isn’t the end of the world. Unless it is.
There is a difference—a big difference—between a rising price of access and an absolute lack of access. The first leads to an industrial hollowing out. The second leads to outright deindustrialization. Just as with energy, countries that lose access to the building blocks of modern industrial society do not just enter recession, they lose the capacity to play the game at all.
Now let’s talk products.
There are literally hundreds of subsectors across the manufacturing space, comprising thousands of intermediate and end products each. Just a list of them all would slay more trees than this entire book. In the interest of brevity and environmental preservation, we are going to focus on the top eleven in terms of internationally traded value.
The single biggest piece of international manufactures trade is automotive. All those 30,000 parts per vehicle have their own supply chains. Since each part has its own labor requirements and cost structure, a lot of countries produce a lot of steps and often serve as suppliers to one another’s brands and markets. It is pretty standard to find a German transmission in a Ford or a Mexican engine block in a Geely or Malaysian wiring in a BMW.
Of course that level of industrial interplay is totally going away. This isn’t quite as disastrous as it sounds. Because everyone builds a bit of everything, any place where existing supply chain systems are concentrated generates significant network effects, assuming there is sufficient consumer demand for the end product. In China, where vehicle sales peaked in 2018, this is bad. In Europe, where it peaked decades ago, this is worse. But the Texas–Mexico axis is kind of perfect. When 25,000 of the parts are already produced (or assembled) within a fairly tight geography that is within the world’s largest car market, the economics of adding each individual remaining part are not particularly daunting.
Heavy vehicle manufacturing—primarily farm, mining, and construction equipment—in many ways follows the same pattern as automotive. Lots of countries produce lots of different pieces and flip their intermediate inputs back and forth. Parts is parts is parts . . .
. . . but only to a point. Where billions of people want a car, not everyone feels the need to rush out and pick up the latest and greatest backhoe. There’s also the far from minor point that you cannot finagle something the size of a combine into a standard container unit. Shipping difficulties alone mean that most locations that need farming or mining or construction equipment need to manufacture a lot of it themselves.
Taken together, heavy equipment is a bit like automotive in microcosm.
Like automotive, heavy equipment manufacturing exists in the three big manufacturing hubs—East Asia, Europe, and North America—each of which both largely serves its own regional markets, but also provides upwards of one-fifth of components for one another’s systems. Secondary powers—think Argentina, Brazil, and Russia—have managed to preserve their own heavy equipment manufacturing systems due to a mix of tariff barriers and necessity. Moving forward, the German system will be absolutely hosed.
Germany’s demographics are too terminal to maintain production, it is too integrated with other terminally demographic countries to maintain its supply chains, it is too hooked upon industrial commodities imports to even attempt large-scale manufacturing, and it is too dependent upon extracontinental exports to maintain revenue flows.
Night-and-day-different is Brazil. Easier energy and material access. A largely homegrown industry that builds from the wheels up with minimal exposure to any other country’s issues. Add in a hefty need domestically for construction and agricultural and mining equipment and Brazil might see an expansion in sales abroad as other countries fall out of the industry.
Sitting in between the Germans and Brazilians as regard to supply chain sanctity, domestic demand, the security of materials access, and demographic structures are the Italians, French, and Japanese. Italy’s output tends toward smaller models for national reasons (smaller farm fields and congested cities require smaller equipment), which coincidentally are easier to export. France’s system has captured nearly all domestic sales, but remains heavily export-geared. The French and Japanese models will have their wings clipped if they cannot maintain excellent relations with the Americans, the most popular end destination for both. The challenge is less about need and more about access. China faces a similar, if less intense, version of the same problem (internal demand in China is far higher than in France or Japan).
Still, there’s a big difference between having 80 percent of a mining truck and having the whole thing. Luckily, anyone who is pretty good at automotive should be able to prove pretty good at heavy equipment. Many of the same skill sets and infrastructure requirements apply. Within North America, look to the Texas–Mexico axis for mining and construction gear, and Houston in particular. Want farm equipment? It’ll still be the Midwest you’re after.
The lumber industry* straddles the world of agriculture and manufacturing in complex and shifting ways. The value-add process from tree to lumber to pulp—or boards or aromatics or planks—adds up to a cool quarter of a trillion dollars of goods, and even that is before the real work begins that transforms the wood into furniture or veneer or cologne or house guts or charcoal. As you might guess, mapping the lumber industry’s future—hell, mapping the lumber industry’s present—is a snarly process. So let’s focus on the obvious bits: Everyone uses everything. In different concentrations, of course, but everyone uses wood for construction and furniture and fuel and paper and so on. Wood is a base material for human existence, and it has been so long as there have been . . . humans.
But not everyone can produce wood in volume. The United States, as a large temperate zone country with extensive forested mid- and high altitudes, is by far the world’s largest wood producer, but because of its penchant for large, single-family homes packed with furniture, it is also a net importer. Canada and Mexico fill nearly all of America’s surplus needs.
Forget needing to worry about the changes a post-globalized world will bring to North America; the continent is already looking after its own for this subsector.
In a deglobalized world, the industry’s problems are threefold: First, the United States is the source for the more important of globally traded manufactured wood products, like agglomerates such as pellets, sawdust, and particleboard; panels like plywood; and pulp for paper. In a fractured world, such high-volume to low-value products just are not going to sail as far. That will be an issue for the forest managers and processors in the American Piedmont, but will largely pass unnoticed throughout the rest of North America. For consumers throughout Europe and Asia, dizzying product price inflation is pretty much a given, especially since nearly all reasonable product substitutes are petroleum based.
Second, what doesn’t come from the United States tends to cross those geopolitical stress points I keep yammering on about: wood from heavily forested Southeast Asia goes to Northeast Asia, wood from Russia goes to Central and Western Europe. The variety of disruptions in the wood trade to come will be as varied as the product mixes. About the only flow that will maybe—probably?—be okay will be Scandinavian wood going elsewhere in Europe.
Third, there is a big looming environmental issue. In 2019, wood and various wood by-products accounted for 2.3 percent of Europe’s electricity generation, mostly because the EU has some epically stupid regulations that consider the burning of wood and wood by-products to be carbon-neutral despite the pretty much undisputed fact that wood burning emits more carbon dioxide than even coal. More to the point, some half of the trees felled are used as direct fuel, with the vast majority being burned within a day’s walk of the forest’s edge, particularly in India and sub-Saharan Africa. In a post-globalized world, very little about wood-as-fuel is going to be inhibited. If anything, the opposite will happen. If people cannot source globally traded energy products like natural gas or diesel, they will have a choice between not having heat for cooking or staying warm . . . or burning wood. The scale of the devastation—in terms of carbon emissions, land cover, biodiversity, smog, water quality, and safety—caused by half the world’s population reverting to wood burning is difficult to wrap the mind around.
Next up: with the fall of Asia Inc., expect the world of semiconductors to look very different.
The fabrication of semiconductors is an exceedingly difficult, expensive, exacting, and—above all—concentrated process. Everything from the melting of the silicon dioxide powder, to the drawing of the liquid silicon into crystals, to the slicing of those crystals into wafers, to the etching, doping, and baking of those wafers, to the breaking of those wafers into individual semiconducting bits, to the assembling and packaging of those incredibly delicate bits into protective frames that can be slapped into GameBoys and smart lightbulbs and laptops, is typically all done at the same facility. Each step requires clean-room conditions, so rather than ship product multiple times via clean-chain transport, it is safer and more reliable to do it all in the same place.
Taiwan, Japan, and Korea do the really good semiconductors. Malaysia and Thailand handle the midmarket. China has the bargain basement. These facilities just don’t move.
Or, at least, they haven’t. But the world is changing and now they are moving. Constrained as they are by the need for very highly skilled workers, rock-solid electricity reliability, and a host of at-scale manufacturing support systems, most fab facilities will have little choice but to come to the United States.
This highlights a problem. American manufacturing—especially in the information technology space—is exceedingly high value-add. It can, and does, participate in the mass manufacture of high-end chips that are used in servers, laptops, and smartphones. So much so that even at the height of hollowed-out globalization, the United States remains responsible for roughly half of all chips by value despite producing only about one-ninth of chips by number.
Unfortunately, the future of manufacturing will still need lots of nongenius-tevel chips. American workers can only stoop to that level with significant subsidization. Nor can Mexico help: it lacks the culture of largescale precision education required to generate the necessary workforce. If the goal is to manufacture something that only became digitized in recent decades, this is a mammoth problem. You can say “goodbye” to the Internet of Things.* And we should probably prepare for a generation of vehicles that are more analog than digital.
Of course, there is more to semiconductors than just semiconductors.
By themselves, chips are useless. They must be incorporated into wiring harnesses and control boards and whatnot before being installed into other products. That intermediate stage requires eyes and fingers. This not only makes me think about future partnerships with Mexico and Colombia for intermediate manufacturing steps, but also suggests grand partnerships are on deck throughout the industries built around semiconductors in general, specifically computing, smartphones, and consumer electronics.
Computer assembly is surprisingly straightforward (most of the important components are, in fact, semiconductors) and it really just comes down to a question of price point. If it is a lower-quality product and can be done by hand, like, say, assembling motherboards, Mexico will be where it’s at. If more precision is required—say, the installation of displays—and so automation is required, look to America.
The first post-globalization decade is going to be rough for smartphone users. Right now nearly the entire supply chain system is either in Europe or Asia. The European system is probably fine. Most European cell manufactures are in Scandinavia and their regional supply systems are unlikely to face too many challenges. But the Asian system? Phbbbt. Korea is the biggest player, and Korea’s ongoing existence not only as a manufacturing or tech power but as a functional country is dependent upon the Koreans making their peace with the Japanese. A significant wrong step and the entire Android operating system will lose most of its hardware.
As for the Apple ecosystem, Apple designs its products in California, but then entirely outsources its production to a China-centric network that is certain to implode in the not-too-distant future. That entire manufacturing system will need to be remade from scratch within the United States. Southeast Asian states lack the required scale, while Mexico lacks the precision capabilities. Even in the best-case scenario, once the world cracks we will go years between iPhone models.
Electronics—a very broad category that includes everything from white goods to fax machines to routers to blenders to hair dryers—are a bit like automotive in that everyone has their fingers in everything. Unlike automotive, however, there isn’t much of a secret sauce. No one carries out corporate espionage or threatens war over the IP required to make a ceiling fan or garage door opener.
What defines the electronics space is that all-important feature of Orderera manufacturing: labor differentiation. The skill set—and above all, price point—that makes the casing for an office phone is different from the skill set that wires the cord or builds out the digital interface. The successful electronics manufacturers of the future will be the ones who have multiple labor skill sets and price points within close proximity. Look to both Southeast Asia and the U.S.-Mexican border region. Even more than the other sectors, electronics are a big deal. Far more than automotive or computers, electronics are a huge product category and are among the most labor intensive of the manufacturing sectors. It may sound sexy to build semiconductors domestically, but if you want to employ a couple million people, it’s electronics you’re after.
Another big-ticket subsector is aerospace. As with automotive, the big three Order-era manufacturing regions each has its own system: Boeing for North America, Airbus for Europe, and Comac for China. This won’t last.
Comac, despite decades of forced tech transfers and espionage, has proven unable to build all the required components for a functional jet. Post-Order it simply won’t have the capacity to import what it needs and it will simply die.
Airbus isn’t much better. Airbus is a multistate conglomerate of aerospace firms from Spain, France, Germany, and . . . the United Kingdom, and the United Kingdom is responsible for little things like wings and engines. In a post-Brexit world, the future of Airbus was already sketchy. Fast-forward to the aftermath of the pending U.S.-British trade deal and British aerospace will be folded into the Boeing family. Even worse, some of the biggest purchasers of Airbus aircraft have been the Persian Gulf long-haul carriers of Etihad, Emirates, and Qatar Air. All their flights originate or terminate in the Persian Gulf. With the Americans abandoning the Persian Gulf region to its own fate, there is no way in hell that civilian aviation will continue to operate in the area. If Airbus has a future, it will be in reinventing itself as a military supplier for a Europe that can no longer rely upon American strategic overwatch.
In the aftermath, Boeing will take over global aviation. The global aviation market will be much smaller, but there’s something to be said for being the last man standing.
Machinery is where things get sketchy, and not simply because no one really puts machinery into a specific category for data collection. Germany is hands-down the world’s best because the German cultural penchant for anal-retentive precision is precisely what makes for good machinery.
Unfortunately for the world, culture cannot be transferred. No matter how much cash is splurged on it. Just ask the Chinese, whose efforts to pirate German designs and mimic German output have consistently met with failure.
This leads us to three outcomes. First, the United States will be okay.
Mostly. While Americans aren’t as good at this sort of thing as Germans, Houstonians come reasonably close. Second, the Chinese industrial position is utterly screwed. Even if nothing else goes wrong, the Chinese are utterly dependent upon German machinery to maintain their entire industrial behemoth. Third, the world writ large will experience a technological slowdown. Without the Germans doggedly pushing the envelope for what good machinery looks like, expect technical advancement in the space— which is required to manufacture everything else—to stall.
That’s the high end. A complete reorganization on the low end is imminent as well. The two subsectors that will see the biggest shifts are textiles and wiring. Textiles is a low-skilled, labor-intensive industry while wiring is low-skilled and electricity intensive. Since the dawn of the Industrial Age, these sectors have been go-tos for newly industrializing countries trying to get their foot in the door.
No more.
Advances in automation now mean that most yarn, thread, cloth, and clothes can be made via machine in a developed country more cheaply than by semiskilled human hands in Bangladesh. Expect cloth and clothing made from natural fibers to relocate to where the wool and cotton are harvested: in particular, look to the American South, Australia, and New Zealand. For synthetic fibers, it will be difficult to top the U.S. Gulf Coast. Keep in mind that these “jobs” will look very different upon their return compared to their departure in the 1980s and 1990s. A single systems engineer can maintain an acre-sized textile facility all by his or her lonesome.
As to wiring, the U.S. shale revolution has granted the United States the cheapest electricity in the world. Not only is metals smelting coming back to the United States, so too is the next step in the process: wiring. Human hands will still be needed for finishing work in textiles and the fabrication of wiring harnesses for follow-on manufacturing, but what used to be a foot-in-the-door industry has irrevocably changed.
There’s more at stake here than just a few stray socks. Textiles and footwear and wiring are typically among the earliest steps in the development process. Poorer countries use these subsectors not simply to gain income and begin urbanization, but also to build the sort of organizational and training experience to move up the value-added chain into more sophisticated manufacturing and systems. The relocation of these subsectors to more advanced economies in general, and their increasing automation in specific, denies countries that have not yet begun the development process the opportunity to access what has typically proven to be the bottom rung of the process. Whether the country in question is Bolivia or Laos or Congo, the risk is not of devolving to a world that predates 1939, but to one that predates 1800. BREAKING DOWN THE BREAKDOWNS
If anything, this chapter understates the impacts that will reverberate through and break apart the world of manufacturing. Anything that raises the marginal cost of transport increases friction throughout the system.
Simply a 1 percent increase in the cost of a subsidiary part largely obliterates the economics of an existing supply chain. Most locations will count themselves fortunate if their transport costs increase by only one hundred percent.
This is the world we’re moving into. Changes in transport, finance, energy, and access to industrial inputs will make it poorer and more fractured, and will dial back much of the progress we’ve come to associate with the modern era. And even that assumes everyone can continue to source their needs, and in doing so survive as modern nations at all.
Unfortunately, that is not the end of the story. Now we have to discuss who will be around to see this future. Now we have to discuss who gets to engage in the one activity that supersedes all others: eating.
Now we have to discuss agriculture.