New World Order

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China has been the factory for the world for the past two to three decades but President Xi has made China too risky for business. There is potential for societal unrest in China with mass protests over Covid Zero and other policies. If you are maintaining a factory in China, you would want that factory to service the local China market. You would factories in other places to service other markets.

It no longer makes sense to save on costs with China is the only location for global factories. Apple has nearly all of its iPhone and other products made in China and exported globally. The China export hub strategy is too risky.

Business risk mitigation means that companies like Apple are making other factories in Vietnam and other locations outside of China.

National interests like military and security concerns means governments are requiring critical parts of the supply chain to be localized inside the country or spread out in multiple locations where a national crisis would not cripple key capabilities. This was the case where the USA required Taiwan Semiconductor to make new semiconductor chip factories in Arizona. The US also made massive investments in Intel to get Intel back into the semiconductor game.

What will happen to the future factories and Where Will the Factories Go?

There will be more highly automated factories to reduce the impact of higher labor costs.

The factories would need to be placed where there is the demand. If 50% of the purchasers are in the US then the factories need to be in the US and Cananda. Some of the factories for that demand could be in Mexico but Mexico’s drug cartel problem is not risk-free.

There could be some exporting from factories Vietnam, India and other parts of Southeast Asia. However, there could only be some production in those locations for lower labor cost and exports.

European locations have issues as well because of the Russia-Ukraine war. The war causes regional logistical issues and energy supply and energy cost issues.

After the Transition

This will mean the GDP of the ASEAN countries will rise. Factories will spread back to the United States and to many non-China countries. The countries outside of China and the USA that are most viable are Vietnam, Indonesia, Mexico, Phillippines, Malaysia, Thailand and India. There wil be some going to other countries as well which could have economic benefits for those countries. However, there will be one country. The strategy of reducing risks means many countries will get factories that move or expand from current China centric operations.

27 thoughts on “New World Order”

  3. This whole time that China is “handling” these, mostly self-inflicted, internal problems like these riots, insane covid lockdowns, drought, tech crunch with the semi-conductor issue, banking and property crises, that demographic timebomb is ticking away.
    Watch some of Peter Zeihan’s videos on the subject. He estimates that they may have overestimated their population by 100 million and it was ALL people born after One Child Policy was implemented- so the age that typically makes the next generation

  4. Do not forget my friend that most of the human resources in science and technology are of European origin, without going any further, I think Mr. Gil from IBM is Spanish. So we Europeans will take good note and if we have to cooperate with China and Russia, don’t doubt that we will do it.

  5. China is bust. The population is over stated and might already be in decline. The economy looks like its over stated by a significant percentage (Which also means the debt to GDP ration is going to be well over 100%). Xi is getting more authoritarian not just to hold onto power, but to stop the whole thing falling apart.

    China is not food secure or fuel secure. Whereas America is. Despite all the talk, I think the 21st century will turn out to be an American century too.

    • The only way it won’t be is if we throw it away. The problem is, a substantial faction in US political leadership WANT to throw it away.

  6. Low tech production will move to to other countries and china will climb to high tech production. High tech production often requires huge upfront cost and china has advantage in this field because its sheer size.

    • Quality control and corruption. China won’t move catch up to the rest of the world in high tech manufacturing. There’s too much unrest, and where there’s unrest, there’s crime, including bribed quality inspectors (which China has long had a problem with). This will only get worse, especially as their population ages and the few young that are left seek higher-paid employment than factory work out of necessity.

  7. Nothing will happen to China. Hoping for its collapse will only bring disappointment. China will simply adapt.

    • I am not saying China will collapse. I am not hoping for problems with China. China’s leadership is causing its problems. China leadership felt threatened by its own successful technology companies like Alibaba. China chose to mostly wreck Alibaba.

      Chinas leadership is choosing to prioritize other issues over business and economic success and economic stability. It is only a rationale response for global companies to spread out to other parts of the world. This means not concentrating in China. This is already happening.

      China will not crumble but growth will be less and foreign investment will be less.

      The US government over two administrations has also chosen to encourage decoupling and incentivizing or forcing companies to move business back to the US. The chip bill forced key technical people who were US citizens to leave China or lose citizenship.

      • I think the Chips Act would not strip U.S. citizens of their citizenship. First, that would be almost unprecedented, unless they are dual citizens of China already. Second, there are international laws in the U.S. and in precedent against creating stateless people, and unless China was willing to make them citizens first, the U.S. can’t make U.S. citizens into people without a home. Even Edwin Snowden is still a U.S. citizen, though stripped of a working U.S. Passport and certain to face punishment should he ever return to the U.S.

        Agree that China is shooting itself in both feet – both through their insane Covid policy, and through allowing people to be financially wiped out through collapsing their own CRE market, though finally some bailouts are beginning to show up because China cannot survive without robust CRE and banking sectors either. They need a Land Value Tax for both, but that is another story.

        • The key thing to understand here is that China isn’t run by people who care about China. Few countries are run by people who actually care about the welfare of the country they run, and China is hardly an exception. Most countries are run by people whose primary motivation is their own self-interest and aggrandizement.

          The point of democracy is to force the rulers to act in the country’s interest anyway, or end up being replaced. But Xi doesn’t have that check on his power, and he’s made enough enemies along the way that losing control means losing his head. So his priority isn’t the welfare of the Chinese, it’s his remaining in control. And if that means remaining in control of a poor China, so be it.

          China’s lockdown policies are economically and medically insane. But as a mechanism for beating the people down, and finding people who won’t be beaten down in order to cull them, they might seem to make sense. The risk for Xi is that so many of those people will be exposed at one time that he gets a revolution instead of a nation of well culled sheep.

          • Yep. He’s already put himself in a place where he has no honest information, and sometimes no information, good or bad. Also, he no longer has an inner circle of anything like experts for dealing with various kinds of difficulty. It’s just him. No way does one many have the body of knowledge in his own head to do all that. This is especially true when the problems facing China are increasing every day, both in number and in magnitude. And this even includes some that were not self-inflicted.

            Possibly, it will culminate at that point where they only have one worker for every person too old to work. Xi probably won’t be in power another 20 years to see that, even presupposing he is still alive then, but this disaster (and others) will dog his every footstep for the remainder of his days.

            He is 69 years old. I wonder if he is a happy man?

  8. Interesting conundrum. What is to be post-globalization?
    Can most industries and most supply chains and most vertical integration be re-shored, re-patriated, regionally/allied-sourced (read non-Asian, non-African, etc)?
    But what of labor costs – say textiles, consumer items, medium technology equipment assembly; so cheap/ unenforced elsewhere?
    But what of environmental issues – mines, water usage, and emissions; so cheap/ unenforced elsewhere?
    But what of basic materials, energy, rarities; so unevenly distributed – rare earths, natural gas, uranium and like, aluminum, lithium, many agricultural products; so localized and developed elsewhere?
    looks like hyper-inflation and finished product shortages will continue for years..

    • The western hemisphere is mostly self-sufficient. African countries will need food and will trade with whatever materials they have that may be valuable. Everyone else that isn’t on America’s friends and family plan will go hang.

      • Barring any longer term droughts across the country, this could be disastrous for a country that has been food secure for its entire existence.

        • I wouldn’t say that the US has been food secure it’s entire existence. Since the development of modern agriculture, maybe. But if we were stupid enough to follow the Netherlands’ example in suppressing the use/availability of nitrogen fertilizers, we could certainly end up food insecure. And our government seems to aspire to moving us down the food chain.

          The US has been a net food exporter for some time, which means that any reductions in our agricultural productivity come at the expense of *other* people going hungry. That’s great for us. But it directly subjects other people’s food security to the sanity of our own leaders’ decisions.

      • “Everyone else that isn’t on America’s friends and family plan will go hang.”

        I have a rule that says if I ever realize I am a character in a novel, a movie, or even some other kind of story, and discover I am not the protagonist, I must 1) immediately cease any serious opposition to the protagonist (who is typically flawed, but probably has some good points despite that) , 2) attempt to befriend or ally with the protagonist, or 3) divest myself of any interests that may put me at cross-purposes with the protagonist and ensure I am in a place they shouldn’t much care about.

        I’m not saying the US is the protagonist of anything but, at least since the end of WW II, a lot of countries would be much happier places today had they pretended it was, and then followed this guidance.

        For example, even now, if Russia pushed out Putin and gave all indications of wanting to reform and become one of the good guys. They would, in all probability, get tons of help, even with reparations to Ukraine still on the table.

        • Interesting world view – self-philosophy.
          Surprised a Ukraine comment could be slipped in past the bots.
          Unfortunately, Russia is a near-lost cause. The rot (in the sense of pro-expansion, Russo-superiority values), at least in some kind of ‘closet’ sense, goes from the top all the way down to most of the common middle-age+ population (even if news is being kept from them), as polled by reasonably independent polling firms. We can only hope to contain them that they may find some path/ value system to success internally, before they seek validation by infected/invading others. Unlikely.
          Also, most of the G7 countries, especially US, Canada, UK, Germany -and- also Australia have a special kind of work ethic, risk profile, entrepreneurialism, individualism, and pro-techno-future-abundance thing happening that motivates them. This is the biggest source of country-scale happiness and is not prevalent or easily reproducible in other cultures – though they can certainly import it’s results or emulate its’ process. Point: other countries don’t really have a lot of ‘happiness’ potential per se – which is not a crime and will likely still lead to growth and technology spread.
          Also, re: movie protag thing. As I read more about Elon’s values, exploits, and purported goals, he appears to start resembling a certain Moonraker Bond villian – especially with his pro-self-natalist values (on top of the Mars occupancy, etc). Reports indicate he wants the 6 – 8 children per generation over 8+ generations so he can have the equivalent of a metropolitan system-family – strange but published.

  10. Is there a rebellion brewing in China? Is it kind of like a modern day version of the Taiping Rebellion? Has President Xi lost the Mandate of Heaven?

  11. Yep. The problem of despotic regimes, technocratic or any other kind, is that they appear to be faster and leaner, because they can actually make decisions on a rush, build grand projects and make all dissenters shut the f-up.

    But that’s also their weakness: they unavoidably take decisions that damage their own goals, and have to stick to them to avoid showing any weakness or fracture. Something democracies have since day 0 and have to deal with, but most of the time they reach some mutually agreeable compromise.

    But not in these despotic regimes. Because the regime has to be infallible and unrepentant, or no longer be.

    • And another reason, and one that we are seeing, is that Party officials are afraid to deliver Xi JinPing any bad news.
      “Covid policy in my province? Going great!”

  12. Ultimately, miniaturization and automation of production will lead us back to more healthy mostly self sufficiency of small partipatory communities. People main drive will be again care for onelelf and their community rather than fear and a desire of power and control. We need to become aware of this potential in order to allow it arrive faster.

    • It’s a beautiful thought, but most will tell you that history moves in cycles, and that most of it has been contention between those who believe that a few (themselves) should rule, and those that don’t particularly want to be ruled.

      Unfortunately, it might be more accurate to say that most of it has been contention between different factions of those who believe that a few (themselves) should rule.

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