Geopolitical view on trade: World needs U.S. more than vice versa

Peter Zeihan

Even if world demographics and American isolationism turn the rest of the planet into a warring, famine-ridden wasteland with no workforce or customer base, the United States will be OK.

But what about Wisconsin dairy?

Author and speaker Peter Zeihan alternately scared the bejeezus out of a Dairy Strong conference audience and made it laugh out loud, albeit a bit uneasily, on Jan. 24 with his pokes at hipster beard butter and the Parade of Morons he called the last four presidents.

Zeihan said without the Cold War, the U.S. doesn’t need the rest of the world. International trade has made the rest of the world dependent on U.S. purchase power, and in a few years, when millennials age out of consumption, the U.S. won’t need to import as much. But the rest of the world will still need our money.

“With global trade, the U.S. has made it so we export and everyone else is a net importer; before World War II, if you wanted to eat, you grew your own damn food because there was no trade,” Zeihan said. “The U.S. has enabled a system where anyone can export something like iron or semiconductors, earn hard currency and then import food from the global markets.”

If you remove the U.S., maritime security and the supply chains that allow American fertilizers, herbicides and pesticides to cross the ocean, much of the world will see at least a 35 percent reduction in crop-growing ability, Zeihan predicted. Famine will set in to a degree not seen since the Napoleonic wars of the early 1800s, when every major grain exporter was at war and food production collapsed.

“This was our pioneer era, the fastest economic and cultural expansion ever,” Zeihan said. “Famine was everywhere but the U.S., because we were selling grain to countries desperate for it.”

That’s where we’re about to be again, he said.

“The greater Midwest is the largest contiguous chunk of arable, temperate, high-quality farmland in the world,” he said. The Mississippi River system’s 13,000 miles are greater than the combined internal waterways of the rest of the world. This chunk isn’t just the richest chunk of territory on the planet, it’s the most securable, he said.

“We are condemned to being an agricultural, industrial, financial and military superpower,” Zeihan said. “Decades of bipartisan effort have yet to screw this up. And we’re not going to figure out how in the next few years.”

That was the good news.

With 5 million people and a country the size of Colorado, New Zealand exports more dairy than any other country. Its dairy herds have doubled since 1990 and will again by 2040. Its moderate climate means cows can be outside all year, and 95 percent are range fed. Frequent rain means grass grows fast.

It all sounds idyllic, and it’s worse for Wisconsin than it sounds, Zeihan said.

“You get almost a feedlot style waste concentration without the waste management that you folks have to do,” he said.

New Zealand’s leadership doesn’t seem interested in environmental regulations, but even if that changes and prices need to increase, it won’t matter, he said.

“Dairy is the single largest component of their export markets, and the Reserve Bank of New Zealand has said that if any dairy operation faces the pinch because of international dairy prices, they’re ready to step in with a bottomless supply of loans to make sure they don’t go out of business. It’s equivalent to the entire American farm bill being dedicated only to dairy.”

“This is a competitor that is going to be with you forever,” he said.

New Zealand dairy is also the lowest in the world in cost, according to Zeihan.

“So low that New Zealand dairy products make it into Caribbean French colonies and outcompete the French themselves in the most protected market and distant market in the world. You will never compete with them on price.

“The big move in New Zealand dairy is to combine American-style volume with French-style customization,” he said. “Just so you know what you’re getting into.”

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