112817PeterZeihan1540x800.jpg Janet Kubat Willette/Farm Progress

Geopolitical analyst opines on U.S. politics, trade and NAFTA

Peter Zeihan gives NAFTA 50/50 chance of surviving renegotiation.

The election of 2016 may have been the beginning of a political shakeout that could last a decade and that will have implications for trade and agriculture.

“The two-party system that runs this country is currently off-line,” said Peter Zeihan, founder of Zeihan on Geopolitics, speaking at the Minnesota AgriGrowth Council annual meeting in November in Minneapolis. “Now this is normal, healthy even. Technology changes. The balance between the states evolves. Demography shifts. Politics moves with all that . . . on a delay.”

The last time the political parties faced this upheaval was during the 1930s and 1940s, he said. It took 12 years for the political parties to settle into what they’ve been known as. Before the Great Depression, the Republicans were the party of big government.

In 2016, it didn’t matter who won the national election, he said, because whoever won wasn’t going to have a party to rule with or negotiate with. The Republicans officially control all three branches of government, yet they have struggled with major pieces of legislation.

“The structure is currently gone and until we can reformulate the parties so that we can have a conversation about the world, we cannot identify a goal and until we have a goal, we cannot have a policy,” Zeihan said.

The two major voting blocs in the United States are the Baby Boomers and the Millennials. The Baby Boomers are evolving into conservatives, as to be expected as they age, while Millennials are populist. They are not liberal. These two factors mean that the U.S. right now, under President Trump, likely has the least populist, most inclusive president it will have until at least 2070, when the Millennials cease being the nation’s largest voting bloc.

 

How will U.S. politics impact global trade?

Prior to the end of World War II, the U.S. didn’t trade. Following the war, the U.S. brought its allies together in Bretton Woods, N.H., and introduced the concept of free trade. The U.S. bribed its allies with global trade security and thus put together an alliance to fight the cold war. It worked, with global GDP expanding by a factor of 10 and the longest period of peace and tranquility in human history, Zeihan said.

However, as the U.S. has continued to provide security to global commerce free of charge, the idea that the U.S. got any sort of security quid pro quo has faded.

The Chinese have overtaken the U.S. as the world trade hub; Brazilian farmers are challenging U.S. agricultural dominance and Russia is exporting instability.

“We subsidize the alliance, the alliance gives us our security, that was the deal,” Zeihan said. “Trade for the United States isn’t about trade. Trade is about security. We’ve just forgotten to ask for something in exchange and as a result, it’s all falling away. And we should expect it too, and that’s OK because the United States is the least involved economy in the world. Trade is about security, trade is not an economic program for this country, never has been.”

 

What about oil?

The U.S. and Canada are now net oil exporters, which is a game changer, he said. Energy dependence changes the way the U.S. views the world and removes the U.S. as a global arbitrator. There are now three simmering wars, which have implications on global oil trade.

The Persian Gulf. If the U.S. steps back from the Gulf — and the nation has the fewest troops there since 1941 — it’s up to local powers to figure out who is in charge.

The former Soviet Union. If Russians are going to use military tactics to reshape the world, they have to do it now because of declining birth rate and aging population.

Southeast Asia. There’s a century-old feud here that is only going to get worst if there is a lack of access to oil.

 

Will NAFTA survive?

Zeihan gives the North American Free Trade Agreement a 50/50 chance of surviving the renegotiation process.

Mexico is the biggest market for U.S. agriculture and the leader in the Mexican presidential election combines the worst aspects of Donald Trump, Hillary Clinton, Ted Cruz and Bernie Sanders, he said. Relations between the U.S. and Mexico are at the lowest point since the Mexican-American war.

“I’m not saying that NAFTA is doomed. Honestly, if there’s one piece of the trade work that needs to survive, it’s NAFTA,” Zeihan said. “What I’m saying is in the last 6 months I’ve gone from thinking NAFTA is a done deal to renegotiation will just be some dotting i’s and crossing t’s to this organization is in very, very real danger.”

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