Final column at World Politics Review

The New Rules: Globalization's Future Depends on Stable U.S.-China-India Order

BY THOMAS P.M. BARNETT | 30 APR 2012
COLUMN

Editor's note: This will be the final appearance of Thomas P.M. Barnett's "The New Rules" column at World Politics Review. We'd like to take this opportunity to thank Tom for the insightful, compelling analysis he has offered WPR readers each week for the past three years, as well as for the support he has shown for WPR over that time. We wish him continued success.  

Amid all our current fears regarding the global economy’s potential “double dip” back into deep recession, a longer-term question stands out: How can a supposedly declining America protect the golden goose that is globalization while managing the rise of twin economic superpowers in the East -- namely, China and India? History says that three is a crowd when it comes to system stability. Invariably, some conflict will arise to trigger a two-against-one dynamic that must yield to either the stable stand-off of bipolarity, as during the Cold War, or the emergence through decisive conflict of an acknowledged unipolar hegemon, as in the early post-Cold War period.

Read the entire column at World Politics Review.

Chart of the day: You can import the milk cows. The water is another story

Fascinating WSJ piece on China importing cows like crazy to build up its dairy stock.

Since 2009, China has become the world's most important buyer of dairy cows, driving up prices for calves world-wide and putting pressure on other markets such as alfalfa and bull semen. China has imported nearly 250,000 live heifers, or cows that haven't yet reproduced, since 2009, according to data tracker Global Trade Information Services. Last year it spent more than $250 million on 100,000 foreign heifers, about 25 ships worth.

China old cows were European and it has a cattle ban on North America since the mad-cow disease scare in 2003, so it's buying up stock in Australia, New Zeland - even as far as Uruguay.

Story describes the setting-up of modern American-style dairy farms (our cows outproduce the world on a per-head basis), but the trick is the amount of fresh water they require.  All the places they import these cows from are relatively water rich (more global freshwater share than population share), whereas China is 22% of the world pop with 7% of the water.

Tricky business, that.

But clearly, the attempt shows how intent China is on continuing to try and remain food self-sufficient. China won't succeed, but it'll try like all get out.

Chart of the Day: Different listing of shale gas reserves globally

Previous one I had found (and used in brief) said:

1. China 36.1 trillion cubic meters
2. US 24.4
3. Argentina 21.9
4. Mexico 19.3
5. South Africa (didn't write down because not in Pac)
6. Australia 11.2
7. Canada 11.0

Here's an old post that has similar 1-5 ranking expressed in tcf (like below), and the weird thing is, it agrees exactly with the FT numbers for China, Argentina, Mexico and South Africa but puts the US at 862.

This one, in bit FT full-pager says:

1. China 1,275 tcf
2. Argentina 774
3. Mexico 681
4. South Africa 485
5. US 482
6. Australia 396
7. Canada 388

Big difference is US ranking/estimate.

Second one says EIA, as in U.S. Energy Information Agency, so I guess you gotta go with that one.  

Or is this just weird mistake by FT?

No mistake.  After some quick Googling it turns out the EIA said 862tcf a year ago and says 482tcf now, reducing its estimate of recoverable shale gas by 42%!

Betcha some industry experts refute that!

Will have to see where that number goes over time.

The coming American industrial renaissance

WSJ piece on Dow Chemical building . . .

. . .  a multi-billion-dollar plant to convert natural gas into the building blocks of plastic in this coastal city [Freeport TX, just south of Houston], becoming thelatest chemical maker to capitalize on abundant gas supplies that are helping spur a renaissance in U.S. manufacturing.

This is all wonderful news, but it doesn't stop up from still exporting a significant portion of our now severely glutted natural gas supplies to improve our trade deficit and empower our extractive industry further to take its revolutionary fracking techniques global.

Natural-gas futures closed Wednesday at $1.95 per million British thermal units, down 55% from a year ago and the lowest price in 10 years.

This is killing futher exploration and production in the U.S.

Why do we allow this glut to remain bottled up in the U.S.?  This crazy-ass notion of "energy independence."

GM casts its global lot with Shanghai Automotive

Favorite subject of mine, that I highlight in the current brief: the creation of what fmr IMB CEO Sam Palmisano calls "globally integrated enterprises."

GM links itself up with Shanghai Automotive Industry Corp to create a GIE that looks to take on Honda, Tata, VW, etc on a global basis while cementing GM's participation in China's booming domestic car market.

GM's tie-up with SAIC is considered one of the region's most successful. GM and its partners in China have a 14% share of the auto market, the world's largest. The company's sales volumes have grown 41% since 2009.

GM chief exec: "SAIC is the principal relationship that we have around the globe now [italics mine] and we expect that to be the case in the future."

GM and SAIC are now jointly eyeing exports to LATAM and eventual production there.

Amazing stuff, as GM impresses with its bold global vision and execution.

Elvis has re-entered the building

Interesting WSJ piece on how Snoop Dogg and Dr. Dre are testing out a touring approach at the Coachella festival that sees him on stage with a hologram recreation of Tupac Shakur - he of many posthumous albums.  The guy has been dead for 16 years.

Technical wizards claim "This is not found footage.  This is not archival footage. This is an illusion."

One imagines a well-designed avatar that's detailed enough to work at a visual distance in a dark auditorium/arena.  It uses the same technology that the company in question, Digital Domain, employed to render the "younging" Brad Pitt in "The Curious Case of Benjamin Button."  Done live, I suppose it's a high-end version of Disney's Haunted House ride.  The basic trick, says the piece, goes all the way to Victorian England.

If you saw the most recent Mission Impossible movie, Ethan Hunt employs something like this when breaking into the Kremlin.

What would you pay to see a dead figure "live" on stage?  I am sure we'll find out over the coming years.

Still, as someone who does public speaking, it's hard not to be intrigued at the possibilities.

Canada looks east, as US market complications pile up

Per the recent Wikistrat simulation (North America's Export Energy Boom), Canada grows weary of the complications of exporting energy to the US market (see Keystone XL) and starts to spot easier venues going West to Asia:

Kinder Morgan Energy Partners LP KMP +0.40% said Thursday it will begin a $5 billion expansion of its Trans Mountain pipeline, nearly tripling the capacity of crude oil it can ship to Canada's west coast—the latest project aimed at moving the country's rising oil production to markets outside the U.S.

Currently, almost all Canadian crude exports travel to the U.S. While Canadian oil output has been climbing fast, pipeline capacity to move it from the country's biggest oil patch in landlocked Alberta to U.S. refining markets is stretched. 

The resulting glut, and rising oil production in the U.S. itself, has depressed prices for Canadian crude.

Our dysfunctional politics not only scares off the Canadians, it creates the same weird glut dynamic amidst our fabulous boom in natural gas production.  While Asian markets scream for LNG and can't get nearly enough, we refuse to export. An objective look at that would suggest some dumbass mercantilist logic having gripped some immature rising economy, but - of course - those who seek to deny LNG exports have all sorts of economic illogic at their disposal.

Meanwhile, we demonize China over similar bouts of stupidity, but at least there you can spot some legitimate developmental logic (all those rural interior poor still to be delivered).

We are living through some very bad political leadership and have for years now. I think history will judge the Boomer generation as among the worst political leadership cohorts ever suffered by America.

WPR's The New Rules: In Globalized World, Time Is on America's Side

Second-to-last column at WPR.

There is a popular tendency to characterize globalization as an elite-based conspiracy or as something imposed by greedy outsiders upon unsuspecting native populations, hence the enduring belief in the possibility of its systemic reversal. In truth, the spread of modern globalization reflects a bottom-up demand function, not a top-down supply imposition. People simply crave connectivity -- in all its physical and virtual forms -- as well as the freedom of choice that it unleashes. This simple truth is worth remembering when we contemplate America’s global role in the decades ahead.

Read the entire column at World Politics Review.

Chart of the Day: China's capital stock compared

From the Economist, with arguments not exactly settled by the comparison.

Reality/fear is that too much of China's growth is via capital investment. Compared to other economies, that part seems undeniable.  But like with India, we're talking continental-sized economies where hundreds of millions of rural poor are still left behind, so investment is clearly in order for a very long time.

The per capita comparison, however, shows how China remains a poor country by modern standards.

Another interesting tidbit:

China's rising investment and falling consumption as a share of GDP are commonly portrayed as an economic anomaly. Yet this pattern is normal in a rapidly industrializing country. In a traditional agricultural economy farmers consume most of their income, but once industrialisation gets under way a rising share of national income goes to owners of capital, who invest it in factories and the like. Investment rises as a share of GDP, and consumption falls. During their peak periods of industrialisation, South Korea and Japan saw an even sharper rise in investment relative to GDP than China has seen over the past 20 years.

You can call this the glass-half-full argument on China's long-term growth, and it's just as true or no more false than the half-empty variant:  coastal China must shift from extensive to intensive growth, and there the labor crunch and demographic aging will force evolutions very similar to a developed economy.  But interior China is another whole economy ready to take off - again - like China Coastal has for 2-3 decades. Of course, not being coastal will make this a far harder task in terms of attracting FDI and the manufacturing it enables.

But that just speaks to a certain economic slowdown that is inevitable.  We have a strong West Germany economy (Coastal China) being forced to bring along/accommodate/prioritize somewhat an East Germany (interior China).  Coastal China/Beijing will do this for political stability reasons, but slow down the overall economy it will - even as it assured plenty of long-term growth and development (all that urbanization, for example).

Ah, the complexity of modern China.

The future of American agriculture has arrived

Been briefing and writing about this one going back to about . . . I wanna say 2006.  I remember the slide I had my old slidemaster Bradd Hayes generate for what was still the Blueprint for Action brief.

Here is the reality as captured in the piece: US demand flattening, China's skyrocketing - especially for dairy (it's a growing middle class, mind you).

The head of California Dairies: "We're in an evolution. No question."

Markets "once treated as an afterthought" are now "reshaping the relationship between rural America and the rest of the world."

What are you really exporting when you export milk - even milk powder?  Water.  Whether or not you take it out for packanging, a whole lot of water goes into milk - directly and indirectly.

That's why the Kiwis have been in the lead.

It wasn't just the geographic proximity but the excess of water on a per capita basis (New Zealand has about 5 times the water it needs).

California ag exports to China and HK are up 85% since 2008: "All of a sudden, milk powder has become this valuable commodity." The sent this year's Miss California to China to hawk pistachios.

Amber waves of grain, my friends, in a back-to-the-future development that marks the resurgence of the economy - with ag and energy in the lead.

And yeah, both are plenty high-tech.

Wikistrat post @ CNN-GPS: The consequences of France shifting left

Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy.  It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.

The countdown has begun for France’s first-round presidential election on Sunday, and while socialist challenger François Hollande is expected to beat center-right incumbent Nicolas Sarkozy, there’s a decent chance that a second run-off election will be required for Hollande to crack the 50 percent of the vote mark. Either way, we’re likely on the verge of a major political shift for one of Europe’s pillars – right after the wobbly Eurozone had hoped to close the door on its threatened dissolution.

We know what you’re thinking:  socialists, lots of new government spending, the end of the “Merkozy” tight bond between France and Germany!

So what are we to make of this looming quake?  How high will it register on the political Richter scale?  Wikistrat asked its global community of experts to ponder this, and here are the 8 points they chose to highlight.

Read the entire post at CNN's GPS blog. 

Nice time down in Tampa with a living legend

Major General James Livingston (USMC, ret) received the Medal of Honor for his service in Vietnam in 1968. He is now the head of Kronos Advisory, a strategic advisory firm XO'd by Michael Smith and headquartered in Charleston, South Carolina.  Kronos will soon announce my role as partner (stay tuned for the formal announcement). The firm has focused heavily on counter-terrorism and the irregular warfare space since its organization in 2011, and provides a lot of pro-bono support to members of Congress interested in terror-related issues. I will lead the firm's expansion into other areas of work, namely strategic assessments and and systems analyses for USG clients.

We three flew down to Tampa early this week for talks. Hadn't been at MacDill in a bit.  Got to see a few friends on the side while in town.

It was a real honor (no pun intended) to finally meet the general face to face and spend some quality time.  He's a very impressive individual (especially in meetings) and we share a lot of views. I look forward to collaborating with him and Mike in the future.

Hollywood gets itself some Chinese

Old Jack Welch bit: you can't succeed in global economy without succeeding in China.

My addendum: you can't succeed in China unless you're Chinese.

Solution: Get yourself some Chinese.

Hollywood has seen overseas B.O. rise from a tiny share to well over half in recent years. More specifically, while the US market is flat, burgeoning middle class China's is booming.

WSJ sees two different markets, but I already see a Chinese market that, with incredible restrictions on the number of US imports, is already half-synched to our blockbuster mode.

You know about Spielberg already turning toward China for future financing.  This piece talks about Disney doing the same.  Co-productions will become the norm, connecting talent with bucks (literally).  Yes, nothing will change the flops-v-tentpoles ratio. Indeed, it is likely to rise in the short-run, but Hollywood is very adept at figuring these things out, much like Japan does in its very clever global marketing of anime.

In the meantime, we be treated to the glorious hysterics of the "Red Dawn" remake. [The Chinese dodged a movie bullet there, as the original script had them invading, but now we get the fantastically implausible depiction of North Korea doing the same - much like a recent (pretty good) video game "Homefront."  The kicker: MGM rebooted the script so as to not lose out on the growing Chinese box office.] But, over time, this will be a good collaboration and a bilateral image reshaper that benefits the planet.

WPR's The New Rules: Globalization in a Post-Hegemonic World

My third-to-last column at WPR:

International relations experts are pretty much down on everything nowadays. America, we are told, is incapable of global leadership: too discredited overseas, too few resources back home, too little will -- period. For a brief moment there, while China held up the global economy during the recent financial crisis, much credence was given to the notion that we were on the verge of a Chinese century. But that popular vision has also waned surprisingly quickly, and now the conventional wisdom centers on China’s great weaknesses, challenges and overall brittleness. Amazingly, where we spoke of a U.S.-China “G-2” arrangement just a few short years ago, now there is a sense that no one is in charge.

Read the entire column at World Politics Review.

Wikistrat post @ CNN-GPS: What should the government cut?

Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy.  It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.

America is in the midst of yet another long-term government deficit problem that we once thought we had licked in the go-go Nineties.  Remember when we were going to retire the federal debt?

Just like back then, political candidates now regularly foam at the mouth about which “redundant” federal agencies they’d whack the minute they set foot inside the Beltway. This begs the question: What activities are inherently federal?

According to the Preamble of the U.S. Constitution, the legitimate candidates should cover one of the following goals:

• Form a more perfect union
• Establish justice
• Ensure domestic tranquility
• Provide for the common defense
• Promote the general welfare, and
• Secure the blessings of liberty to ourselves and our posterity...

Hmmm.  Not as clear as one might hope for.

Like most people, we spot a lot of wiggle room in that list, so this week’s Wikistrat exercise involves asking our global community of experts what should be kept and what should be ditched in the coming federal budget wars. The following is our list of lists!

Read the entire post at CNN's GPS blog.

Catching a glimpse of new World Trade Center "Freedom Tower" construction

On charter bus (with wifi!) after all-night drive from Indy to Manhattan (not advised).  Chaperoning my son's championship show choir's end-of-competition trip to Broadway for various training opportunities with local professionals.  They will sing at Ground Zero tonight and then we catch "Phantom," which I've always wanted to see on Broadway (not sure how I've missed it all these years).

Really something to see Freedom Tower in distance as we approached.  It's now over 100 floors.  Very positive sight.

I look forward to some ribs at Virgils!

Fascinating scandal with potential to destroy much more than the politician

Fascinating twist to an already overwrought bit of political drama. Bo Xilai was the poster boy for analysts who predicted a Maoist, right-wing reaction to the growing sense among the princeling/coastal crowd that another wave of reform/liberalization is due (what "Uncle Wen" has been peddling for a while now).

While we will never know how he would have fared, absent the personal issues, in any such struggle, I still think he was going down no matter what and that this set of circumstances just made it easy.

But what's fascinating now is the extent of his privileged family's misdeeds.  This is the kind of stuff that opposition parties jump all over, but in China, because it's all one big Party, it must be simultaneously purged and condemned publicly and shoved under the rug. I think the awkwardness of this whole show may prove to be a turning point on thinking within the Party that ultimately it needs to create its own acceptable opposition before circumstances force it in a far more destabilizing fashion.

No, I'm not moving off my timetable of the late 2020s (although I'm always open to being pleasantly surprised). I'm just calling this out as a potential milestone on that path.

States and localities fighting over hydrofracturing drilling

WSJ story about states pushing for fracking while localities fight them over noise and infrastructure that comes with it (want to police it more vigorously).  State lawmakers are enacting laws that restrict the rights of cities and counties to regulate these things and that's creating some genuine local resistance.  The states are seeing dollar signs in terms of tax revenue and are running a bit roughshod.

So we're starting - as usual - to see this fought out in courts (ex: seven PA towns suing the state over desire to use local zoning laws to regulate things; drilling company in NY appealing state court rulings that say towns can use zoning laws to ban fracking).  All sides naturally cite the "special interests" of their opponents.

Point being, the court fights are just beginning, introducing a certain regulatory uncertainty to the whole package. This was a prominent feature of one of the more negative scenarios we explored in Wikistrat's recent "North American Energy Export Boom" simulation.

WPR's The New Rules: Hubris Drives Mistrust in U.S.-China Relations

Writing in Foreign Affairs this month, Henry Kissinger opined that, when it comes to the future of Sino-American relations, “conflict is a choice, not a necessity.” Those are some serious words from one of history’s all-time realists, but more important than his analysis is the fact that he even felt the need to issue that public statement regarding these two ultimately codependent superpowers. A trusted part-time adviser to President Barack Obama, Kissinger knows he has the president’s ear on China, the target of this administration’s recently announced strategic military “pivot” toward East Asia.

Read the entire column at World Politics Review.

Wikistrat post @ CNN-GPS: New global sources of demand

Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy.  It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.

When Americans are warned that the “era of cheap credit is over,” we’re really being told that the inherent advantage of owning the world’s reserve currency is coming to an end. No, it won’t happen overnight, because China’s renminbi is still far from becoming a serious rival.

But the end is coming all right, and it’ll make all that Thomas Friedman hyperbole about a “flat world” a whole lot more real. America simply won’t have the advantage of being able to float debt - of all kinds - as easily as we did in the past, which means we’ll need to compete more intensely on the price and quality of our goods.

The primary driver here is China’s need to shift from a super-saving economy to a super-consuming economy. It’s gone about as far as it can go with export-driven growth, and now it needs to turn on its domestic consumption big-time, but doing that means China’s willingness to finance the debts of others will decrease - thus the end of cheap credit.

So, accepting all that, what can America anticipate when it comes to new sources of demand in the global economy?  What are some of the hot goods and services of the coming years?  We asked Wikistrat's global community of strategists for some ideas, and here’s what they chose to highlight:

Read the entire post at CNN's GPS blog.