Opps

My grandfather William Archibald Truesdell used to say that the best time to fix the roof is when the sun is shining. Well, folks, there is a storm brewing on the other side of the world that most Americans have not even heard about, and it is going to change everything about how we think about money, retirement, and the next thirty years of your life.

I am talking about China. And I am not talking about trade wars or tariffs or whatever the politicians are yelling about this week. I am talking about something far more fundamental. China is experiencing the worst demographic collapse in recorded human history. Now when I say that, I want you to understand what I mean. I do not mean the worst since World War Two. I do not mean the worst in modern times. I mean worse than the Black Death. Worse than any population decline we have ever seen. Ever.

How did this happen? Well, part of it was policy. You probably remember the one child policy. They did that for forty years. Now here is a little arithmetic for you. If you tell people they can only have one kid for four decades, eventually you run out of thirty year olds. That is just how math works. But the policy was only part of it. Most of the collapse comes from the speed of their development. When America started industrializing and moving to cities, we did it gradually. We had generations to figure it out. Farms became small towns, small towns became bigger towns, bigger towns grew suburbs. There was always a little elbow room built into the American model, which made having children a reasonable proposition.

China did not have that luxury. They did not start urbanizing until 1980, and then they did it all at once. In a single generation, people went from living on subsistence farms to high rise condominiums. They went from having seven children to having one child in the span of about twenty years. The one child policy was stacked on top of that. And now, more than forty years later, there simply are not enough people under the age of forty to have the next generation. This was always going to be a two generation experiment for the People's Republic. It was always going to end. But it has happened so fast that we do not even have an economic theory for what comes next. Humankind has never developed an economic model for what allows an economy like China's to function past 2030. That is how far gone this situation really is.

Now some folks will say, well, why can't China just do what America does and bring in immigrants? We have a labor shortage, we open the doors, and smart ambitious people line up around the block to get in. Fair question. But there are three reasons that will never work for China.

First is scale. The United States has about 330 million people. China has about 1.3 billion. To move the needle over there, you do not just need three times as many immigrants. You need ten times as many people under age forty. It is not clear there are enough potential migrants on the entire planet to salvage China alone, assuming nobody else moves anywhere.

Second is culture. Now look, we Americans have developed a bit of a reputation lately for being a little sketchy on race relations. Fair enough. But China is ninety percent Han Chinese, and they are blindingly racist toward anyone who is not Han. The idea that there are going to be incentives attractive enough to draw large numbers of foreigners to the People's Republic is, frankly, ridiculous.

Third is the governing system. The United States may be a flawed democracy, but it is still a democracy. China is a country where they welded people into their apartments during health lockdowns. Just welded them in. The casual dismissal of the very concept that private citizens have agency or interests is not exactly a selling point for potential immigrants. If your life is bad enough that you are looking to relocate, you are going to apply to the United States or Europe first, places where you can walk around freely. Your life would have to be truly desperate to choose a country where people die in fires because they were sealed into their homes and where the government reads every message on your phone.

So what does all this mean for you and me? It means deglobalization. And that word means something different depending on where you sit.

For globalization to work, you need two things. First, you need cheap, safe, reliable transportation. The lower the cost of transport per unit, the more steps you can have in your supply chain. Second, you need a balance of production and consumption, which is really a function of demographics. You need people in their forties, fifties, and early sixties to generate capital and skilled labor for production. You need people in their twenties and thirties to do some of the lower skilled work and to consume what gets produced. All of this has to be in balance.

The demographic aging we have seen in recent decades means that second piece is simply gone for much of the world. Countries are increasingly finding it in their best interest to hoard whatever consumption they do have and produce more locally. We were moving in this direction before the Ukraine war, before China started breaking down, before the German industrial model began to implode. All of that just sped things up.

Here is a concrete example. The iPhone has fourteen hundred supply chain steps that touch fifty different countries. The plastics probably come from precursor materials in the United States. The copper probably comes from Chile but gets processed in China. The integrated circuits are probably built in Taiwan using designs from California. The system on a chip that ties it all together is probably from Japan but made with components from throughout Southeast Asia. You miss one of these steps, you do not have a phone.

What Apple discovered under Tim Cook is that ninety percent of those supply chain steps now touch China in some way. And when those facilities shut down, Apple stops. That is not the death of Apple. They have billions in the bank and they can rebuild their supply chain somewhere else. But that is a five year process. And Apple will be doing this at the same time every other major manufacturer is trying to do the same thing, competing for the same limited labor in the same handful of countries that still have workers available.

Now here is where the sarcasm comes in, because I cannot help myself. The financial industry spent thirty years telling us that globalization was inevitable, that free trade was the natural order of things, that anyone who questioned it was a backwards protectionist rube. They built trillion dollar businesses on the assumption that container ships would sail unmolested forever and that Chinese factories would hum along until the end of time. And now those same geniuses are scrambling to explain why everything they told us was a permanent fixture of modern life is falling apart in real time. Turns out the end of history had an expiration date. Who could have possibly seen that coming? Besides, you know, anyone paying attention.

For those of us in the United States, particularly those of us planning for retirement, this is actually not entirely bad news. America has defensible geography, abundant natural resources, cheap energy from the shale revolution, the ability to bring in immigrants when we choose to, and the largest cluster of consuming millennials in the developed world. We are going to see high inflation for several years as supply chains get rebuilt. But we are also going to see record economic growth and a manufacturing renaissance on this continent.

The question for you is whether your financial plan accounts for this new reality or whether it is still built on assumptions from 1995. Because the playbooks written back then are about as useful today as a rotary phone. And the folks still selling you yesterday's strategies? Well, they are the same ones who told you globalization was forever. Something to think about.