Jason kicks off today’s show with a discussion on the changing economy and a look at economic prosperity and its effect on human character. Later on the show, he hosts Parag Khanna, author of The Future is Asian and founder of FutureMap. They discuss a trade war and its impact on the Asian continent beyond China. They look at the role of technology and how it’s replacing jobs. They end the show by examining Asia’s impact on global consumption and growth.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:52
Welcome to Episode 1100 and 12 1112. This is your host Jason Hartman celebrator Doing 12,178 days in the real estate business? Yes. I have been in this business now for 292,272 hours. Yes. Wow. That’s a long time. And you know what, like so many people, I would like to leave a mark on this business. I would like to improve this industry. You know, Steve Jobs used to talk about making a dent in the universe, right? Apple certainly did that they changed the face of technology for sure. And of course, many other companies and people have done that over the years. They’re not the only one by any means. But, you know, hopefully we all want to do something that’s going to matter in the long term, right. Denis waitley, who was originally on episode number 150. And then we replayed him on a on a flashback Friday episode. One of my early mentors he talked about planting a shade tree under which you know you will never sit plant a shade tree under which you know you will never sit down other words leave a legacy right? And one of the things that just gets my goat
Jason Hartman 2:17
Yes, it gets my goat it bugs me is the the folks in the business that are just sleazy little weasels. And you know, I think a time and I’ve talked about this before, times of economic prosperity are not good for human character. In fact, I think times of hardship are good for human character. Not all humans, of course, I’m just saying by and large and in the aggregate right, you know, when you have good times when everybody is rolling in the dough, so to speak, ethics, just go out the window, and today I was frustrated by Yeah. a nother story of this. And you know, I don’t think you’ll see anybody else in our little cottage industry that goes to bat for our clients the way we do. You know, I’ve had people come and go with my firm over the years that did not go to bat for clients that serve their own interest and, you know, found a way to show them the door, if you will, because we are definitely on a mission to improve things for our clients and our major enemy, if you will. The common enemy that I think we all have is the folks on wall street who are siphoning all the profits off the top for themselves. You know, it’s just an insider’s game, right? And that’s a big one. But in the real estate business, we got a lot of people that just play the short game. It’s not like golf or the short game matters, right? The short game in golf is really important. By the way, I heard an interesting story about golf last night, you We’ve talked about how golf is really, really lost popularity. I talked about before how in the past 10 years, because millennials just aren’t into golf at all. Golf rounds in the US have declined by 35%. By the way, tangent alert, this is a tangent. So now yesterday, I was listening to a story about how golf courses are closing down. And you know, I’ve talked about this before, this is not a surprise, a golf courses are closing down. But what does it mean to the owners of homes around those golf courses? Well, now there is actually some empirical data on that. And the data says that the value of homes around golf courses declines by a good solid 25% when the golf course goes under. So this is going to be an interesting thing, folks to see how redevelopment happens, what the alternate uses are For golf courses, I mean, this is a tough one. This is a really, really tough, tough one. Because, you know, the people that live around that golf course, they’re not going to want to have a bunch of condos built in there are more homes that destroyed their view. And a lot of it would be pretty hard to do because of the infrastructure problems, the accessibility problems, the roads that you know, this is a problem. It’s a very significant problem. So if you live near a golf course, and that golf course is still working, okay, the future is uncertain. And you should really consider making a move before that changes potentially if you if you own a home around a golf course. So just a little something to be watchful of. But anyway, you know, yeah, in golf, you’ve got the short game in the long game and life you’ve got the short game in the long game. And in life, the long game is where it’s at. But a lot of people playing the short game and they’re just, you know, they’ve just got their greedy little hands out their greedy little paws out to get all they can. Today I was discouraged by yet another one of those same stories, and it gets my goat I’m telling you, it really gets my goat. If you have any of these things happen to you, even if it’s not directly in our industry, we can help you contact your investment counselor at my company through Jason Hartman calm or directly if you have their contact info, ask how we can help you because we can help you with this stuff in more ways than one. And I won’t go into that belabor that point here too much. But today, we’ve got a great guest and this was a very interesting interview that I just did last week. We are going to talk about the future again. Because as Yogi Berra says, the future ain’t what it used to be. And he’s right. Well, the late Yogi Berra, he is still right. He left a legacy a dent in the universe with his funny sayings, you know, when you meet a fork in the road, Take it.
Jason Hartman 7:02
Yogi Berra was just stuck. Just a funny guy with those great those great quotes that he had. But the future ain’t what it used to be for sure. Here we are talking to the author of The future is Asian, the future is Asian. That’s a really important phrase, I think, because most people when they talk about Asian are talking about China. And there’s a lot more to Asia than China. Now, as you may know, if you’re a regular listener, I’ve been to 81 countries I have made it a real point to travel all around the world. I’ve got a trip to mainland China coming up in a couple of months here. And I can’t wait to report from there and do the show. From there. Well, if I can breathe. And of course, I’ve traveled all over Southeast Asia, Hong Kong, etc. and many other places around the world. I think the guests today make some very good points that are important to real estate investors, a guest that I interviewed just Gosh, the day before yesterday, I think it was talked about now we’re back to China, some of the construction in China and these new building processes for building a few, you know, check out this company broad group, right 57 storey skyscraper built in, what was it like 90 days or 60 days or something like that? It was amazing. I mean, absolutely mind boggling how quickly they’ve constructed things. Now. Let’s hope they’re playing the long game and this stuff last, and it doesn’t fall down. But it’s pretty amazing to watch some of the videos on YouTube. I was doing that last night the night before and it’s pretty, pretty amazing, really. But hey, thank you, for all of you who’ve registered for upcoming conference meet the masters of income property, Newport Beach, California, March 23, and fourth, and then of course for the venture Alliance. We have an extra day Monday. Following the event, the event is on Saturday and Sunday as always, and this is our 21st anniversary event of meet the masters. It is our 21st anniversary. Lot of you have been to these events many, many times over the years. We have lots of regulars, I would say easily the audience is maybe 60% maybe even more, you know, we should really check this stuff returning to the event every single year. So it’s always great to welcome you back and welcome the new people as well. So go to Jason Hartman comm slash masters Get your tickets for meet the masters of income property, and they are selling like hotcakes. And you know, hotcakes sell pretty fast especially when people have the craving for them. So don’t forget to get your tickets are still on early bird pricing for meet the masters of income property. So that’s Jason hartman.com slash masters. Yes, that is. Also we’ve got a cruise our first cruise event coming up For the venture Alliance and for guests that want to come to that event will announce details on that. It’s going to include Cuba though very interesting, a time machine trip back down to 1959. Because when communism starts, time stops, that’s pretty much how it works. I’ve been to Cuba before, and it’s like stepping into a time machine and going back to 1959. Quite literally, it’s pretty, pretty amazing place. So more to come on that. But for now, Jason hartman.com slash masters and let’s get to our guest and talk about the future is Asian. Here we go. It’s my pleasure to welcome Parag conic to the show. He’s a leading global strategy advisor, world traveler and best selling author. He is Founder and Managing Partner of future map, a data and scenario based strategic advisory firm. He has several great books, but the newest is the future is Asian commerce, conflict. Culture in the 21st century. And before that connect our graphy mapping the future of global civilization.
Parag Khanna 11:07
Parag. Welcome How are you? Very well, nice to speak with you.
Jason Hartman 11:10
Yep. It’s good to have you on the show. So these are fascinating topics, especially in light of the international trade issues that we’re all discussing nowadays. Talk to us a little bit about conduct tog Rafi First, if you would, kind of what the general premise of that
Parag Khanna 11:24
book is. Absolutely. Well, that book came out a couple of years ago, but in my mind, and certainly based on what’s happening in the world today, it says relevant as ever. I argue that connectivity in the form of infrastructure, like everything from highways and railways to electricity grids, and internet cables and satellites, is really the most powerful force in human history and whatever technological capability we have, we use and we use it primarily to keep building more and more connectivity around the world. So that is, that was a book that really was about globalization and the future of globalization despite all the past pessimism we have today about trade wars and so forth. Connectivity continues to be built all the time. You know, think about China’s Belton road initiative, building all these new infrastructures across Eurasia with 6 billion people think about new internet tables being laid down every month. And that increasing volume of connectivity enables the next wave of globalization, which is both physical and digital. So really, that was a book about the dynamics of all of that connectivity and how it plays out both peacefully and competitively. And especially how it elevates the role of cities in the world cities and mega cities have thriving urban Metropolitan hubs, financial centres, and now really a great country is made up of great cities. So those are some of the arguments in the book.
Jason Hartman 12:46
dig a little deeper into the city component that you mentioned. Why cities? I mean, what do you mean when you say that? I mean, certainly we all know why cities are important and so forth, but what angle Are you taking that from?
Parag Khanna 12:58
I take it from them much deeper angle than most people. As you know, it’s kind of a hot topic right now just to talk about cities and you know, the world economy is based on cities demographics is centered around cities. That’s all true. But we have to remember something even deeper than that. Cities predate nations. They predate empires. They predate civilizations. Cities are really the oldest kind of, you know, social, physical, societal construction that we have. We’ve had cities for 7000 years. So it’s very important to remember that empires can rise and fall countries are disappearing off the map all the time, civil war, but cities persist, cities remain. So they are very important. Now we live in an age of the mega city, right, where truly cities are more important than countries. And again, as I said before, you can’t even have a successful country without successful cities. And you know, whereas for thousands of years, urbanization was an organic process. It just happens kind of voluntarily. Now, it’s become a strategic process. We’re not only do countries consciously and even involve entirely dry people and allocate people in different cities. But we design them in advance with a purpose, like special economic zones, factory towns, ports, we build these from scratch smart cities, as they’re called Songdo in South Korea, Google is doing one. In Arizona, we’re retrofitting cities to add new districts to make them smart, like what Toronto is doing with Google and its waterfront, and so forth. So cities that really become a very strategic, conscious, Competitive Enterprise. And nations get ahead by making their cities get ahead.
Jason Hartman 14:35
Very interesting, very interesting. we’ve all talked about globalization, of course, and we sort of all understand the rise of globalization, what it’s done for, to lift people around the world into or at least towards the middle class. But what is hyper globalization?
Parag Khanna 14:53
You know, there’s so many superlatives like hyperglobalisation and, you know, sort of, you know, unlimited globalization And so far then there’s also the same in the opposite direction like implosion reversal. retrenchment. Yeah, the globalization, you know, I don’t want to sort of grow for the thesaurus, you know, to make my point. But simply put, again, globalization is something that happens because of connectivity. We are building real connectivity more relentlessly than ever, in human history in every dimension, from sharing energy to sharing financial capital to sharing technology and data. So all of that globalization is happening more and more and more. And we haven’t really seen anything yet. You might say, remember that we’re coming up on a period, where soon pretty much every single human being in the world will have a mobile phone. We’re going to have 5g around the world. So if you think that globalization is, you know, nearing an end, you’re basically crazy, right?
Jason Hartman 15:52
Yeah, absolutely. We’ve got this amazing world in which we live where we’ve got this almost frictionless global commerce. The ability to obtain information products, sell products, services, whatever, it’s, it’s truly an amazing time to be alive, as I always say, in the future is Asian. Tell us about the premise of that book, if you would.
Parag Khanna 16:13
So I wrote this book over the last couple of years, particularly having been based in Asia. And, you know, in order to demonstrate a few things, first of all, Asia is Asian Ising. Asia is growing together for 500 years, Asia has been divided by colonialism and the Cold War. And Asia stretches everywhere from the Arabian Peninsula, all the way to Japan, and from Russia, to Australia. In other words, a very, very, very vast distance, encompassing 5 billion people. And it’s been 500 years since Asians had more to do with each other had more dense relationships of commerce and diplomacy with each other than with Britain or America. And now that’s happening in And of course, no one alive today can remember when Asia was Asia a full, not united whole item ever more integrating whole. And that’s happening today. And it is truly the most exciting story in the entire world. So living here, I get to be in the heart of that action. And I’m writing I’ve written this sort of report talks about it,
Jason Hartman 17:18
and you’re no longer in Singapore,
Parag Khanna 17:19
right? I’m based in Singapore. And one of the critical things here is that Asia is more than just China. And for the last 20 years, we’ve had a lot of books about Asia. However, they’ve all actually been about China, like a 400 pages 395 or about China. What I’ve done in this book is to point out that Asia has 5 billion people, and China has only 1.5 billion people. Therefore, there are 3.5 billion Asians were not Chinese, right. And pretty much, you know, no book is written about them together with China to paint an integrated and full holistic picture of Asia in which China has a big part. That’s not The only game in town. And that’s exceptionally important because we are already moving towards a world where India, Southeast Asian countries are growing faster than China. They have younger population. So investment is moving away from China into those countries, Southeast Asia where Singapore is has 700 million people. It has more it receives more foreign investment than China itself does. So in so many ways, if you want to skate to where the puck is going, you know, to use that famous phrase. Sure, you got to be looking at the rest of Asia, not just China. And so, again, that story just has not been told it isn’t being told. And yet here we are, in which that is the fact of the matter. So I really needed to tell that story and that that’s what the book is about. And of course, the impact that it has on the rest of the world. What does it mean for us? If we’re in a trade war with China, what does it mean for the rest of the region? You know, a trade war doesn’t have just two parties, right? Europe is a part of The US China trade war, Southeast Asia and India are a part of the US China trade war because trade is not about winners and losers. It’s about substitution. It’s about who wins, or who benefits from someone else’s loss. Right. And it isn’t necessarily the two players, it can be a third party or a fourth party. And that’s what’s happening right now, again, I can tell you who’s going to win the US China trade war in Southeast Asia, right? Because of all that investment that’s moving out of China. And I can tell you the ways in which it’s good for certain American industries and bad for other American industries, right, because there’s not just one national winner, but sub categories and industries that win or lose. So all those dynamics
Jason Hartman 19:45
before you move on, tell us about how it is for the American worker though, because you know, that’s one of the the sales pitches, is that look, this is good for American workers. And I do believe it as much as I want to be a free trader and you know, embrace the libertarian ethic that when the playing field is so unlevel in terms of wages, regulations, whether they be environmental or worker safety OSHA type things, it’s pretty hard to have straight open trade in that environment, although I love the idea of, you know, open trade and free trade. But can it work given the very different burdens and yolks under which the different parties play?
Parag Khanna 20:32
You know, is it even possible there’s almost no such thing is, you know, straight up free open trade, right, and certainly not with Asia, where industrial policy and subsidies are the norm, you know, and we have to confront that. But in terms of the fate of the American worker, we have to go back to the 1960s and look at, you know, the increasing role of globalization and outsourcing that’s hard workers. We have to look at technology which is hurting more workers than trade is right This is just beyond any doubt has been demonstrated by tons of research. We want to blame China, we want to blame Mexico certainly Trump does. The fact is, and I implore all listeners of yours, whatever side of the spectrum they’re on, to understand this fact, you know, a lot more jobs are lost, just because computers and robots can do the work instead of humans, then trade. And even if you were to seal our borders, and you know, try and bring back all the jobs, companies would give those jobs to robots, not to humans, right. So I just need everyone to understand that. So blaming others is not going to help. I will tell you what’s bad news for the American worker. It’s because of this trade war, China, and other countries are going to say, Hmm, maybe you know, American goods are now more expensive and America didn’t join the Trans Pacific Partnership trade agreement. And America is an unreliable supplier because they don’t want to sell us their high tech stuff and you know, we’re having trouble selling stealing it from America. So what they’re going to start doing is substituting America. Now this is going to be really painful. We see we seen this with soybeans, right? You know, if China’s not going to buy American soybeans, it’s going to buy them from Brazil and Argentina, right, someone else wins. If they’re not going to get semiconductors from Oracle or Intel, they’re going to buy them from Japanese supplier, their German suppliers or Korean suppliers. Now, what happens to three years from now, when it’s time for the 15 different Chinese airlines to procure their next round of airplanes, and they say whom you know, we used to buy half our planes from Boeing and half our planes from Airbus. Now, let’s buy only 30% of our planes from Boeing and 70% from Airbus, because the Europeans are being nice to us, you know, then we’re really really, really going to feel the pain, right? Because that’s a lot of American workers who work for Boeing in all 50 states. So you got to be really, really careful when you play these trade wars and you think that your quote unquote, winning and you think that there’s just one round to the game, these things go on forever, literally forever. That’s why unconnect call graphy I use the phrase tug of war, tug of war is this ancient sport that this ritual really is human ritual. And the tug of war match can go on forever, right? It’s a team that’s eating and hoping for hours and hours and hours. And that’s kind of what tug of war is in the trade world, except there’s multiple teams and the rope goes in multiple directions, you know, and that’s how complicated it gets. So please don’t believe anyone who tells you that anyone has won the war, right? It’s going to morph and mutate and go in all sorts of different directions. But by and large, the biggest mistake you can make is to think that the stuff that you make is so unique that no one else can sell it. Because the law of technology diffusion is that even some of the most sensitive and wonderful inventions in the world, you know, that American vented are being caught up by others and others are starting to make them too. So it turns out that China only depends on America. We’re a very small set of components. And even those, it can either now make itself or get from others. So we’ve got to be really careful and be more calculated about these things and not rhetorical.
Jason Hartman 24:11
Okay, so fair enough. That’s the set of components you talked about. But what about just the overall money, the consumer market the size of that market? I mean, the US is, is still by far the biggest course that dynamic is shifting over time. But right now, and for quite a few years, the US has the biggest consumer
Parag Khanna 24:29
market, right? Yeah, yes and no, so the US is the largest economy in the world in US dollar terms. But in purchasing power parity terms, which is a much more useful indicator of economic size, because you price the goods and the currency that people actually buy it. And then by that metric, which again is far more useful, and way more economists use it now. Now, China is already the largest economy in the world, and our economy, the American economy, because it’s 65 70% based on consumption. A lot of those services are domestically. bought and sold, so they’re not really all that accessible in a way to foreigners. So in terms of the American consumer market,
Jason Hartman 25:09
what you mean there is, you know, you can’t export a haircut, right?
Parag Khanna 25:12
That is that thing go Yeah, construction, you know, even like legal services a lot, a huge part of the American economy, right is stuff that Americans buy and sell to other Americans. And there isn’t really a lot of competition for those things, because it’s like, you know, like a haircut, right? Or it could be university education, right, or something like that. So the slice of the American economy that’s accessible to foreigners to sell their physical goods into or something like that is not nearly as large as you think it is. And in terms of economic forecasts, 90% of the consumption growth in that category is coming from the 5 billion people in Asia. It’s not coming from the slow growing Europe. It’s not coming from our sluggish economy, which is going to go into recession next year. What do
Jason Hartman 26:01
you mean the US economy? Right?
Parag Khanna 26:03
Right? Right. So now what’s happening is that as I said, Asia is Asian Ising. Asians are selling to other Asians rapidly, right? They’re selling each other more mobile phones, they’re selling each other more televisions. They’re flying in planes to each other’s countries as tourists more and more and more.
Parag Khanna 26:22
Okay, so let
Jason Hartman 26:24
me just, I want to just drill down on this because I think it’s really important. First of all, I love to have you explain the purchasing power parity point, because I think that is very important, as you mentioned, but also, this seems like this discussion kind of harkens back to Peter shifts theory from many years ago, not sure if you’re following his work about this decoupling that never happened, because all of the stuff you said is completely accurate. But I don’t know if there’s one more major point which is talking about just the overall size of the US economy versus the Chinese economy versus the Indian economy versus you Know the eurozone? It’s just bigger. Right? You know, it’s just a giant economy. Of course you can’t export.
Parag Khanna 27:06
So the world has three giant economies. And let’s just say that they’re roughly, you know, relatively equal in size, especially in PPP terms. North America, especially the US is one of them one pillar. Let’s say it’s a third, right? Europe, the eurozone is actually bigger than the US economy, but let’s just say it’s a third, and then Asia right is a third. So we are going to be in a multipolar economic world for a long time. Whether you’re number one, number two or number three is really doesn’t matter for the purposes of this conversation. If you’re one third, one third, one third, right. So now, let’s take all of the Fortune 500 American companies Coca Cola, Boeing, General, electric, Google, you name it right now, for the majority of American companies, they generate anywhere from you know, 40 to 70%. of their revenues from abroad. Emily, there’s exceptions, but some of the biggest, most significant largest employers and so forth. Globalization matters for them. It matters a lot. Right? When Apple’s sales decrease internationally, it affects the share price, right? Because even though Apple you know, even though Americans still buy more Apple stuff than any other country, and there’s more Apple stores in America, than almost the rest of the world combined, that rest of the world combined is still a hell of a lot of iPhones and iPads and whatnot. Right? Yeah. So that number goes down because of the trade war. I don’t know if you’ve seen the news, but just in the last few days, Chinese have been so angry about the way I said in the preamble. Sure, you know, they’re smashing their iPhones in public on the streets and they’re getting bribed to sign up for Huawei phones as it is while we sell way more phones than apple and China anyway, right now, what that’s going to do is that’s got Carl Icahn and the activist investors in a frenzy that they were already In because they’ve been trying to short sell Apple for a long time. So Apple, you know, being the largest company in the world, this matters, right? The largest American company of men matters in the international dimension effects even such a blue chip, steady, huge American company. It certainly affects lots and lots of others as well. Ideally, you’re, you’re big in America and the rest of the world, right? Why would we be talking either or? Yeah, right. It’s not an either
Jason Hartman 29:25
or it’s just you have a bunch of customers and hey, this is your customer,
Parag Khanna 29:28
global American companies, global European companies and global Chinese and Asian companies that are all competing at home and they’re all competing abroad, right? Anything you do, that screws up your market share abroad, where the competition is getting tougher and tougher and stiffer and stiffer, and they’ve got home field advantage. That’s just not going to be good for you. Right? It’s just not right. I mean, even a third grader understands this. So what we have to assess our policy against that yardstick, are we making it easier And that’s why, you know, even conservatives, even, you know, lots of Republicans, they regret that the Trump administration did not join the Trans Pacific Partnership trade agreement. In fact, the very first thing Trump did, or maybe the very second executive order he signed when he came into the White House, was to pull the United States out of a trade agreement with Asian countries that the US itself designed and created. And now, as of literally yesterday, that traded, we went into effect in every other country decided to join it except us. So now Canadians will have more preferential access in Asian markets, then we will, right. And so we’ve really got to appreciate that this is not about just winning and losing substitution.
Jason Hartman 30:43
Sure. If, of course, it’s not it’s not an either or I totally agree with you totally. But America though, if you take the Peter Schiff decoupling statements from many years ago, that so far didn’t happen, but he said they would happen much sooner than they did. And you know, we’ll see what the future holds. We don’t know yet. But America could decouple more easily than anybody else, right? Like if if there was this decoupling, because the US actually has its own middle class consumer base and can sell things to its own consumers. So it’s much more important that those other countries export than the US export. And if the US workers in this whole trade war discussion what bothers me about it, and I’m not even really taking a position, right? It just bothers me that, it seems like none of the news media is giving any credit to the Trump side, in that American wages are finally going up after 40 years. It’s insane that there’s been no real dollar increase since 1977. I mean, of course, you can slice and dice stuff and, you know, say, Well, yeah, but there’s this and that. I know, I get it, but you know, on the macro sense, right? Americans really haven’t had a real dollar raised in decades. Okay. And, you know, no one’s talking about how there’s just more jobs, better jobs, wages are going up in the US. They’re all just talking about how you know, the prices of iPhones are going to go up. And that’s true, but I don’t know, you know, maybe it’s worth it to have the price of. I mean, everything is so cheap. I can’t even believe it. When I shop for stuff nowadays. It is shocking. You know, I try to remember how life was in the 80s and the 90s. I’m old enough, right? And when I bought things then things were really expensive. The world is awash in cheap goods. I mean, maybe our expectations on on the price of things. They’re just too high. The everything well,
Parag Khanna 32:32
the world, the world is awash in cheap goods, because a because we outsource production. Yeah, I agree. If we nearshore them, if we nearshore them and we force them to be made at home, a couple of things are going to happen. Let’s again let’s use the iPhone as an obvious example. So now they’ve said they’re going to set up a factory in Texas, and happens to By the way, the partnership with Foxconn who is their usual partner which happens to be a Taiwanese company Don’t miss the irony in this right It’s gonna be mostly it’s going to be mostly automated. So it’s not going to create that in the demony jobs. But here’s the other thing. Most iPhone components are made by Asian economies like South Korea and Taiwan and Japan, and then they’re assembled in China. Now, if you import those components, you just massively expanded your trade deficit, which is exactly what Trump is trying to close. So irony number one, now I’m with you on this, right, what you said is super important. two levels. Number one, United States or North America as a continent is the most autarkic self sufficient continent in the world, we have all the food, all of the fuel, all of the water, all of the people, all of the industry and all of the technology to survive a world in which globalization disappears. No other part of the world can do that. So yes, that is geopolitically divine. It is what many people call the special Providence, the beautiful term to capture a very fortuitous circumstance for which all Americans should be unbelievably grateful. Yes, they
Jason Hartman 34:00
definitely should. And not only that, we got these handy big oceans separating us. So the likelihood of being invaded is extremely low.
Parag Khanna 34:09
Exactly. All of that is wonderful. But now it works in several ways. It means that if you want to ship those iPhones and you want to sell them abroad, because we did establish that it is important to sell them abroad for your company to really have a high value and market cap, right. It takes a long ass time, pardon my French to ship those things across the Pacific Ocean. Meanwhile, Huawei is making them in the factory next door to 25 major Chinese cities and selling them there. And by the way, they’re investing massively in expanding their production and all the other fast growing Asian economies. So they’re going to outsell you 22 one, right, if you are not making them near your customers, which is why Dell does something very different, right? Dell makes its laptops as close to its customers as possible. And it too has a global customer base. It makes the laptops for Saudi Arabians and Saudi Arabia makes the laptops Chinese in China, the laptops are Indians in India. And that’s why it’s doing well in those markets. It’s close to its customers. Here’s the other aspect of it. That is a double edged sword immigration. Yes, wages are going up because labor markets are tight. A lot of it has to do with that. But also the fact that, you know, you have a skill shortage, right? So we don’t have a demographic problem, the sense that look, we’ve got plus 300 plus million people, of course, there should be a job for everyone. But not everyone has the exact skills that are needed. So tech companies don’t have tech workers. And since we don’t have enough tech workers and not letting them in, you know what, those companies are doing something they’re not hiring. It’s not that they’re shutting down. It’s not that they’re shrinking, they’re just expanding abroad. They’re shifting jobs abroad. They’re shifting entire offices abroad, right? to capitalize on those markets. You can’t stop them from doing that. You shouldn’t stop them from doing that because they’re going to grow abroad, make more money, pay more taxes, bring more money, home and so on. It’s a virtuous cycle. But when you cut off immigration, that’s a mistake. Because we actually have a talent mismatch in the economy. So it’s it is okay to give Trump credit for certain things like the tax cut the fiscal stimulus and the ways in which that’s driving some amount of investment, creating jobs, reducing unemployment, wages going up. However, if the trade war also raises the cost of goods makes things more expensive, and you have inflation, while wages are not really skyrocketing, right? let’s not kid ourselves, we should be very glad that they’re taking up for the first time in decades, as you just said, but let’s not pretend that suddenly we have you know, some kind of German like our Swedish like salaries, right? We have nothing of the sort. So suddenly, you’re going to find that that’s going to be damaging to the consumer economy and its health. So these things are just much more delicate, then the bluntness of the conversation tends to suggest
Jason Hartman 36:51
I hear you, I hear you. Well, look at this is stuff pirogue that we could talk about for three days. I love these topics. They’re they’re very fascinating. In your latest book, The future is Asian, I think you’re you’re absolutely right in putting those economies together. And one of the interesting graphics that you show, you never really went into the PPP thing, feel free to do that if you want to take a moment, but you do have a very interesting graphic in the book about that, showing the United States as number two to China and with when you look at it in terms of PPP at $18.57 trillion, and China at about 3 trillion higher than that at 21.42 trillion, India being third, anything you want to say about that before we wrap it up.
Parag Khanna 37:35
Again, this is now the new conventional wisdom really, in terms of understanding economic composition, you take a basket of you know, everyday goods and you assess what people actually pay for those things. So you know, a carton of milk and a DVD player cost a lot less in China in renminbi in their currency than they do in US dollars. So why would you pretend that You would calculate the GDP of that country based on what an American would pay for the same things in America. The Chinese person doesn’t live in America, right? So it’s actually a very obvious thing. And now that we have the statistical tools, it’s not really that complicated to measure economies and pdv sighs that’s what we more and more do. And because and this is the really the most important point here, China is not as trade dependent as we think it is. Its trade dependency is gone down. It’s not as low as our trade dependency, again, because again, we’re very self sufficient. But their trade dependency is fallen very, very drastically, because they also are very large domestic consumer economy because they also are building a large middle class. And so they also are more cushioned from global trade wars much more than we think they are. So a lot of countries that we think of as being all about low wage labor doing menial factory where they can’t survive without putting together widgets and sending them to us. They only make rubber duckies and welcome in Like that’s kind of the old Asia, right? This book is about the new Asia, in which services economies are more than 50% of GDP just like they are in the US, you know, where mega cities and, you know, the consumer economy is thriving, flourishing, where it’s not either or, but it’s both and they have the factory work and the services work. It’s not a trade off between retail and e commerce. They have booming shopping malls and booming online trade, right? All of those things are happening at the same time in this part of the world. When you come here, you see it, you feel it. And you realize that go back to the point you were raising earlier, there is a bit of decoupling going on decoupling when it was articulated 1015 years ago, was undoubtedly premature, because it hadn’t happened yet. I’m starting to see hints of it happening in a number of sector economic sectors, when it comes to the availability of capital and liquidity and so forth. And so it’s an idea that I actually do revive in this book and explore it. I don’t go claim that we’re moving to a world of you know, islands that are detached and divorced from each other. But I am arguing that it’s it’s happening in certain areas more so than it did in the past. And it’s something that we need to pay attention to. But most of all, to kind of come full circle. It really elevates the need to stay connected to those markets, because they are drifting away from you in some categories. And if you want to be a big global company, you’ve got to make the extra effort to be connected to those areas, otherwise they actually will decouple,
Jason Hartman 40:29
right? Absolutely good stuff. give out your website Prague tell people where they can find you and all your great books.
Parag Khanna 40:35
Parag Khanna calm da ra g k h A and na calm and the book and everything else is on that site as well.
Jason Hartman 40:43
Fantastic. Thank you so much for joining us from Singapore today.
Parag Khanna 40:45
Jason Hartman 40:48
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