US as World Police and Globalization
After WW2 the US has been the policeman of the world, providing security on the seas and at global hotspots. This has allowed each country to specialize and trade with each other, what we call “globalization”, and it has reduced costs and allowed for the growth of wealth globally.
All countries have benefited from this, and especially China, who used globalization and specifically export to other countries to become much wealthier.
At that time the baby boomer were the working class and this demographic was huge, providing a lot of capital to invest. Interest rates were cheap and companies took advantage of this to expand their capabilities, thus lowering product costs.
Now the US is no longer wanting to patrol and enforce global order on the high seas. Piracy on the high seas and other global conflicts have and will reduce the shipments of goods from a place of manufacture to their place of consumption.
China has increasingly locked its doors and implemented anti-foreigner policies. This is now acknowledged by the West, who have now moved product production to smaller nations such as in South-East Asia (Vietnam, India), and Mexico, to name a few. The West has also reshored manufacturing back to the US and to friendlier and more stable countries such as Mexico, Canada, South Korea and Japan, repatriating profits from China. Deglobalization has begun in earnest. China is no longer the world’s factory.
The boomers are now retiring, and pulling their investments back to safer government bonds. Interest rates have markedly risen such that more risky investments to places such as China are no longer worthwhile. Investment by companies is now much more expensive.
Because China grew so quickly due to manufacturing world products, so many people in China moved to the cities, where there was work in factories, moved into smaller apartments and therefore had fewer kids. This is on top of the draconian “One Child policy” that was implemented 30 years ago. China is now experiencing both deflation, a loss of global factory orders as well as a marked reduction in workers. China will experience deindustrialization due to political policy, demographics, and their own economic problems. There is no way for China to overcome these major structural and social issues.
The manufacturing move out of China will not be easy but is unstoppable. There is a deficit of manufacturing because new manufacturing facilities in the West and other friendly countries is not quite ready and cannot fill the hole left by China. Meanwhile the investment needed to build up back the manufacturing infrastructure outside of China will require much more expensive investment. Further as most world countries age and have much fewer kids, there will be a skills shortage in almost all countries. This points of many years of inflation ahead.
The US will do well. It has the cheapest energy globally, access to natural resources, a young workforce due to immigration, and friendly nations both in Mexico and Canada. It is separated by two oceans and is, therefore, much less at risk of being invaded and going to war.