Some birthday season it’s shaping up to be. Canada now has two provinces considering separation, while the US’ coastal regions are now voting in communists and refusing to celebrate 250 because of Trump Derangement Syndrome. Kind of puts a damper on the birthday celebrations. It’s worse than getting a pair of socks.
Is it the end of good days, or the beginning of something better?
It is easy to see the negative, because holy moly there’s a lot of it, and also because it is thrust into our face all the time. The news is a hammer in search of painful nails. To be fair, a lot of what is happening in the world really is negative. But maybe it isn’t as negative as it seems; maybe a lot is just discomfort from change.
This period is indeed the end of something, but that something had to change somehow.
To think about the tumult going on in the world, it helps to think of conservation of momentum, an under-appreciated phenomenon. Conservation of momentum is in simplest terms that the momentum of a system remains constant unless no external forces act on it. The math is mass times velocity, but think of the effect as the difference between getting hit by a pickle ball and a puck travelling at the same speed. Few teeth are lost in pickle ball. Unless dentures fall out.
Conservation of momentum describes the way our world operates in a philosophical sense; life runs in grooves of least resistance and stays moving at that pace and direction until some blow that knocks things around, but if the mass is large enough, it takes a mighty force to change direction.
Conservation of momentum shows up in big ways. An earthquake is the result of tectonic plate shift, which is very slow. Continents do not move quickly, but as you can see with mass times velocity they don’t have to to have a lot of momentum. But friction – an external force – builds up immense stress when trying to slow that tectonic momentum. An immense amount of force builds as the plates ‘catch and release’ (the earthquake is the release of the stresses that have built up when plates are held in place by friction for some time, until their momentum carries them forward again once friction forces are overcome, causing an earthquake).
Who cares, you might think, except the analogy greatly helps understand what is happening in the world. Economies are somewhat the same, running on a sort of autopilot with a great deal of momentum for some time. Friction starts building but not enough to slow the momentum, until the stress is so big that it releases in a big way (named Donald J. Trump). These economic and cultural forces break free much differently than tectonic plates. Think of the economy as the force of habits that build up, that we take for granted, that we just expect to continue. At a certain point they can’t, and then there is an earthquake in a different form.
Here is what’s been happening recently. Over the past half century, the US made essentially a trade with the world – it offshored manufacturing, it created huge global trade deficits, and it ran up massive debts in doing so. All this happened with a lot of momentum. Part of the equilibrium that kept this all going was the US’ global security presence, keeping international waterways open, funding a disproportionate share of NATO and the UN, and maintaining the global reserve currency which had pros and cons but did offer global liquidity. US dollars were treasured everywhere in the world. This model worked for the US, and for most of the world, so a lot of momentum built up, and it was very hard to change that.
But that model was unsustainable for the US. Debt is growing at an alarming and unsustainable rate. Entitlement programs eat up a massive chunk of the US budget, and so cutting spending by any material amount is impossible without introducing great hardship to some American demographic sectors (such as, cutting pensions or medical care subsidies). So it just doesn’t happen. Social services are sacrosanct, as is military spending.
The US therefore decided, because it had to at some point, to in effect cause an earthquake by doing something about those forces that had built up. Debt growth had to stop, US industry had to be rebuilt, trade and fiscal deficits had to change.
The problem is, there is no real recipe for what they are trying to do. There may have been similar structural problems in the past somewhere on the globe, but today’s current state of technological development and geopolitical situation make this situation largely unprecedented. One strategy to deal with current challenges was to rewrite the rules of international trade via tariffs. We had become used to a world of shrinking tariffs and increased global trade, and trade frictions were sent to the World Trade Organization for arbitration.
But this time around, the US kind of went nuclear on everyone by changing the landscape entirely: play along with increased tariffs (which were seen as an effective tool to force re-shoring of industry) or lose the US as global security force, lose access to the US market, or both.
Increased tariffs were only part of it though. An intertwined fight, one that must be resolved also, is supply chain mastery. The US is a far different beast than it was fifty years ago on the most crucial element, energy, because it (together with Canada) is energy self-sufficient. When that was not the case, when the US scoured the world for oil, there was a strong self-interest in being the global security blanket.
Supply chain weakness was exposed by the thought of re-shoring industry. One doesn’t need to look for more than a minute or two to realize that China and other countries control the critical elements of modern manufacturing, key metals, minerals, and processing capability. So there is no re-shoring without addressing supply-chain certainty across the board, which then became intertwined with not just tariff activity but the fight for control and influence that stretches from Venezuela to Iran. China, in particular, has spent decades quietly securing control of the source of many metals and minerals, and possibly more importantly the processing of such. That status quo could not continue, and the US decided to do something about it.
Now that was an earthquake, of the economic variety, which brings us to the other birthday kid this week, Canada. Canada is functionally tied to the US economically because it is a relationship that makes perfect sense. The US has the world’s largest consumer market, Canada has an abundance of everything, and we share the world’s largest undefended border.
Canada fell under the same existing system that had tremendous inertia; the US provided Canadian national security (we do have our own military of course, but it is silly to pretend it could do the job in the case of a serious attack), and, Canada being an export oriented nation, we sent most of our goods to the US market. Far easier to send goods via trucks or rail or pipelines for several hundred miles versus shipping around the world.
These ruptures are not easy to fix. The US, a very politically divided country, faces its 250th birthday trying to find its way through this new world, adapting to the reality that I could not afford the previous status quo, in a binary political environment that grows more hostile by the day. The US is undergoing an immense test of the strength of democracy, and everyone on earth should wish them well.
Canada is in a similar state of flux, trying to adapt to a new world that does not run on the same smooth ball bearings as in the past. We are caught in the general net of US re-shoring which is a universal push. There is little or no chance that Canada will cease to be one of the US’ main trading partners, but the rules we’ve become accustomed to are changing, and change is unsettling.
It is also worth remembering that Canadian and American assets (and Mexico’s as well to some extent) form a ‘Fortress North America’ which could be the envy of the world. We really do have everything here, from raw materials to food to the most glorious standard of living the world has ever known.
All against a backdrop of reporting that dials in on the very worst, permeating brains and poisoning everything. A German tourist had an interesting comment online while visiting the US for the first time: “If you want to hate America, watch the news. If you want to love America, drive through it.” A refugee from China, who came to Canada after fleeing his home country in a dinghy (I’m betting he switched craft at some point, it’s behind a Globe and Mail firewall so maybe you can find out) said this: “If you have never experienced the harsh inhumanity and pressure and persecution under Communist tyranny then you won’t understand how strong the desire can be to fight for freedom and democracy and rule of law…”
Energy security. Metals/minerals mining and processing. Agriculture. Water. All the ingredients for greatness, with only one stumbling block: the will to enable production, innovation and development.
Will North America regain its mojo? Or will we go down the bitter path that makes communism sound like a good idea?
Things could get much better, or get much worse. As each country celebrates a national birthday, let’s hope constructive and positive energy takes root and the change is for the better.
At the peak of the energy wars, The End of Fossil Fuel Insanity challenged the narrative of imminent fossil fuel demise, facing into the storm. And now everyone is coming around to this realization as well. Read the energy story for those that don’t live in the energy world, but want to find out. And laugh. Available at Amazon.ca, Indigo.ca, or Amazon.com.
Email Terry here. (His personal energy site, Public Energy Number One, is on hiatus until there are more hours in the day.)