Our New Global Economy

(suspenseful music) (horn blares) (crowd applauds) (camera shutter clicks) - [Johnny] The US government is quietly reshaping the global economy in ways that will change our world forever. (tense music) You can see this in just one sentence from Joe Biden's first address to Congress. (Congress applauding) - Think about it, there is simply no reason why the blades for wind turbines can't be built in Pittsburgh instead of Beijing.

No reason, no reason, none. (Congress applauds) - [Johnny] This seems just like a boring political statement, but I promise this statement is a bigger deal than it seems because it marks a new era in our global system, a system that all of us participate in, whether we know it or not, or maybe it's a rerun of an economic system that the globe turned to right before the Second World War. - There's no reason why American workers can't lead the world in the production of electric vehicles and batteries.

I mean, there is no reason. We have the capacity. (Congress applauds) (tense music) (machine flutters) - [Johnny] In this video, I want to peek under the hood of the endlessly complex and fascinating global economy, to show you just how deeply connected we've all become and how those connections are being cut and weaponized.

All of this thanks to new threats, new risks, new realizations, new values, and above all, a new rivalry between two great powers. This is the world that we are moving into. It's how things will work for decades to come, and it's important that we understand it.

(suspenseful music) So let me give you an overview of what is becoming the new global economy. - The new tariffs from both sides went into effect earlier this morning. - [Reporter] The US tariffs have kicked in.

- China can't put as many tariffs on us as we can put on them. - China is still the biggest threat to the United States. (tense music) - [Biden] Folks, we need to make these chips right here in America.

- Hey, so for a long time I've been at war with marketers, people who call my phone, even though I don't want them to, and who send me emails, even though I never gave them my email address. We're all familiar with this. It's called spam, and it is increasingly a problem.

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Click the link in my description, use the code, and you'll get the big discount. You can try it out and see if it clears your life of spam and makes you feel like you have a little more privacy in your life. Let's dive into this story.

It's a big one, it's an important one, and I'm excited to share it with you. (mysterious music) The economy that we live in, that we all take for granted, is actually relatively new. The clothes that you're wearing right now, the computer or the phone that you're looking at to watch this video, the materials that your house is made out of, the fibers in the blanket that you use at night, the food you eat, all of it is a product of perhaps one of the most significant achievements of our species: global trade.

(mysterious music) (camera shutter clicking) Early on, humans discovered the magic that occurs when a group of people specialize in producing something valuable like grain. They make more than they need, and then they take that excess and they give it to another group who also made too much of something because they specialize in a specific thing, maybe textiles. And through this exchange, both parties benefit way more than they could on their own.

It was this kind of cooperation that leveled our species up beyond any other animal on Earth. So we just kept doing it. In fact, the history of our human civilization is largely the history of people trading on an ever-growing scale.

Today, this is normal. We call it the economy. By the time the 1900s rolled around, we had a pretty connected world.

There was global trade all over the place, but it was still pretty clunky. Everyone had different trade rules, different currencies. Countries were worried that foreign products would threaten their domestic producers, so they put up trade barriers and imposed big tariffs on stuff coming into their country.

Then, 70 years, ago came that war that almost tore this world apart. (explosions thunder) (engines rumble) Out of the ashes of that war, the US emerged as the most powerful country ever. It had troops and influence in every corner of the globe.

And with that new power, the US and its allies wrote a new playbook for the world economy. (dollar sign chimes) They would make it so that the US dollar was the top currency. Everything would kind of be pegged to the US dollar.

This helped stabilize the whole system. It helped it move more predictably. It helped countries send and receive money across borders.

The US also got countries together with the goal of lowering the taxes imposed on products flowing in and out of their country: tariffs. And through all these efforts, all these new rules, borders opened up. Investors could put their money almost anywhere on Earth to grow new businesses.

Corporations could look to far away lands for cheaper workers to set up their factories. The world became one big market, and it started to benefit hundreds of millions of people. (bright music) So much so that even anti-capitalist China couldn't stay out of this global economy that was so unrecognizably open, that was so much more open than anything the world had ever seen.

There was way too much money to be made, so China jumped in. They said that they would remain communists, but they would open up a few dozen of their coastal cities to be open for business in this new global market. Millions of China's rural poor flocked to the coastal cities, these gateways to the global market.

They showed up ready to work, and to work for cheap. A world away, over in the United States, corporations looked at all of their factories in places like Detroit and Buffalo, and realized that it would make a lot more sense for them to move all of these factories to China where they could pay workers a fraction of the wage. And, spoiler alert, all these coastal cities in China that opened up to the global economy soon looked like this.

Hundreds of millions of people in China lifted out of poverty and thrust into this new middle and upper class, all thanks to the magic of the global economy based on the rules and policies that the US had set up after World War II. It was so good for China and a bunch of other countries, but for the many Americans whose jobs had just been given to someone in like Shanghai, this didn't feel like magic. It felt like betrayal, like a recipe for poverty and ghost towns.

(haunting music) This China shock was one of the first big tastes of the economic pain that this global economy could inflict on huge numbers of people. But to everyone else, it was totally worth it, because thanks to this system, people were suddenly seeing prices at their stores drop further than seemed possible. Washing machines, shoes, tools, toasters, couches, shirts, socks, toys, mattresses, lawn chairs, anything you can think of is now flowing from Chinese factories and available for dirt cheap at your local Walmart, all while transforming the lives of people in places like Vietnam, India, Chile, and Thailand, who saw huge economic growth during these years.

So by the '80s, China's fully in the global economy, and it is a gravy train. The US and UK both elect leaders who love this free-trade global capitalism. - More trade, not less is the wave of the future.

- The new system was boosted by all of this new technology that was coming out, making it easier to pass information across borders, to move money, to move people, to move goods across the globe. A globe. Promise to obey.

If we all believe and obey these rules, it creates the conditions that made the world into a giant marketplace, where a corporation could source whatever they needed to make their product from anywhere in the world, whatever made the most economic sense. Soon, products as simple as a T-shirt would travel along an unfathomably complex supply chain, using material and labor from many countries all around the globe, before eventually showing up conveniently just in time at the store. Policy had created mass cooperation between billions of people who don't speak the same language, who don't know each other, but are somehow all getting in on the same market.

This mental construct of economic policy is what created globalization, the globalization we know today. And what's crazy to me is that, if you tinker with the policy, if you mess with this, you can reverse a lot of this globalization, which is exactly what's happening right now. - There is simply no reason why the blades for wind turbines can't be built in Pittsburgh instead of Beijing.

- Okay, but let's stick to our timeline here. We're kind of in the '90s. And I'll tell you, people in the '90s would've never guessed what direction this story is about to go.

The Soviet Union had just fallen, free trade and global capitalism had unambiguously beat communism, and the magic of the free market was seen as the solution for pretty much everything. Free trade had just ended global conflict between these great superpowers, maybe forever. Free trade was eradicating global poverty.

Free trade was pushing countries to adopt democracy. And here's Bill Clinton, giddy about how good it's all going, predicting that free trade would bring democracy to China. - The more China liberalizes its economy, the more fully it will liberate the potential of its people, their initiative, their imagination, their remarkable spirit of enterprise.

And when individuals have the power not just to dream, but to realize their dreams, they will demand a greater say. - Free trade would prevent our age-old human curse, war, by so deeply entangling countries in mutually beneficial deals that it wouldn't make sense to fight. After all, free trade had turned Europe from a continent ravaged by war to this tightly-knit group where everyone's holding hands and smiling together.

Why wouldn't this naturally just happen to the whole globe? China continued to make stuff and send it to the United States. Our dependency on them and them on us continue to grow, and that would surely prevent any conflict, right?

Um, no. (deflated music) It's looking like that's not how it's gonna turn out. In fact, it's kind of the opposite.

- The new tariffs from both sides went into effect earlier this morning. The US has imposed 10% tariffs on $200 billion worth of Chinese imports. - China is our military's most consequential strategic competitor and pacing challenge.

- In a relatively sudden shift, governments around the world are undoing a lot of this globalization, this solution to all of our problems. They're rejecting it. India is paying companies to keep their production within their own borders, especially for important industries like pharmaceuticals and electronics.

South Korea is giving taxpayer money to companies to produce green energy infrastructure instead of waiting for the free market to come build it. Japan is paying companies to move production back to Japan and to move their supply chains away from China. Australia is using taxpayer money to encourage mining companies to establish the processing of rare-earth mineral facilities within their borders instead of abroad.

Nigeria is imposing restrictions on foreign goods that they want to see produced domestically, like rice and cement. They don't wanna be reliant on other countries. And then you've got Europe, where tons of countries are investing government money and protecting homegrown industries that have always been directed by the global economy, like energy, agriculture, and cars.

The government getting involved in these markets incentivizes companies and consumers to make and sell these products in country as opposed to looking abroad at the global market. And of course, leading out on all of this is the OG of the modern free-market global economy, the United States, who is suddenly changing course from how they've been operating, all the way up until like Obama. Like, Obama spent a great deal of his time trying to increase free trade, especially with Asia.

Then, first under Trump and now under Biden, the US is overhauling its economic policy to turn back some of this free trade. And what's crazy is that both Republicans and Democrats seem to agree that we should do this and fast. (upbeat music) - There is no reason.

We have the capacity. (Congress applauds) - Some of these policies include huge government spending bills, like the CHIPS Act, which would allocate over 50 billion government dollars to companies that produce microchips here in the United States, instead of in Asia, where the free market had pulled them to set up. This is also happening in other industries that the government has deemed vital, like critical minerals, cars, and clean energy.

But they're not just giving subsidies, like, it's not just government money washing down on all these industries, it's also barriers. Biden is imposing tariffs on imports, which protects domestic producers of certain industries because they no longer have to compete with the global market. They're also banning American companies from selling certain products to China.

They're increasing scrutiny on any investment that comes in from places like China. Like, this is a big shift. And the question is, what happened?

How did we get from this free-trade heyday that was supposed to usher in world peace to this? (upbeat music) - Markets have been whipsawed all morning, and now afternoon, by this ongoing trade war with China. - The short answer is one word, the answer to all of this: protection.

Here's my list of four protections that best explain this big shift in economic policy. (mysterious music) First, workers, which we already kind of talked about briefly with the China shock. For all the winners of the global economy, there were lots of losers, and a lot of them were communities who found themselves out of work as their jobs went to cheaper overseas locations.

Now listen, economists argue as to how big of a problem this actually was, and you can read all about it in my sources, but the point is that closed factories and unemployed communities in the Rust Belt have a major psychological effect on people who fear that their jobs might just disappear, either abroad or be taken over by AI. So the government is trying to calm people down by pumping money into certain sectors to keep jobs in America. The next big realization about the global economy: It doesn't really care much about how much carbon it pumps into our atmosphere.

Our world is barreling towards a very real climate crisis, and governments realize they're gonna have to force the market to get serious about things like electric cars, solar panels, and other green infrastructure. The free market is not going to incentivize this. And if it doesn't happen, we're gonna have a much bigger problem on our hands.

(mysterious music) One of the best parts of the global economy is that our products get made by materials that are being tossed around the globe at the perfect time, at the perfect place, to all come together to be made into a final product, all to arrive at a shelf at some store so that we can purchase it. These supply chains are insane, and they cross the entire planet. And it works great until the world shut down in a global pandemic, leaving people around the world without the products that they either needed or just kinda got used to having.

Again, economists argue about how big of a deal this was. A lot of them are like, "No, the supply chains held up really well during COVID. " But regardless of what some academic economist is saying at MIT, all of us are left with a pretty bad taste in our mouth about supply chains after COVID.

The system feels too fragile. A lot of us feel too reliant on a fragile system of far away global connections that could be rocked at any moment, which has led to these protectionist policies that these governments hope will bring supply chains back inside of their borders. Okay, finally, and perhaps the most important explanation in all of this, is that Bill Clinton was totally wrong.

Free trade didn't incentivize China into a democratic revolution. The world did not join together in one big free-trade market, too entangled to fight with each other. In fact, quite the opposite has happened.

- Relations between the world's two largest economies are at their most tense in years. - After joining the global economy, China got really rich really fast. They've kind of started to challenge the US at its own game, and now they have one of the biggest militaries on the planet, and they use that military to assert their influence around their region.

They use their newfound wealth to project influence around the world by building stuff or giving loans to people. And they're kind of trying to dethrone the United States as the one who's calling the shots on the global economic order. I made a whole video about this that you can go watch if you want, but the big point here is that the US is worried about the rapid rise of their rival across the ocean, especially when the rise of that rival is in part fueled by American technology, specifically these little silicon chips, microchips, that make weapons smart, and that will be the brains that power the AI revolution.

A lot of Joe Biden's protectionist policies are actually just aimed right at China, trying to stop them from using our own tech to get ahead of us. Again, I made an entire video about microchips. You can go to that.

I've kind of made a video about a lot of these things. But yeah, Joe Biden is also trying to get the supply chains for these microchips out of China's neighborhood, meaning out of Taiwan, bringing them back inside our borders to places like New Albany, Ohio, nice and safe in the middle of our continent. So you're gonna see a lot more moments like this with American presidents or politicians with hard hats on, speaking at construction sites.

- Folks, we need to make these chips right here in America to bring down everyday cost and create good jobs. America's back, and America's leading the way. (tense music) - This last point is kind of a brutal recognition for a lot of people, including me, to be honest, that our theory that we would all be more peaceful if we were more economically entangled is kind of wrong, at least for now.

In fact, these economic entanglements are looking like they might turn into tools of conflict as opposed to preventers of conflict. Like, China has a near monopoly on a lot of the rare-earth elements that we need to make a ton of very important products, including military weapons. And if push comes to shove, they could very realistically use this as leverage and cut us off in the exact same way that we cut them off microchips.

I mean, this just happened. Vladimir Putin turned off the pipelines that pumped natural gas into Europe, the gas that is needed to heat the homes and run the factories, showing us that economic entanglements can actually be a weapon, and flipping this whole theory on its head. But yeah, Joe Biden is pouring money into bringing production home, and he has a lot of support from all sides of the aisle.

So it's like economic nationalism. The government is getting involved to undo some of what the free market did in its heyday, which was to distribute production of stuff where it made the most economic sense, not where it protected people. - That means we will invent it in America and make it in America, and we're gonna make sure we include all of America.

- So that's where we're at. The world is reacting to some weaknesses that they see in the global free-trade system. They're putting up barriers in the name of protection.

And no one's really sure what that means. Like, it's kind of hard to not look at this and draw some parallels with the 1930s when a series of economic crises led countries to put up trade barriers in the name of protection, which then led to ever greater economic strife, leading to unrest and eventually culminating in the Second World War. (deflated music) But don't read too far into that.

I'm not trying to like do one of those things where I'm like, "Every hundred years, history repeats itself. " That's not what I think is happening here. But there's some similarities that we should probably just keep an eye on.

A suite of crises that make us turn inward, that surge populism and economic nationalism and the rise of tensions between great powers. (bright music) Hey, before you go, I need to tell you one last thing, which is that we made probably our last batch of the poster that I designed last year. It's a poster called "All Maps Are Wrong," and I'm very proud of it.

It shows all the ways that you can take our Earth and project it onto a 2D plane, which always comes with some distortion. Anyway, it's kind of a nerdy map-lover thing, and if you're into that, you should go over and check it out before they're all gone. This is probably gonna be our last batch, so get 'em while they last, and the link's in the description.