Inflation to Stay High in New ‘Ex-China World Order’: Chamath Palihapitiya

• As firms move out of China, production will be more inefficient, Chamath Palihapitiya said.
• This will cause labor costs to rise as workers demand higher wages, the so-called SPAC King said.
• But knowledge-based sectors will see deflation as artificial intelligence brings pricing down.

A new world order that is less dependent on China as its primary producer may keep inflation higher, according to “SPAC King” Chamath Palihapitiya. 

Western firms — and even some Chinese manufacturers — have started shifting their supply chains out of mainland China, due to both domestic and geopolitical risks. That marks a massive shift from the past few decades that saw increasing reliance on Chinese factories keep prices low.

“You have to remember that we are in this new world order, which is the ex-China world order, and in that there is no more unitary economy that can do things cheaper, faster and better globally around the world, the billionaire investor told the All-In Podcast.

Firms are splintering away into a number of low-cost markets, with some setting up shop in near-shore economies.

For the US market, that means more production is heading to Canada, Mexico, or Central America, Palihapitiya said.

“The problem with all of that is that that will keep costs higher because it will be naturally more inefficient. It will naturally take more money, and that will naturally cause the prices of those things to be higher, which means that terminal inflation, I think, is just roughly higher,” he added

Palihapitiya also noted that this move may give more power to laborers, as the shift away from Chinese manufacturing will create a bigger reliance on domestic workers. And to attract labor, wages will have to rise.

At the same time, artificial intelligence may bring pricing down for knowledge-based industries, where AI is becoming an established disruptor. 

For example, Palihapitiya cited a new technology called Harvey.ai, which could help lawyers deliver more cost-efficient services by cutting down on time-consuming tasks, such as researching prior cases.

“I just don’t see a world where, on the one hand, physical labor will continue to be more expensive, they’ll demand more and more money to do the job they’re asked to do, and the knowledge work will become increasingly more deflationary because so much of it will be automated by AI, that those folks will charge less and less,” he said.