Speaking of trade, every country has its own expertise and level of efficiency in its manufacturing sector. An excellent example of this is, quite frankly, the U.S. U.S is considered one of the largest importers in the world. According to a publication by Statista, the U.S. imported roughly about 2.4 trillion dollars of goods in 2020, followed by China in second place at roughly 2 trillion dollars. Despite the trade deficit, however, the U.S. is also considered one of the top players on exports, sitting in second place just behind China at 1.7 trillion dollars, according to the 2021 data. Some of the biggest exports from the U.S. include petroleum, natural gas, industrial machinery such as civilian and military aircraft, and automobiles. However, even though we are considered one of the top petroleum exporters, our petroleum industry is still nowhere near as profitable as the countries in the OPEC group (The Organization of the Petroleum Exporting Countries) led by Saudia Arabia. There is, undeniably, a wide array of issues as to why we are not as profitable as they are, ranging from geopolitical tensions and middle east conflicts. However, the biggest problem is our vastly superior and unconventional production method, that is, oil extraction from shale. To put that in context, Saudi Arabia uses conventional drills to extract oils from underground oil fields. It is a brute force method that has stood the test of time and is the tried and true method used for decades. In fact, the Saudi state-controlled Aramco petroleum company was previously a joint venture between the U.S. and the Saudi government back in the 1930s to 1940s. This means this production method was a technology transfer from us to the Saudis. We have since abandoned this way of production, primarily based on pollution concerns, passages of environmental protection laws such as the Clean Air Act, and the overall Americans’ sentiment towards protecting the environment and becoming more environmentally conscious over the decades. Because of that cheap extraction method, Saudi Arabia was able to cap their cost per barrel to a ridiculously low of just slightly under $3 per barrel, whereas the U.S.’s new technologies would cost upwards of just a little over $30 per barrel. That is a staggering number of about 900% difference in cost. Combined with the fact that the Saudi government brought out American investors’ shares in Aramco in the late 1980s, the Saudi government now owns the company in its entirety. This level of state-sponsored subsidies made private firms almost impossible to compete. But, in spite of the U.S.’s over-reliance on Saudi’s cheap oil, the Saudi government, in turn, relies on us, the U.S., to protect them from hostile adversaries in the middle east, particularly Iran. So as you can see, although Saudi Arabia has an absolute advantage in the eco-space of petroleum, we, in the U.S., have an absolute advantage when it comes to technology and military might. With that, we are able to leverage our comparative advantage of having a cleaner environment and selling military equipment to the Saudis in exchange for their comparative advantage of efficiency in oil extraction. Although I have to say, with the recent development of the U.S. and Saudi Arabian relations, the petro-dollar advantage that we had might soon come to an end, and it is going to affect all of us and the overall American influences in the middle east. And that, my friend, is a critical turning point that we have to pay close attention to, regardless of which side we are on politically.

Responses to the professor or other students:

Response One:

I enjoyed your analysis of Australia. As far as I know, Australia is known for its massive coal and iron mining industries, mainly for use in exports to other countries, especially to East Asian countries and particularly China. This kind of reminds me of the trade war that Australia had with China. A couple of years ago, at the height of the pandemic, then-Australian Prime Minister Scott Morrison supported an inquiry into the origin of the COVID-19 pandemic, and it prompted a tidal wave of retaliatory and economic crippling response from the Chinese government by imposing hefty tariffs and outlandish inspection policies on Australia’s wine and coal exports to China. Considering that China utilizes coal for most of its electricity generation, a whopping 80 percent worth, used to power some of its critical manufacturing factories, it had an enormous power shortage. That meant that China had to resort to occasionally ordering the closure of those factories to help ease out electric use. And what China also did after was also kind of interesting because they resorted to importing coals from other countries that do not produce coals. Those countries, in turn, received and brought their coals from Australia. It is unclear why they would do that because by doing that, they are essentially shooting themselves in the foot by paying an inflated value for the same coals. But one thing is certain, and that is a hard cold fact that a trade war is a double-edged sword that doesn’t benefit anyone. and in a globalized economy, no one is sufficient enough to be on their own.

Response Two:

That’s genuinely interesting how you have compared India to Japan in terms of ore production. Japan is actually a country with a colossal insufficiency problem when it comes to natural resources despite being one of the top countries when it comes to natural resource consumption considering their incredibly advanced and thriving automobile industries. This reminds me of a historian’s text that I read a while back on WWII and why Japan was kind of destined to attack the U.S. He cited Japan’s lack of natural resources as the cause of the attack on Pearl Harbor. His argument was that because the Japanese imperial army was so busy with their conquest to occupy foreign lands, they had to ramp up their war effort significantly by producing more military arsenals. Unfortunately, as their advances were held in a stalemate in Northeastern China, they desperately needed the west’s support to supply them with petroleum and scrap metals. This is when the U.S. actually stepped in and imposed a heavy export sanction on Japan, particularly on oil exports. Saburo Kurusu, a former Japanese diplomat during that time, tried to negotiate with the U.S. to broker a deal to lift those sanctions, but all of his efforts went to no avail. Quite frankly, that peace talk was the last time the then-Japanese government tried to ease things out through diplomatic means because shortly after that, the attack on Pearl Harbor happened.