The cycle of trade and geopolitics; Potassium from Kazakhstan
Your dose of nonsense - 01 November 2021
The cycle of trade and geopolitics
Life on Loop
A constant theme in life that I like to bring up often in these newsletters is that “Life is pretty cyclical and repetitious”. Of course, there are other people who are more eloquent than I am, and spew out nicer sounding sound bites such as:
“History doesn’t repeat itself, but it often rhymes” - Mark Twain, some author who inspired Xi Jinping to seek out “the picturesque scenery of the Mississippi”.
“History repeats itself, first as tragedy, second as farce” - Karl Marx, some author who inspired Russian soldiers, who were tired of this nonsense called war, to mutiny and caused the Tsar to abdicate, amongst other things.
“Now everybody’s sampling.” - Missy Elliot, some rapper who acknowledged that everyone was sampling each other’s music to create new music.
One must then start to ask - Why, if this is true at all, does life repeat itself?
Well, I don’t know. But my personal theory is that in the end of the day:
Each of us have our fundamental wants;
But our want may not be compatible with another person’s want;
We do whatever it takes, and however many times it takes to fulfill as much of that want as possible.
Here’s a contrived example:
Sibling rivalry
Let’s say you are a five year old with one other sibling of a slightly younger age. Both of you want to have as much fun as possible (our fundamental want). The means to this, for the purposes of this example, is to have access to:
As many toys as possible; and
As much time as possible for each toy.
Because you are older, you already have your own set of toys (like, say, a Hot Wheels race track set). Your parents then buy your younger sibling a new set of toys. Now, you might think at first that the best way to maximise your fun would be to physically take control of your sibling’s toys so that only you have exclusive access to all toys available. But then you also realise that if you do that, your parents are going to give you hell for doing that (presumably because they are good parents and they want to teach you some concept of “fairness”, or they could just be annoyed that they can’t have five minutes of peace and quiet, or maybe both). That would greatly minimise your fun, so maybe you don’t do that.
So you and your sibling might come to a compromise - you draw up an agreement (and have your pinky swear witnessed by the family dog or something) to have shared access to each others’ toys. While not as ideal as exclusive access, this is the next best thing available.
So say now that you and your sibling are both playing your shared Lego collection. Now the beauty about these kinds of toys is that these are meta-toys - you can build more complex toys out of them. So let’s say both of you agree to build a fleet of Lego cars together. And just as importantly, both of you decide that you’re going to use what was your very own (because you were until then an only-child) Hot Wheels race track to race your cars.
But soon, you realise that your sibling is perhaps just a little more talented than you are at building things with Lego. Your sibling’s cars are just simply better than your cars. So reasonably, to maximise your fun, you’d want to be able to play with those cars as well.
But then, your sibling says, “no, you use your cars, and I’ll use mine”.
To which you might say, “but I thought we agreed under Clause XIV of the Sibling Shared Toy Access Agreement (SSTAA) that we would share access to all the Lego? By extension, you should share those too.”
And they cheekily reply, “if it is these kinds of lego blocks that you want access to, I’m definitely not depriving you access to them - if you want yellow blocks like these, you can use those next to you and they are fundamentally equivalent because these individual blocks are fungible.”
“But but but, we agreed! Stop squirrelling around!”
Then both of you go about debating whether your SSTAA covers the sharing of intellectual property (“We agreed to share the Lego, but not the design that utilises said Lego”, your sibling may say), as well as threatening to take each other through the arbitration process (Clause CDXX, or “The Mommy Clause”).
But eventually, you realise that this is going to be a stalemate, so you unilaterally invoke the “If I’m not going to have fun, none of us are going to” clause - you threaten to withdraw access to the Hot Wheels race track. And just to prove your point, you take that set and you put it on the highest shelf that only you can reach.
Your sibling then tries to strike a compromise with you - they will teach and help you build similar cars. Then everything is fine and dandy after that. Crisis averted.
So where is the repeating part, you might now ask. Well, if you have more than one sibling, and they are better at building something than you are, you will just have to repeat the same grueling process again, just so you can maximise the amount of fun that you can get.
Economic rivalry with an Asian giant
So the question is, who did the United States have an economic rivalry with? Who was threatening the American industry, and threatened to swamp with cheap but maybe better products on the American consumer? Who has the US accused of unfair trade practices and unequal conciliary market access?
“What did you mean ‘did’? Why are you using the past tense?”, you may ask.
Well, as much as it is immediately obvious that the US and China have this uneasy economic relationship with each other this very day, but this has happened before with another country.
And that country was Japan.
After the Second World War, its existing industry was decimated. But people gotta do what they gotta do. So they rebuilt their industry. At first, they built cheaper but lower quality versions of American goods, like the latest transistor radios, electronics, cars, etc. Then, these Japanese companies became so good at what they do that they started to displace the original American brands.
For example, Sony started life as a cheap electronics maker, but then churned out great hits like their cheap and reliable transistor radios, then later the Sony Walkman, and the rest is history, and why you no longer hear much about American brands in the consumer electronics market (until the iPhone came along).
Then there are the Japanese cars. The first few Japanese cars to hit American shores in bulk were not well received (they were considered cheap and ugly). But here are the best selling cars in the US so far this year (2021):
Ford F-series (534,831 units sold)
Ram Pickup (434,722)
Chevrolet Silverado (407,266)
Toyota RAV4 (313,447)
Honda CR-V (290,140)
Toyota Camry (256,769)
Nissan Rouge (234,647)
Toyota Corolla (217,727)
Honda Civic (216,575)
Toyota Highlander (207,564)
Sure, the classic American brands dominate the top 3, but the bottom 7 are all Japanese cars, and the sum of the bottom 7 (1,736,869 units) is more than the top 3 combined (1,376,819 units).
And the transition to the current state of affairs was not easy at all.
For example, here was a paper published by the Federal Reserve Bank of San Francisco in 1983 that discussed the concerns that people in the US had about the trade deficit with Japan (i.e. the US imported more from Japan than it exported). You can see from the chart below that this deficit was ballooning:
Source: Federal Reserve Bank of San Francisco
So what did the US do? They did their best to restrict Japanese exports to the US. For example, here’s a list of a few of the things that the US restricted:
Source: Asian Development Bank
So what did the Japanese industry do? Well, at the very least, the Japanese car industry decided to build their cars on US soil. And that’s the only reason why Japanese cars are able to dominate most of the Top 10 most sold cars in the US. For example, here’s a sample of Toyota factories in the US:
Toyota RAV4 Hybrid (Georgetown, Kentucky)
Toyota Camry (Georgetown, Kentucky)
Toyota Avalon (Georgetown, Kentucky)
Toyota Tacoma (San Antonio, Texas)
Toyota Tundra (San Antonio, Texas)
Toyota Corolla (Blue Springs, Mississippi)
Round 2 - would it be the same outcome this time?
So, about China - there is no doubt that the US’s trade deficit (exports minus imports) has increased dramatically to extremely large proportions (see red solid line in the chart below). Is this a good or a bad thing? I personally don’t know any better. But if there’s one issue that unites Democrats and Republicans in Congress these days, is that they are concerned about China’s current economic might, and they have overwhelmingly cooperated to pass legislation to possibly keep this growth in check.
Source: US Census Bureau
But it is also important to note that the China of today isn’t like Japan of the 1980’s. Firstly, China did not need to go through a post-Second World War American occupation of the country. And secondly, and perhaps more pertinently, China now has less of a reliance on exports to the US. The chart below shows that the proportion of China’s trade deficit with the US to its local Gross Domestic Product has decreased since 2006 (solid red line):
Sources: Trade Balance from the US Census Bureau. Gross Domestic Product from the World Bank.
But yes, some Chinese companies have gone down the Japanese automotive company path of setting up factories in the US (the most visible example is Fuyao Glass America of Netflix fame). But so far, it looks like American consumers are turning to other cheaper places in the world to get their fix of cheap products? I mean, if you look at the same graph above again, after 2016 (Trump started his term in the beginning of 2017), it looks like the US has begun to rely more on countries such as Malaysia, Vietnam and Cambodia.
“Kazakhstan number one exporter of potassium”
So claims Borat’s version of Kazakhstan’s national anthem.
I’m now going to show you, in an extremely roundabout way, that this is unfortunately false.
According to the United Nations’ Food and Agriculture Organization, India produces about 29,000,000 tonnes of bananas a year on average.
According to the United State’s Department of Agriculture, 100g of banana contains an average of 326 mg of potassium, which is equivalent to 3.26 kg of potassium per tonne of bananas.
That means that India produces about 94,500 tonnes of potassium from bananas alone.
This source claims that Kazakhstan produced 568 tonnes of potassium chloride in 2016.
The molar mass of potassium chloride is 74.5513. The molar mass of pure potassium is 39.0983. This means that about 52% of the mass of potassium chloride is that of potassium. But this is just beating a dead horse now, given that 568 tonnes is way way way way smaller than 94 thousand tonnes.
Anyway, here’s the actual top 4 global producers of potassium chloride (in thousands of tonnes):
Source: Government of Canada