America’s Best Trading Partners

Earlier this month, we examined the list of America’s twenty worst trading partners – those with whom the U.S. has the largest trade deficits in manufactured goods on a per capita basis.  We saw that the list was dominated by nations with very high population densities.  Eighteen of the twenty were more densely populated than the U.S.  The average population density of the group was five times that of the U.S.  And they were wealthy nations, with an average purchasing power parity of $35,000 per person, debunking the myth that trade deficits are due to low wages.

What about the other end of the scale?  Who are America’s best trading partners – those with whom the U.S. has the largest trade surpluses in manufactured goods on a per capita basis?  Here’s the list:  Top 20 Surpluses, 2012.  This list looks very different.  Thirteen of these twenty nations are less densely populated than the U.S.  Of the remaining seven who are more densely populated, there is a very simple explanation why four of them – United Arab Emirates, Qatar, Kuwait and Brunei – are big buyers of American manufactured exports:  they are tiny nations literally afloat on large seas of oil.  They are flush with American petro-dollars which, ultimately, can only be used for purchase of American goods, services and investments.

Of the remaining three that are more densely populated than the U.S. – Panama, the Netherlands and Belgium – Panama is only a bit more densely populated than the U.S.  But Belgium and the Netherlands are each more than ten times as densely populated, seeming to defy the population density theory for trade deficits.  But both are very small nations, and both are the only nations on the European continent with deep water ports on the Atlantic coast.  Perhaps they are merely distributors of American products to other European countries.  If rolled into the Euro zone, the U.S. still has a large trade deficit with the Euro zone.

In contrast to the list of our twenty worst trade partners, whose average population density was almost 500 people per square mile, the average population density of America’s twenty best trade partners is only 188 per square mile.  But that’s a figure that’s skewed by a few very tiny but very densely populated nations.  If we divide the total population of these twenty nations by their total land area, the population density is only 19 people per square mile.  (This figure is 344 people per square mile for our twenty worst trade partners.)

It’s also interesting to note that the average purchasing power parity (a good measure of the wages paid in those nations) for our twenty best trading partners is almost exactly the same as our twenty worst trading partners – about $35,000 per person.  Clearly, wages have absolutely no role in determining trade imbalances.

The data is clear.  This is absolute, undeniable proof that population density plays a dominant role in determining whether free trade with any given nation will yield a trade deficit or surplus.  It’s irresponsible to apply free trade in a manner that’s blind to this reality.  When trading with badly overpopulated nations, tariffs must be employed to maintain a balance of trade, to offset those nations’ inability to provide us with access to a market that’s equivalent to ours in terms of its citizens’ ability to utilize products.

 

 

America’s Top 20 Customers of Made-in-the-USA Products

In a previous post we looked at a list of America’s 20 worst per capita trade deficits in manufactured products.  Today we look at the other end of the spectrum – our top 20 trade surpluses in manufactured products.  In per capita terms, these are the people of the world (other than Americans themselves) who are America’s best customers for American made products.  You may be surprised.  Here’s the list:

 Top 20 Surpluses, 2010

The nations that you see high-lighted in yellow are net exporters of oil.  More about that in a minute.  First, though, it’s important to note that, unlike the list of our worst per capita trade deficits, which was dominated by densely populated countries (only 3 were less densely populated than the U.S.), this list is dominated by sparsely populated countries. 

But there are some notable exceptions, beginning with the top 2 countries – Qatar and United Arab Emirates (UAE).  In general, sparsely populated nations are rich in natural resources and maintain balances of trade by trading those resources for manufactured goods, including American products.  But Qatar and UAE are rare exceptions.  They are very tiny, densely populated nations who just happen to be literally afloat on a sea of oil.  Thus, in spite of their dense populations, they still have large surpluses in those resources that they can trade for manufactured goods, just like the more sparsely populated larger nations, rich in resources, like Canada and Australia.  Kuwait and Brunei are two more examples who appear on the list – tiny, densely-populated nations afloat on a sea of oil, just like Qatar and UAE. 

That leaves four other nations on the list who are more densely populated than the U.S. – Belgium, Panama, The Netherlands and Lebanon.  Panama is easy to explain.  They are only slightly more populated than the U.S. and derive the lion’s share of their wealth, which they’re then able to trade for American manufactured goods, from an unusual source – operation of the Panama canal. 

That leaves only Belgium, The Netherlands and Lebanon – very tiny nations and the three most densely populated nations on the list, by far – as the only remaining anomalies.  The first two are among the wealthiest nations on earth.  And even Lebanon ranks close to the top third of nations in terms of purchasing power.  How do these nations defy the population density bugaboo that makes virtually every other densely populated nation on earth dependent on manufacturing for export?   

First of all, it’s important to note that these three are very tiny nations who, combined, are smaller than the state of Indiana.  Together they make up only 0.07% of the earth’s land mass while the remaining 17 nations on the list account for over 18%.  Nations so small as these tend to have unusual economies that are heavily skewed toward services, especially financial services, and they then trade those services for manufactured goods.  It’s the very reason that I rolled the data for tiny city states like Singapore, Liechtenstein, Luxembourg, San Marino and others into the data for the larger, surrounding countries. 

Regarding Lebanon’s economy, the CIA World Fact Book has this to say:

The Lebanese economy is service-oriented; main growth sectors include banking and tourism.

Tourism?  Really?  While few Americans aside from those with family ties would choose to travel to Lebanon, it seems that their Mediterranean beaches are a big draw for people in that part of the world.  And this is actually the reason that I excluded tiny island nations from my study of population density and per capita consumption.  All have very unique economies dependent on tourism, and they trade tourist dollars for American-made products.  It’s also the same reason that Belize appears on this top 20 list.  While not an island, it too is a small country heavily dependent on tourism. 

In the final analysis, aside from the anomalies of these three tiny, densely populated countries and a few tiny major oil exporters, low population densities dominate the list of nations with whom the U.S. has surpluses in manufactured goods.  The combined population density of the 20 nations on this list is only 20 people per square mile.  Compare that to the list of our top 20 trade deficits, where the combined population density was 343 people per square mile.  The contrast is so stark it bears repeating:  20 people per square mile vs. 343 people per square mile (four times the population density of the U.S.).

If the president wanted to make real progress on restoring a balance of trade, he’d drop his goal of doubling exports and instead focus on boosting free trade with sparsely populated nations while implementing tariffs on imports from densely populated nations. 

Now that we’ve looked at both ends of the trade spectrum, we’ll next consider the entire trade picture for 2010.  Stay tuned.

S. Korea Trade Deal Another Trade Policy Gaffe

http://www.reuters.com/article/2011/10/12/pc-usa-trade-congress-idUSN1E79B1XL20111012

Last week, Congress passed the long-pending trade deals with South Korea, Columbia and Panama.  The trade deals with Columbia and Panama are no threat to the American economy at all.  They’re small nations with population densities nearly identical to that of the U.S. and are capable of developing into high per capita consumption economies whose labor forces will be fully occupied providing for their own needs.  They are no threat of becoming exporting powerhouses. 

South Korea is an entirely different matter.  With a population density 15 times that of the U.S. (and four times the population density of China), they’re a nation incapable of consuming anything other than tiny apartments, food and clothing, leaving them with a vast labor force utterly dependent on manufacturing for export.  President Obama has said that he’d like to see Koreans driving Fords, Chevys and Chryslers, which would indeed be quite a feat since their roads are so over-crowded that, on a per capita basis, they don’t drive anything to speak of, being forced to rely instead on mass transit, bicycles and shoe leather.  And if the president wanted to see Koreans driving American cars, why did he agree to an annual limit of 75,000 vehicles exported to Korea while leaving Koreans free to export as many cars as they want?  Only an idiot would agree to such a deal.  This is a deal sure to kill many more American jobs.

This pack of trade deals does offer a unique opportunity to track their effects from the beginning, and that’s exactly what I plan to do in order to prove my point.  The following are charts of our balance of trade with each nation, dating back to 2001:

Korea, South     Colombia     Panama

As you can see, while we have a nice surplus in manufactured goods with Columbia and Panama, we have a very large trade deficit in manufactured goods with South Korea, just as the disparities in population density would predict.  These new trade deals will probably have little effect on the balance of trade with Columbia and Panama, but it’s easy to predict that the deficit with Korea will only worsen.  It’s going to take a while for this to take effect.  Maybe a couple of years or so.  But it’ll happen.  And, as it does, I’ll continue to chide Obama, even after he’s out of office in 2013, for viloating his campaign promise not to do any more job-killing free trade deals, because this is one that surely will kill American manufacturing jobs.  Shame on you, Mr. President!

So watch for updates on our balance of trade with these three nations.

Sen. Grassley: Trade Agreements and False Premises

http://www.iowapolitics.com/index.iml?Article=159404

Senator Charles Grassley of Iowa opened a hearing on the U.S.-Panama free trade agreement on Thursday with remarks supportive of the agreement and free trade in general.

First of all, let me begin by stating that I support the trade agreement with Panama.  With a population density of 109 people per square mile – very close to the population density of the U.S. at 85 people per square mile – Panama presents no threat to our economy whatsoever.  However, it’s not clear to me why we want to modify the terms of our existing trade arrangements with Panama, since the U.S. already enjoys a significant trade surplus with Panama – $2.3 billion in 2006, including a trade surplus in manufactured goods.  But it’s Grassley’s defense of trade liberalization in general and his support of free trade with South Korea – making no distinction between the extreme population density found there versus the low population density of countries like Panama and Colombia – that concerns me.   

I support the timely implementation of this trade agreement, which is long overdue. Its implementation has been sidetracked by various issues. But now that the Finance Committee is taking the first step to advance a positive agenda of trade liberalization under a new Administration, I want to take a moment to address the critics who would rather we not implement any of our pending trade agreements with Panama, Colombia, and South Korea.

Grassley begins with a defense of trade in general:

The chief argument I’ve heard is that given the magnitude of our global trade deficit, the last thing we should do is implement new trade agreements. I’ve even heard that argument from some of my colleagues in the Senate. The problem is, that argument is based on a false premise. It suggests that trade agreements translate into trade deficits. I dispute that.

I agree.  There’s nothing wrong with trade in general or any specific trade agreement that’s structured properly. 

He defends trade with Central America, excluding Mexico from the data for obvious reasons, and then addresses trade with Mexico separately: 

Before NAFTA, over 51 percent of imports from Mexico entered the United States duty-free, and the average tariff on the remaining imports was about 4.2 percent, for an overall average tariff rate of just over 2 percent.

Thank you, Grassley, for illustrating how powerful tariffs can be in maintaining a balance of trade!  Looking at Grassley’s own data from the opposite perspective, 49% of Mexico’s exports were subject to tariffs prior to NAFTA, and half of those were 4.2% or higher – some significantly higher.  Will American companies shift their manufacturing across the border to gain a 4% or a 10% price advantage?  Most of the companies I know would move their operations to hell for that kind of profit improvement.  We eliminated the tariffs and, as many predicted, we went from a trade surplus with Mexico to a huge trade deficit, much of which is due to manufactured goods and not just oil. 

Grassley goes on:

In this time of economic downturn and uncertainty, we can ill afford to base our trade policies on false premises. Trade is more complicated than that, and the benefits of expanding trade are too important—for both us and our trading partners.

Indeed trade is complicated and cannot be based on false premises.  And there are just as many false premises out there about free trade as there are about protectionism.  They are two extreme ends of the spectrum of trade policies and each in varying degrees has its place.  Let’s understand what makes free trade successful in some instances and an abysmal failure in others.  Everyone involved in crafting trade policy needs to understand the dominant role of population density in driving trade imbalances and why unfettered free trade becomes such a dangerous trade policy when applied to badly overpopulated nations. 

“We can ill afford to base our trade policy on false premises.”  I hope that Grassley remembers those words when he turns his attention to the free trade agreement with South Korea.  And perhaps its time to review all of our trade agreements to determine if corrections need to made for false premises upon which those agreements were based.

Author Opposes Free Trade with S. Korea

S. Korea has a population density of 1257 people per square mile, compared to America’s 83 per square mile.  It is almost four times as densely populated as China and 50% more densely populated than Japan.  As predicted by the theory presented in Five Short Blasts, free trade with such a country will be a sure-fire loser.

I’m neutral regarding free trade with Panama and Columbia.  They are slightly more densely populated than the U.S. – between 100 and 110 people per square mile.  These countries are no threat to American workers. 

“Tom Donahue, president of the U.S. Chamber of Commerce, told reporters earlier in the week that business will work to get approval of the agreements, rejecting suggestions of any type of trade moratorium.  ‘We are the largest exporting nation in the world,’ Donahue said. ‘The suggestion that we back off trade agreements, trade expansion, is to suggest that we stop providing opportunities for American workers and American communities to participate in the global economy.’”

This is a common tactic used by blind traders.  They focus only on exports.  He ignores the fact that we are also the biggest importing nation in the world, importing much more than we export.  The net result is a huge subtraction from our GDP and a huge loss of jobs.  He speaks of our trade policy as an “opportunity” for American workers and American communities.  It is, in fact, just the opposite.  It has paved the road to our bankruptcy. 

Pete