America’s Worst Trade Partners in 2013

May 26, 2015

Top 20 Deficits, 2013

In a recent previous post, I reported that the U.S. suffered a record trade deficit in manufactured goods with those half of nations above the median population density, and a healthy surplus with the other half of nations. The relationship between population density and trade imbalance is clear.

To make it even more clear, let’s take a look at the opposite ends of the spectrum of trade imbalances – those nations with whom we have the worst trade deficits in manufactured goods and those nations with whom we enjoy the biggest surpluses. This post will look at the top twenty deficits. In order to factor out the geographic size of nations as a factor, these trade imbalances are expressed in per capita terms – dollars per person.

Above is a link to a spreadsheet showing the top twenty per capita trade deficits in manufactured goods in 2013. The following are some observations about this list:

  • Of these top twenty nations, eighteen are more densely populated than the U.S. Most are much more densely populated. The average population density of the nations on this list is 504 people per square mile. This is almost six times the population density of the U.S.
  • The thing that may surprise people the most is that China, the nation everyone thinks of first when the subject of our trade deficit comes up, barely makes the list of the top 20 deficits, coming in at number 17. In per capita terms, our deficit with other nations including Israel, Taiwan, Japan, South Korea and a number of European nations, is much worse.
  • Low wages are often blamed for our trade deficit in manufactured goods. Manufacturing jobs, it is said, are shipped overseas to take advantage of cheap labor. So I’ve included the “purchasing power parity” (or “PPP”) – essentially the gross domestic product of each nation per person – to see whether this claim holds water. PPP is a measure of the purchasing power of the citizens of each nations, and is a good indication of the average wages paid. As you can see, our worst deficit are with rather wealthy nations. (By comparison, the PPP of the United States in 2013 was $49,000.) The average of PPP of these twenty nations is $35,330. Only two nations are below $10,000: China and Nicaragua. It should be noted that China’s PPP has more than doubled in the last eight years. If “low wages” were the cause of trade deficits, then we should begin to see our deficit with China decline as PPP rises. Instead, our trade deficit with China set a record in 2013. Our trade deficit with Switzerland, the wealthiest nation on this list, also worsened in 2013 to $1,859 per person from $1,680 in 2012, moving Switzerland from 3rd to 2nd place on this list.
  • South Korea moved from 12th place in 2012 to 11th place in 2013 as our trade deficit with them worsened from $426 to $496 per person. Our deficit with South Korea continues to worsen dramatically in the wake of the 2012 trade deal which the Obama administration hailed as a “big win for American workers.”
  • In the most dramatic move on the list, Malaysia went from 13th place in 2012 to 21st place – vanishing from the list – as our trade deficit with them was cut in half in 2013. This allowed Mexico to move up to 13th place in spite of a 20% decline in our deficit.

There are a couple of key take-aways from this list. First is that population density plays the major role in determining trade imbalances. If it did not, one would expect the ratio of more densely populated nations to less densely populated nations to be somewhere around 1:1. Instead, the ratio here is 9:1. Secondly, low wages clearly have absolutely nothing to do with these trade deficits. This list is heavily skewed toward wealthy, high-wage nations like Ireland, Switzerland, Germany, Japan, Israel, Taiwan, Denmark and others.

The problem with attempting to trade freely with these badly overpopulated nations is not that their wages are too low. The problem is that they buy too little from the U.S., thanks to a level of per capita consumption that has been decimated by their extreme population densities. People who live in such crowded conditions simply can’t consume products at the same level as people who live in more reasonably populated conditions like we enjoy in the U.S.


Trade Deficit in Manufactured Goods Shatters Record

May 7, 2015

The trade deficit in manufactured goods soared to $62.9 billion in March, obliterating the previous record of $52.1 billion set only two months earlier.  Here’s the chart:  Manf’d Goods Balance of Trade.  The overall trade deficit also hovered near its record level.  The deficit is far worse than expected and will almost surely result in a revision to 1st quarter GDP that will put the economy in contraction.

The port slowdown on the West Coast that was resolved in mid-March is surely to blame for some of the sudden jump, but not that much.  To blame the port slowdown on a sudden, big jump in imports also suggests that it should have made up for a slow-down in previous months.  Look again at the chart.  There’s absolutely no evidence of any slowdown.  The trade deficit had continued to worsen at a steady pace in the months leading up to March.

Normally, such a big jump in the deficit could be explained by a robust economy that was gathering steam, driving a demand for imported products.  But that’s not what’s happening.  The economy slowed in a big way in the 4th quarter of last year and then either completely stalled in the 1st quarter of this year or actually contracted.

Some may blame the strong dollar, claiming that it hurts exports and makes imports more affordable to American consumers.  However, exports in March were at the same level that they’ve been at for over three years.  (So much for the President’s promise of doubling exports.)  And an exchange rate-fueled shift toward imported products vs. domestically manufactured products only makes sense if the price for imported goods has actually been cut.  Can anyone cite any examples of such price cuts?  (Remember, oil is not a manufactured product.)  Also, a big demand for imports would also be corroborated by a jump in consumer spending data.  There’s been no such jump.

What’s actually happening is that the pace at which manufacturing is shifting overseas is accelerating, which is exactly what should be expected when free trade policy continues to be applied to badly overpopulated nations.

Though it rarely does, the stock market reacted to the trade data with a big drop over concerns about the decline in GDP that would result.  I find it puzzling that an economy and political system so focused on growth continues to tolerate a huge trade deficit knowing that it’s a major drag on growth.  Why is it that economists and political leaders and the Federal Reserve, who are willing to try every trick in the book to fuel economic growth, turn a blind eye to the one thing – fixing our idiotic trade policy – that’s assured to do more than all other remedies combined to make our economy grow?


Effect of Population Density on Trade Sets Record in 2013

May 4, 2015

Each year I vow to publish this analysis in a more timely manner and, it seems, that each year it gets tougher to do.  But this is a massive undertaking, so I hope you’ll cut me some slack.

First, a little about my methodology is in order.  For each nation, I tallied the imports from and exports to that nation for hundreds of end-use-code product categories.  For example, here’s a link to the web site that tallies the imports from China:  http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html.  That’s just the imports.  There’s another page for exports to China.  Those are then combined, and the end use codes that represent manufactured products are identified and tallied.  Population data is taken from the CIA World Fact Book web site, and is up-to-date through 2013.  So, with all of that said, I think you can understand the difficulty involved in compiling this data for 166 countries.*

This chart, updated through 2013, shows the U.S. balance of trade in manufactured products with the half of nations above the median population density, and the other half of nations below the median population density: Deficits Above & Below Median Pop Density.  In 2013, with the half of nations below the median population density (182 people per square mile), the U.S. enjoyed a surplus of trade in manufactured products of $147 billion.  (It should be noted that the U.S. population density is approximately 87 people per square mile.)  In stark contrast, the U.S. suffered a trade deficit in manufactured goods with the half of nations above the median population density of $634 billion – a record.  And the disparity between the two figures – $781 billion – is also a record.  The same number of nations.  A huge contrast in results.  And, the longer the U.S. continues to pursue free trade policy that ignores the role of population density, the worse the disparity becomes.

It’s also interesting to note that the half of nations above the median population density occupy only 25% of the earth’s land mass.  This means that the U.S. has a surplus of trade in manufactured goods of $147 billion with 75% of the earth’s land mass (outside the U.S.).  With the remaining 25% – the densely populated 25% – the U.S. has a trade deficit of $634 billion.

This data is undeniable proof of a powerful relationship between population density and trade in manufactured products, a relationship first revealed in Five Short Blasts.  Without some mechanism (like tariffs) to counter the effect of population density, it’s a near certainty that trade with very densely populated nations will yield a large trade deficit and result in the loss of many manufacturing jobs.

In upcoming posts I’ll dig deeper into the 2013 data for more evidence of the role of population density in trade, and to examine whether the other popular scapegoats – low wages and currency exchange rates – play any role at all.

In the meantime, I’ll also begin compiling the 2014 data!

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* Small island nations are excluded from the study, since they enjoy unique economies, usually based on tourism.  Also excluded are tiny city-states.


Baltimore Orioles’ John Angelos NAILS IT!

May 1, 2015

http://www.cbsnews.com/videos/orioles-exec-vp-games-not-important-in-grand-scheme-of-baltimores-protests/

If you didn’t see CBS This Morning today, then you have to watch this interview.  Baltimore Orioles Executive Vice President John Angelos explains a tweet he made concerning the real root cause of the riots in Baltimore.  He lays the blame squarely at the feet of “political elites” who have shipped American jobs overseas.  I encourage you to watch the interview (link provided above) if you can suffer through the dumb Toyota Camry ad that precedes it.  But the following quote from the interview says it all:

…my greater source of personal concern … is focused rather on the past four decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore.

He went on to explain that by “American political elite” he means both Democrats and Republicans who have embraced this trade policy.  His analysis of the situation in Baltimore is dead on.  As is the case throughout America, there is a seething anger over what trade has done to our economy and, as we’ve seen with the Freddie Gray case, any spark can set it off.

Good for you, Mr. Angelos!  I’ve suddenly become an Orioles fan!


Per Capita GDP Falls in 1st Quarter

April 29, 2015

The Bureau of Economic Analysis announced this morning that GDP (gross domestic product) grew at an annual rate of only 0.2% in the first quarter of this year, at the bottom end of the range of analysts’ expectations.

However, while the “pie” grew by 0.2%, the number of people crowded around the table, grew at an annual rate of 0.8%, thanks entirely to immigration.  As a result, per capita GDP – everyone’s share of the pie – fell at an annual rate of 0.6% – a recessionary figure.  Here’s a chart of real per capita GDP since 2000:  Real Per Capita GDP.  Since the onset of the “Great Recession” in the 4th quarter of 2007, GDP has risen by only 2.7%.  That’s an annual growth rate of only 0.4% – virtually no growth at all.

And here’s something else I find interesting.  Check this chart of the percent change in GDP since 2005:  Change in Real Per Capita GDP.  Notice that, since the recovery from the recession began in 2009, the frequency of negative quarters is increasing.  From the 3rd quarter of 2009 until the first quarter of 2011, six quarters passed before we had a negative quarter.  Then another six quarters passed before a 2nd negative quarter.  But, after that, there were only four quarters between negative quarters.  Most recently, there were only three quarters of positive growth before another negative quarter.

This recovery, fed by stimulus spending and $4.5 trillion in “quantitative easing” by the Federal Reserve – both of which have dried up – has run out of gas.  The economy is teetering on the brink of another recession.  It’s no surprise.  Nothing has been done to remedy the conditions that precipitated the last recession – our huge trade deficit and out-of-control immigration-fueled population growth.  In fact, it was falling exports that led the decline in per capita GDP in the first quarter.  Remember Obama’s pledge to double exports by 2015?  Never happened.  Not even close.

Contrary to the talk that you hear about a recovery that’s gathering momentum, or a slowdown that is only transitory, this economy is sick and is in serious trouble.  Its capacity for serving as a “host” to prop up the economies of badly overpopulated nations is practically depleted.  It’s now totally dependent on deficit spending and money-printing.  And equity markets have transitioned from vehicles for investing in the economy into a scheme for sopping up money from central banks.  Investors are playing a dangerous game of chicken with central banks when bad economic news is welcomed in the hopes of raising the odds of more money-printing.  Never have we entered a recession with interest rates already at zero and with a balance sheet that already has the Federal Reserve feeling queasy.  The ability of these economic gimmicks to mask the effects of overpopulation and a host-parasite trade regime has nearly run its course.  Watch out!


“How Many Are Enough?”

April 19, 2015

On our last night in Ireland, I watched a BBC broadcast about the upcoming election in Britain (to be held on May 7), which included interviews of both current prime minister (and Conservative Party leader) David Cameron and his challenger, Labour Party leader Ed Miliband.  One of the hot topics was immigration.  In general, the majority of Brits are completely fed up with the high rate of immigration there.

As a matter of background, with the exception of the tiny nations of The Netherlands and Belgium (both barely more than city-states), the U.K. is the most densely populated nation in Europe, with 683 people per square mile.  The U.K. is almost twice as densely populated as China.  And its population has grown by 8.4% since 2007 – all of it due to immigration.

As it did throughout the world, unemployment soared in Britain during the Great Recession, and it remains elevated today – at 7.2%.  And during times of high unemployment, workers – employed or not – take a dim view of immigrants being brought in to compete for their jobs.  We see the same thing here.  Discussions about immigration are always framed in the context of jobs and the demand for social safety net services.

It seems that Ed Miliband had taken David Cameron to task for his immigration policies.  But the BBC interviewer pointed out that the Labour Party’s immigration policies were just as liberal when they held power.  The interviewer asked Mr. Miliband whether he would actually cut the rate of immigration.  The answer was no.  I was stunned at the interviewer’s response.  He pointed out that the overcrowded U.K. was a nation of 64 million people, and asked, somewhat angrily, “how many are enough?”  “70 million?  75 million?”  His question was met with only a blank stare from Mr. Miliband.  There was no reply.

I never thought I’d live to see the day that a journalist would frame immigration in its proper context and ask how many people are enough.  But, apparently, when you reach the population density of the U.K., overcrowding becomes too much to bear and people begin to ask the question.  If people begin to ask the question, can an honest answer be far behind?  If one developed nation concludes that it has reached its limit, and acts on that conclusion, will it be long before other nations see the benefits of a stable or even shrinking population?  How will our journalists and politicians respond when Brits begin to say that “we wish we’d have done this much sooner?”

I have always maintained that the only effect of immigration – the ONLY effect – is to grow our population.  Immigrants possess no magic elixir for healing the economy.  Immigrants don’t create jobs.  They merely grow the population and the number of jobs grows as a result, though no one notes the fact that the result is proportionally fewer jobs.  Immigrants possess no skills that aren’t already found in abundance among our native population.  Thus, any discussion of immigration that doesn’t begin with its effect on population growth is a completely flawed analysis.

I know, I know, I’m reading too much into this one little interview.  It’s just nice to hear a voice of reason among all of the poppycock and balderdash (as the Brits might call it) that characterize discussions of immigration here in the states.


Back from Ireland

April 14, 2015

My wife  and I have just returned from a trip to Ireland, America’s worst trade partner in terms of their per capita trade surplus in manufactured goods, and I thought I’d share some observations.

First of all, perhaps because I visited areas more attractive to tourists (mostly in Kerry County), I didn’t really see much evidence of a large presence of American companies there.  However, shortly after arrival, as we were checking into our hotel just outside Dublin, an older gentleman who was dressed as a businessman somehow recognized me as an American and asked if I was there on business.  “No, we’re just here on vacation,” I replied.  “Oh, well there are a lot of American companies here, you know.” he said.  “Yeah, I know.” I replied.  If only he knew just how well I knew that fact and how I felt about it but, following an all-night flight and a harrowing drive through Dublin to the hotel (my first experience driving on the left in a right-hand-drive, manual transmission car), I didn’t have the energy to get into a discussion.

One morning at breakfast at our next hotel in Killarney, a young hotel employee (maybe thirty) who was busy bussing tables and restocking the breakfast buffet, struck up a conversation, asking what part of America we were from.  “Michigan,” we replied.  (I found it interesting that of all of the people we met who asked such a question, maybe only half knew where Michigan was located.  It was oddly comforting that Europeans can also be “geographically-challenged” in the same way that many Americans are criticized for being.)  Anyway, the thing that this young guy seemed most interested in was the current state of the job market in America.  He noted that things had been difficult there as Ireland struggled to emerge from the economic mess it landed in during the “Great Recession.”  (You may recall that Ireland was dubbed one of the “PIIGS” nations of Europe – Portugal, Ireland, Italy, Greece and Spain – who had racked up massive national debts and were now a drain on the Euro Zone economy.)

On another occasion, as we waited for a tour of the Muckross House in Killarney National Park, one of the ladies selling tickets bemoaned the fact that they were short on tour guides, thanks to government austerity measures.  I was beginning to understand that employment was still a significant concern in Ireland.  This seemed strange, given Ireland’s relatively huge trade surplus with the United States.

The longer we were there, I grew more accustomed to the charm of the Irish brogue.  But I also began to notice that, in many cases, the accent didn’t seem right.  I then began to realize just how many of the people we were speaking with weren’t Irish at all but immigrants, primarily from around Europe and some clearly from the Middle East.  Especially in the hotels, the staffs seemed to be dominated by immigrants.  At an ice cream shop, the young lady who waited on us was French.  When I asked if it was difficult to get a work permit in Ireland, she explained that as a citizen of the Euro zone, she had just as much right to work there as anyone.

Although Ireland is twice as densely populated as the U.S., it’s actually rather sparsely populated by European standards, where most of continental Europe is as densely populated as China.  Thus, it’s become a magnet for migration of Europeans looking for a better life in a less crowded land where, though unemployment is still a problem, it’s much better than in other places.  We talked with a lady who had recently moved to the Killarney area from England, a nation four times as densely populated as Ireland.  She was ecstatic to be there.

Ireland is a beautiful place that everyone should try to visit at some point.  The people are friendly and we never had a bad meal.  The countryside is beautiful, dominated by sheep pastures delineated by ancient stone walls and hedgerows.  But, as someone hypersensitive to the subject of overpopulation, I can see that Ireland is in a state of transition, and I fear that their culture will gradually fade into the boring sameness that increasingly characterizes our globalized world.

Speaking of England, on our last day in Ireland I was watching a BBC news broadcast in which some journalist was interviewing Ed Miliband, Labour Party candidate challenging David Cameron for British prime minister in the upcoming election.  I was shocked (pleasantly so) by a question that the interviewer put to Mr. Miliband.  But that’s a subject for my next post.

 

 


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