Trump

July 22, 2016

So disillusioned was I with Obama’s broken promises to address the problems with our trade policy, his broken promise to double exports in five years, his signing of the awful trade deal with South Korea and, more recently, his pursuit of bigger, more expansive trade deals with Pacific rim nations and with Europe, I vowed to myself that I would stay out of politics on this blog going forward.  However, as discoverer of the inverse relationship between population density and per capita consumption, as author of the book Five Short Blasts that explains the relationship and its ramifications and, consequently, as an advocate of policies that would restore a balance of trade and move us toward a stable population, and in the wake of Donald Trump’s acceptance speech at the Republican National Convention last night, I feel I can no longer ignore the elephant in the room.

Now more than halfway through my seventh decade on this planet, I have spent my whole life watching our country being sucked into the vortex of “globalism” in which the United States has evolved from a beacon of hope and prosperity into a host upon which overpopulated nations, unable to sustain themselves, could feed and thrive.  Our political parties evolved into one “Republicrat” party, supporting the trade and open-border policies that are central to making “The New World Order” tick.  The “hope and change” that Obama spoke of, especially his promise to fix our trade policy, I thought, might be our last chance to stop that madness.  In the wake of his betrayal, I figured that was it – that I’d never live to see an America again that was something other than the hollowed-out shell we’ve become.

On more than one occasion, I have called Donald Trump a “buffoon.”  We’ve seen him dip his toe into politics before, only to self-destruct through outlandish pronouncements and behavior.  He got my attention with his vow to “build the wall,” but I figured the same thing would happen again.  He’d soon self-destruct.  I thought that those who gave him a 1% chance of winning the nomination were being generous.  He was just grand-standing and having fun, enjoying another brief stint in the spotlight like he’s done before.

Then he vowed to rip up our trade deals and start over on trade, making new deals that actually worked for us.  He got my attention again.  I wanted to get my hopes up, but figured that, surely, his antics during the primary race would sink his chances.  To my amazement, they didn’t.  He was saying the right things about illegal immigration and about trade, but I was dismayed with the personal attacks.

Finally, last night, I saw the Trump I’d been wanting to see.  He was still Trump and, defying predictions that he’d back away from earlier promises in order to broaden his support, he actually doubled down on each one.  But gone were the personal attacks.

Trump was exactly right when he pointed out that our trade and immigration policies have done more harm to the poor, to the inner cities, to blacks and Latinos than to anyone else. I hope the folks from these demographics paid attention and kept open minds.

Unlike the Trump I’ve seen in the past, he seems truly sincere in his desire to turn the country in a very different direction.  At least that’s the way he came across last night.  It’s hard to imagine that a man 70 years old would subject himself to everything that goes with winning this nomination and waging the campaign to follow unless he really has a fire in his belly to do what he says.

But can he?  Can he get the political establishment to go along with with his plans – plans that seem radical and dangerous to many of them?  Can he back us out of trade deals in the face of threats from these other countries that will probably scare the hell out of people?  I have said that restoring a balance of trade would not be without pain, driving up the cost of goods until our own domestic manufacturing can get re-established.  Can he, a total Washington outsider, do this without mucking it up and perhaps forever sinking any hope that it will ever be tried again?   Will he be brain-washed into joining the ranks of the globalists as Obama was?  (That would seem unlikely with Trump.)  Does he really have the energy and drive to make all this happen?

Or am I just being suckered again?  I hope not.  As one who understands that the effects of our enormous trade deficit and our immigration policies on our economy dwarf all other factors – including currency valuations, Fed policy, stimulus programs, and so on – I have to at least give the benefit of the doubt to candidates who are at least claiming that they’ll tackle these issues.  Only time will tell.

In the meantime, I’ll keep doing my small part to convince you and others of the perils of our free trade and open border policies.

 


Racism(?) in America

July 11, 2016

In the wake of the events of the past week – the seemingly inexplicable killing of blacks by police and the slaughter of innocent policemen in Dallas, it’s important to draw attention to a dimension of all of this that has gone completely unnoticed.  As a white guy who has spent the better part of seven decades living in America, I feel I can attest with some authority to the progress that has been made in race relations, at least in regards to the attitudes of whites toward blacks.

As a kid I heard racial slurs all the time, from other kids and from adults alike.  Today, I virtually never hear such things.  As a kid, I witnessed all sorts of discriminatory practices – segregation in housing and schools, discrimination in hiring practices, etc.  But in the decades since the civil rights movement, virtually all of these practices have been purged from society.  Back then, you never saw blacks in professions or in positions of authority.  Today, you hardly give it a second thought.

Some years back, I was cured of cancer by a black doctor.  The color of his skin sure as hell didn’t matter to me in that circumstance.  Today, I live in an association of 135 homes, only one of which is occupied by a black family.  Why not more?  I don’t know, but I can tell you this:  I’ve never heard one word of ill will toward that family.  They’re nice people.  They maintain their property as well as any of the other homeowners, and that’s all we really care about.

While traveling through Mississippi last month, my wife and I stopped for dinner at a Chili’s restaurant in Jackson – an island of relative prosperity, thanks in large part to a massive Nissan plant there – in what is otherwise the poorest and the blackest state in the union.  The restaurant was virtually all black – black waiters, black kitchen staff and, with only a couple of exceptions, black patrons.  But those patrons were predominantly families, nicely dressed and no one seemed to even take notice of this white couple that had just walked in.  Our waiter was probably one of the better waiters we’ve had at a restaurant in some time.  My wife and I felt totally comfortable there.

That being said, I can also tell you that exactly the opposite is true on those rare occasions when I need to venture out of the suburbs into the heart of Detroit.  Like most major cities, downtown Detroit has come a long way, but venture a few blocks beyond the center, beyond the sports arenas, convention centers and hotels, and you’ll quickly find yourself in the midst of the worst urban blight you can imagine – a place that’s downright scary.  The great Motor City, America’s arsenal in World War II is now a hollowed-out shell, a bankrupt black enclave that plods through a zombie-like existence, too poor to educate its children and to provide basic services to its residents.

I’m ashamed to say that I’m scared to be in Detroit, and breathe a sigh of relief when I cross 8-mile Road on northbound I-75.  I’m ashamed because what I’m feeling seems to smack of racism.  Then again, I’m not ashamed because I know that it’s not racism that I’m feeling.  Rather, it’s something I’ll call “poverty-ism.”  America has made great strides in improving race relations.  But we fear poverty as much as ever, and all that goes with it – drugs, gangs, car-jackings, drive-by shootings and more.  The evening news can barely keep pace with the body count.  As I continue north and breathe that sigh of relief, I can’t help but think of all of the poor people – good people too, most of them – who are trapped in that environment.

In my previous post, I wrote of some “ugly” statistics buried in the June jobs report.  Here’s another one that I didn’t mention.  While the unemployment rate for whites was 4.4%, it’s 8.6% for blacks – by far the highest of any racial minority.  For young blacks, the rate is far higher.  We’re all aware of the toll this has taken in the black community – especially in the inner cities where unemployment is rampant:  the hopelessness, despair, anger, drugs, crime, the destruction of family values, and so on.  Who can blame the people forced to live in these conditions if they’re angry at their plight and feel victims of racism?  I’d be mad as hell too.

There are a lot of reasons for this situation and I won’t pretend that there aren’t still some remnants of racism at play here.  But a big factor that no one is talking about is the fact that the middle rungs of the economic ladder, the rungs that people need to climb out of poverty, have been cut away and used by proponents of globalization to improve the economic plight of the people of other nations.  I’m talking about the millions and millions of well-paying manufacturing jobs that have been shipped overseas thanks to misguided trade policy.

One of the reasons that I voted for Barack Obama in 2008 was the fact that he was black and promised to fix our trade policy.  As a black man, I figured he’d be eager to follow through and make real, meaningful improvement in the plight of black Americans by breathing life back into the middle class sector of the economy.  Without those manufacturing jobs, even whites are struggling.  What chance does a black man have?

Instead, Obama quickly fell in line with the free trade globalists and has only made matters worse with his trade deal with South Korea and the Trans Pacific Partnership deal he’s now pushing so hard.  He had a huge opportunity to help black America.  Instead, his eight years have been wasted.

Making matters worse, black Americans are even pushed off of the lowest rungs of the economic ladder by a tidal wave of illegal immigrants.  Why pay black Americans a minimum wage and benefits when you can pay an illegal immigrant who’s eager to do the job for even less?  The president seems far more concerned with the plight of illegal immigrants than that of his fellow black Americans.

Over the past few decades, virtually every public policy has been scrutinized for its effect on racial minorities, and those found to impact minorities in a negative way have been deemed discriminatory and have been banned.  Where is the same scrutiny of our trade policy and immigration policy?  These have clearly hurt blacks more than whites.  One could make the case that if there is any racism that still persists in the U.S., it’s racist trade policy that forces blacks in disproportionate numbers to bear the economic brunt of the loss of manufacturing jobs, and racist immigration policy that gives a break to illegal immigrants in spite of the harm to the black community.

Trade and immigration policy have divided this nation into two classes of “haves” and “have-nots,” the very income inequality that has gotten so much attention, but which also grows worse with each passing day.  While great strides have been made in eliminating racism, the “poverty-ism” that this divide has fostered is getting worse.  The group of people charged with maintaining order in this divide – the police – are not immune to poverty-ism.  They know all too well the risks they face when they try to maintain order in poverty-stricken inner city areas.  I won’t deny that some police are probably racist and some of the killings we’ve seen have been racially motivated, but I suspect the majority are more a matter of the police fearing for their own lives and, consequently, erring on the side of caution for their own safety.

The main thrust of my theory, my book and this blog has been to emphasize that poverty will grow worse along with worsening overpopulation and as trade with overpopulated nations persists.  Economists and government leaders can try to mask this with statistical gimmicks that make things look better than they are, but they can’t hide the effects.  The result is an electorate that grows ever more dissatisfied with the direction of our country and with our political leaders, and worsening anger and lawlessness in the hardest-hit areas of our inner cities.

Instead of addressing these root causes, we get more “programs” to try to paper over the problems.  Just this week Hillary Clinton proposed more federal money to provide for better training for police.  This is a perfect example.  Trade away our jobs, sell bonds to draw the dollars back to the U.S., and then put that deficit spending to work in more “programs” – more welfare, more government-subsidized health care, more job training programs, more federal aid for schools, more federal aid for police and fire departments – “better training for police.”

Until we stop trying to portray this problem as a racial divide instead of the poverty-fueled class divide that it really is, no amount of talk, hand-holding and hugging are going to make a bit of difference.

 

 

 

 


Ugly Reality Hiding in the June Employment Report

July 8, 2016

Stock market analysts were absolutely giddy over this morning’s release of the June Employment Report and its headline number of 287,000 jobs added to the economy.  That’s a big number, to be sure, and, in the wake of May’s dismal jobs report, was hailed as proof that the labor market is still in fine shape, and that maybe the May report was just a statistical blip.

Given less notice was the fact that unemployment jumped two tenths to 4.9%.  Those same analysts shrugged it off as the result of more people re-entering the work force.  Yeah, that was part of it but what no one seemed to notice or report were a couple of really ugly pieces of data in the report.

The ugliest was the household survey’s “employment level.”  Month-to-month changes in this parameter are the household survey’s equivalent of the headline number of jobs created as measured by the establishment survey.  Employment level rose in June by only 67,000, far less than the number needed to keep pace with population growth.  In fact, the employment level has risen by only 23,000 since February, while the population has grown by over 800,000.

Thanks to the stagnant employment level, per capita employment edged down slightly for the third month in a row – the first time that’s happened in 3-1/2 years.  If it edges down again in July, it’ll be the first time it’s declined four months in a row since the Great Recession in 2009.

The other ugly piece of data is the fact that, as bad as the May employment report was, it got worse in June when it was revised downward from a gain of only 37,000 jobs to only 11,000 jobs.

Instead of providing proof of a labor market that’s still in decent shape, the June employment report instead – if one looks deep enough – paints a picture of a labor market teetering on recession.  Market analysts may have been fooled by the gaudy headline number but I’m not, and you shouldn’t be either.


“Brexit” Another Failure of Economics

June 30, 2016

Why is it that all the big stuff happens while I’m on the road and unable to comment?  So it was with the “Brexit” vote last week when Britons voted to split from the European Union – the EU.  Well, better late than never.  So the following are some thoughts regarding the “Brexit” vote.

There has already been a lot of analysis of the underlying reasons for the surprising results of this vote.  They focus on three main issues:  immigration, trade, and the fact that Britain was being fleeced by the EU to the tune of about $350 million per day – only about half of which was returned to Britain in the form of “subsidies.”

The real root cause goes much deeper.  For decades, the main thrust of the United Nations has been the eradication of hunger and poverty among undeveloped nations – a noble goal.  But instead of helping such countries by fostering real, organic economic growth that begins with self-sufficiency and nurtures domestic industrialization to meet the growing wants and needs of the people, economists decided on an easier route.  They relied instead on “free” trade and population growth.

There was once a time when nations were free to strike trade deals with one another that were of mutual interest to both.  Both sides benefited.  Each gave something and each got something on terms that worked out to the best interests of both.

But faced with the challenge of elevating the fortunes of undeveloped countries, the United Nations and the World Trade Organization seized on a quick fix – the implementation of a trade regime that would tilt the playing field such that jobs and money would slide from the developed world to the undeveloped world.  “Don’t worry,” they assured the developed world.  “It’ll benefit you, too, when these nations develop into customers for your goods.”

Well, they haven’t, and now we have a system of trade where the rules are rigged in favor of one country over another – where developed countries are forced into trade relationships that are actually detrimental to them and their citizens.  This situation is now referred to as “free trade” while the previous system in which countries were free to make their own trade deals is decried as mercantilism.

The other tool in economists’ bag of tricks is population growth.  Population growth translates to GDP (gross domestic product growth), something that business loves, so the economists found ready and willing allies among global corporations, chambers of commerce and others.  None recognize that such cancerous growth actually degrades the quality of life of individuals and fuels more poverty.  The EU is no different and has seized upon immigration-driven population growth as a tool to prop up GDP.

There is just one problem with this grand scheme – democracy, and the fact that all of the ballyhooed intangible benefits of these approaches couldn’t obscure from the people the fact that they’re getting screwed.  I’ve occasionally high-lighted cracks that have been appearing in “globalization,” mostly in the form of skepticism about whether “free” trade was really any benefit at all for the donor countries or if it was actually dragging them down.  Now comes the “Brexit” vote, ripping a gaping hole in it.

Congratulations to the British people who rejected the econo-babble of the EU elites and applied common sense to their evaluation of what’s become of their country.  And it doesn’t stop with Britain.  Other EU nations who find themselves being fleeced to prop up the likes of Greece and Spain are also ready to jump ship.  In the wake of “Brexit,” EU leaders commented that, with the loss of British revenue, the EU may now be forced to raise taxes and implement even more austerity.  Smooth move, Brussels!

Speaking of dumb moves (dumb from the perspective of the globalists), how about Obama’s trip to Britain in which he chastised the “leave” supporters and threatened that the U.S. would relegate them to 3rd class status in trade negotiations if they did, in fact, leave the EU?  If any Brits were on the fence on this issue, Obama’s comments offered proof that Britain had been subjugated to the interests of the global elite.  Obama may very well be responsible for pushing Brits over the edge.  Yet another foreign policy blunder on his part (right on the heels of his disastrous trip to Japan, during which he was publicly berated by the Japanese president).  Continuing down that tangent, just yesterday he met with the Canadian and Mexican leaders in support of NAFTA, a meeting that the press hailed as “the three amigos.”  Could he possibly have made a more tone-deaf move when the nation is already fed up with illegal immigration from and job losses to Mexico?  Now Obama is known as an “amigo?”

As proof that sentiments that drove the “Brexit” vote go beyond the EU, Donald Trump has also blown a big hole in America’s one-party Republi-crat support for free trade and mindless pursuit of population growth as a crutch for a sick economy that was long ago ceded to the World Trade Organization.  The Republican elite are abandoning him in droves, but voters couldn’t care less.  They’re fed up with their leadership, just as the Brits were fed up with theirs.  America’s “Brexit” from globalization may come in November.

 

 


May Employment Report Was Bad; Reality is Worse

June 10, 2016

Just back from a couple of weeks in the north woods, so it’s time to get caught up on things.  First on the agenda is the May employment report, which was released a week ago.  So the news is a little stale, but can’t be allowed to pass without comment since, as bad as the headline number was – only 38,000 jobs added to the economy – the reality of the situation is even worse.

Just how much worse didn’t hit home until I loaded the BLS (Bureau of Labor Statistics) data into my spreadsheet.  The BLS tried to soften the blow of that headline number by claiming that unemployment actually dropped by a whopping three tenths of a percent to 4.7% – the lowest level since the  onset of the “Great Recession” in late 2007.  But nobody’s buying it, since it was done in the usual fashion (usual since President Obama took office) of using the “mysteriously vanishing labor force” trick once again, claiming that another 458,000 workers dropped out of the labor force, in spite of the fact that the population actually grew by 214,000 in May.

The Obama administration has transformed 100,000 into the new zero.  What do I mean by that?  It’s the methodology used to calculate employment and jobs added to the economy.  When one full-time job is replaced by two part-time jobs, that counts as a gain of one job – one job lost, replaced by two jobs.  Never mind the fact that no additional work is being done or that a well-paid worker with benefits has been replaced by lower-paid workers without benefits.  And never mind the fact that performing one hour of work for some kind of compensation counts just the same as a full-time job.  You may feel unemployed, but the BLS statistics don’t see it that way.

So when 38,000 jobs are added (according to the establishment survey, 26,000 according the household survey) then that’s really a loss of 62,000 jobs in the “100,000 is the new zero” economy – a truly recessionary figure.  It’s no coincidence that, since the population grew by 214,000 people, meaning that the labor force, if truth be told, grew by about 107,000 people, the addition of 38,000 jobs to the economy means that it came up about 69,000 jobs short of keeping pace with the labor supply.

If the growth in the labor force in the BLS’s statistics kept pace with the growth in the population, then the real unemployment rate would have risen in May to 8.1%.  This chart is a measure of just how heavily the Obama administration has leaned on the “mysteriously vanishing labor force” to make the unemployment rate appear artificially lower than it really is:   Detachment from Reality Index.  This index is a montly measure of how much the unemployment rate is distorted by the claim that the labor force has shrunk in the face of a growing population.  In May the index was 3.4.  Add 3.4 to the claimed unemployment rate of 4.7 and you arrive at a true unemployment rate of 8.1%.

May marked the second month in a row that per capita employment has contracted.  It hasn’t contracted by three months in a row in over three years.  It’s likely to happen in June.  It hasn’t contracted four months in a row since October, 2009 – at the depth of the “Great Recession.”  It looks likely that it will in July.

In the wake of the decline in per capita GDP in the first quarter, evidence that the U.S. is slowly sinking back into recession is mounting.

 


America’s Best Trade Partners, 2015

May 25, 2016

In my previous post, we examined the list of America’s worst trading partners in 2015 and found that it was heavily dominated by nations that are much more densely populated than the U.S.  Additionally, we saw that low wages, often blamed by the ill-informed for our trade deficit, played no role whatsoever.  In fact, the very top of the list was populated with wealthy nations – some even wealthier than the U.S.

If, in fact, population density is what really drives global trade imbalances, then we should see the same effect at the opposite end of the spectrum.  That is, we should find a list of nations with whom we have the largest surpluses dominated by low population densities.  Let’s take a look.  Here is the list of America’s twenty largest trade surpluses in manufactured goods in 2015:  Top 20 Surpluses, 2015.

At the very top of the list is Canada, by far and away America’s best trading partner.  At $50.2 billion, our surplus with Canada is more than 2-1/2 times larger than the next biggest surplus on the list.  In the past ten years, our surplus with Canada has exploded by 245%.  With a population density of only ten people per square mile, Canada is one of the least densely populated nations on earth.

But as you scan down the list, you see a mix of nations with both low and high population densities.  At first glance, this would seem to cast doubt on the whole population density theory, until you realize the role that oil plays in landing some of these nations on this list.  Oil is universally priced in American dollars, regardless of the nation that is exporting the oil.  American dollars are legal tender only in the United States so, ultimately, all of those dollars must be returned to the U.S.  This happens predominately through either the purchase of American goods or through the purchase of American debt – bonds issued by the government or by American corporations.  So it’s almost automatic that net oil exporters like Qatar, Kuwait and Nigeria, among others, appear on this list in spite of their high population densities.

Actually, Canada is America’s biggest source of imported oil, which helps to explain their position on the list.  That, coupled with their low population density, is what has driven them so far to the top.

If we discount the seven nations on the list who are net oil exporters, of the remaining thirteen only three have population densities that are above the world median:  the Netherlands, Belgium and Egypt.  Seven of the thirteen are less densely populated than the U.S. (at 87 people per square mile).  Regarding the Netherlands and Belgium, these tiny nations share the only deep-water port on the Atlantic coast of Europe and use that to build their economies around trade, importing American goods and redistributing throughout Europe.  Egypt appears on the list because they are a big recipient of foreign aid.  All foreign aid is booked as exports at face value even though it is given away.

The average population density of these twenty nations is 240 people per square mile, in contrast to the average population density of 737 people per square mile on the list of our worst trade partners.  But it’s a little misleading to average the figures in this way, since the population density of a few tiny nations can skew the data.  If we calculate the population density of the list by dividing their total population by their total land mass, the population density drops to 45 people per square mile – half that of the U.S.  For the list of our twenty worst trading partners, that figure is 503 people per square mile – more than ten times as densely populated.

Look at the purchasing power parity of this list of nations.  Take away tiny, inordinately rich Qatar, and the average wealth of the remaining nineteen nations is $32, 268 – almost identical to the average wealth of the nations on the list of our twenty worst trading partners.  So wealth – roughly analogous to wages – plays no role on these two lists whatsoever.

Now let’s look at this from another perspective.  If we factor out the sheer size of nations, which nations’ citizens, man-for-man (in per capita terms), are our best trading partners?  If population density is a factor in determining trade imbalances, we should once again see a list that is dominated by less densely populated nations and, probably, net oil exporters.  So here’s the list:  Top 20 Per Capita Surpluses, 2015.

Though the list is a little different now, we see the same thing.  There are seven net oil exporters on the list.  Of the remaining thirteen, all but three – the Netherlands and Belgium again, and Costa Rica – have population densities less than the global median.  Of the remaining ten, all but one – Panama – is less densely populated than the U.S.  The average density for these twenty nations is 206 people per square mile.  But the population density of the group as a whole – the total population divided by their land mass – is down to 20 people per square mile.  For our worst trade partners, that figure is 372 people per square mile.  It bears repeating.  The population density of our twenty worst trade partners is more than 18 times that of our best trade partners.

The data that I’ve presented here in my last few posts is absolute, undeniable proof that population density is what drives global trade imbalances.  Not wages.  Trade policy that fails to recognize this relationship and fails to employ some mechanism (like tariffs) to maintain a balance of trade is doomed to yield the huge trade imbalances that have been growing and eroding our economy for decades.

 


America’s Worst Trading Partners in 2015

May 19, 2016

It’s time for my annual ranking and analysis of America’s best and worst trading partners for 2015.  No surprise, it was another dismal year for American manufacturers, racking up the 40th consecutive year of trade deficits and setting a new record in the process – a deficit of $648 billion.  That surpasses last year’s record deficit by a whopping $109 billion.

Since the surpluses of trade with our best trade partners is overwhelmingly swamped by the deficits with our worst partners, let’s begin there.  This year I’m going to first present the list in the most basic terms – a list ranked in order of the sheer size of the deficits. Check out this list of America’s twenty worst trade partners in terms of our deficit in manufactured products:  Top 20 Deficits, 2015.

The nations at the top of this list should come as no surprise to anyone.  Trade with China dwarfs them all with a deficit of $367.5 billion – more than four times larger than our second largest deficit with Japan.  That’s not surprising when you realize that China has ten times as many people as Japan.  China actually accounts for about one fifth of the entire world’s population.  The following are some other key observations about this list:

  • Look at the population density of these nations.  The average population density is 737 people per square mile.  That’s eight times the density of the United States.  With only one exception – Sweden – every nation on this list is more densely populated than the U.S.  Most are much, much more densely populated.
  • Eight of these nations are wealthy European nations.
  • Over the past ten years, our trade deficit has worsened with 17 of these nations.  Most have worsened dramatically.  The nation with whom our balance of trade has improved the most (that is, with whom the deficit has declined the most in the past ten years) is Sweden – the only nation on the list less densely populated than the U.S.
  • Our trade deficit with Japan has actually declined by 18% over the past ten years.  Why?  Simple.  South Korea is “eating their lunch.”  Imports of South Korean cars – Hyundais and Kias, along with imports of South Korean appliances like those made by LG, Samsung and others – has cut into Japan’s market share.  Remember when President Obama signed a new trade deal with South Korea in 2012, proclaiming it a “big win for American workers?”  In three short years our trade deficit with South Korea jumped 50%.
  • Our fastest growing trade deficit is with Vietnam, growing by 440% in the last ten years.  Some may point to the fact that at $6100 per person, Vietnam has the lowest purchasing power parity of any nation on this list – only slightly better than India – and that this is the reason for the explosive growth in our trade deficit with them.  However, our second-fastest growing trade deficit is with Switzerland, a nation that is actually more wealthy (with higher wages) than the U.S.  What Vietnam and Switzerland do have in common is a high population density.  It’s the one thing that (nearly) all of these diverse nations have in common.

Many people will look at this list and quickly conclude that, when it comes to our trade deficit, the problem is China and so that’s where we should focus.  Somehow, some way, they’re obviously not playing fair with us.  They’re manipulating their currency, they’re ignoring workers’ rights.  They’re trashing the environment.  And so on.  So let’s get tough with China.

The problem is that China can legitimately complain that of course our deficit with them is big, simply because they are a big nation.  Person-for-person, our trade deficit with Japan is worse.  OK, so in an effort to be fair, let’s broaden our efforts to include Japan.  “Not so fast!” the Japanese will complain.  “What about Germany?  Their surplus with you is nearly as large and they have only half as many people as we do!”

The point is that in determining the root cause of these enormous deficits in order to formulate an effective trade policy, we need to factor out of the equation the sheer size of these nations.  Let’s determine who are really our worst trade partners on a person-for-person basis.  So here’s a list of our worst trade partners in terms of the per capita trade deficits:  Top 20 Per Capita Deficits, 2015.

Now we can see what a mistake it would be to simply conclude that China is the problem.  In per capita terms, they barely make the list of the top twenty worst deficits.  In fact, there are now ten European nations on this list and, in per capita terms, our trade deficit in manufactured products is worse with all ten of them than it is with China.  Here are some more key observations about this list:

  • Once again, all but two of the nations on this list – Sweden and Finland – are more densely populated than the U.S.  Most are far more densely populated.  Only three have population densities less than the median population density of the world, which is 184 people per square mile.  One – Ireland – is right on the median.  The other 80% of the nations on this list are much more densely populated.
  • Most of these are wealthy nations, with an average purchasing power parity of $44,370 per person.  In fact, the top of the list is dominated by the wealthiest.  Clearly, the argument that low wages cause trade deficits doesn’t hold water.  If anything, the cause and effect is exactly the opposite.  Running large trade surpluses makes nations wealthier.
  • There is one nation on this list that is a net oil exporter – Mexico.  I point this out because oil is priced in U.S. dollars, and every dollar spent on oil produced by foreign countries must be repatriated to the U.S., since that is ultimately the only place where they are legal tender.  Those dollars are repatriated in several ways, primarily through the purchase of American bonds or through the purchase of American goods.  The latter tends to make net oil exporters strong buyers of American products, which usually means that the U.S. enjoys a surplus of trade in manufactured products with such nations.  But not Mexico.  What this means is that the large trade deficit in manufactured goods that we have with Mexico is actually even worse than it appears.  For a nation whose population density is one of the lowest on the list – less than twice that of the U.S. – it means that something beyond population density – such as some unfair trade practice – is at work here.  Ditto for Ireland, which has fashioned itself into a tax haven for manufacturers, virtually bankrupting itself during the “Great Recession” of a few years ago.

If you are seeing such data for the first time, it may be a little early, based on this data alone, to conclude that population density is the driving force behind trade imbalances.  More proof is needed.  If such a relationship exists, then we should see exactly the opposite at the other end of the spectrum.  We should see a list of America’s best trade partners – those with whom we have trade surpluses – loaded with nations with low population densities.  We’ll take a look at that list in my next post.

If you’re already acquainted, however, with the relationship between population density and trade imbalances, which I explored thoroughly in Five Short Blasts, then this data is just further proof that population density is, in fact, the driving force behind these trade imbalances.  Such deficits are inescapable when applying free trade theory, which fails to account for large disparities in population density, to such nations.  It will only get worse with each passing year, exactly as we have seen.

 


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