Continuing the series in which we examine the results of trade between the U.S. and its major trading partners, we now turn our attention to Germany. Here’s a graphical presentation of our balance of trade with Germany, broken into major categories, from 2001 through 2008:
If you read my earlier analysis of our results with China, this graph looks quite similar. The trade relationship is completely dominated by trade in manufactured goods. And, not surprisingly, since Germany is seven times as densely populated as the U.S. and 67% more densely populated than China, our trade results with Germany are actually much worse than China’s.
What I’m speaking of here is our per capita trade deficit in manufactured goods. At $496 per capita, the deficit is nearly 2-1/2 times worse than the per capita deficit with China (which is about $206 per person). Yes, our deficit in manufactured goods with Germany is slightly less than $41 billion, compared to $275 billion for China but, if Germany was the same size as China, our trade deficit with Germany would be $659 billion, equal to the size of our total current trade deficit with the rest of the world.
Also, it’s worth noting that almost 40% of our trade deficit in manufactured goods with Germany is autos. It makes absolutely no sense to provide free access to our auto market to a nation that consumes autos at a rate 28% less than Americans. The result is an automatic trade deficit. And it can’t be blamed on low labor costs or a lack of workers’ rights or environmental standards. Nor can it be blamed on a quality differential when German brands have lower quality ratings than comparable American brands. The only difference is the huge disparity in population density and its role in crowding out Germans’ ability to consume cars.
Once again, this is exactly what would be predicted by the theory I’ve presented in Five Short Blasts. And, at this point, it’s worth noting that this theory is now five for five in correctly forecasting the trade balance in manufactured goods for the five major U.S. trading partners we’ve examined so far. Since the U.S. is more densely populated than Australia and Canada, it correctly predicted that the U.S. would have a trade surplus. In the case of Brazil, with a population density almost the same as the U.S., there was a nearly perfect balance of trade. For China, a nation four times as densely populated, it correctly predicts a large trade deficit and, in the case of Germany, a nation seven times as densely populated, it has correctly forecast a per capita deficit in manufactured goods that is even worse. It never ceases to amaze me how strong a factor population density is in driving global trade.
I’ll close once again by observing that it makes absolutely no sense to focus all of our trade efforts on China, blaming China for our huge trade deficit, when our trade results with China are no different than our trade results with virtually any overpopulated nation. A trade policy that puts blind faith in unfettered free trade is even more harmful than a blind application of protectionism. Any trade policy which fails to account and correct for the role of population density is doomed to failure.