Here’s an interesting little article that supports my economic theory that trade imbalances are driven by population density, and not by cheap labor. It seems that France is the least productive nation on earth, working fewer hours than anyone.
The French spend the least amount of time at work, a new survey of 73 cities around the world by Swiss bank UBS shows, while the most hours are worked in Cairo and Seoul.
Our leaders tell us that we need to be more productive to compete globally. Yet France, the least productive nation on earth, kicks our butts in trade. In 2008, we had a $15.2 billion trade deficit with France, worse than our trade deficit with China on a per capita basis. And with a GDP per capita of $32,700, they’re also one of the wealthier nations and have a well-paid labor force. So why do we lose out to France? They’re more than three times as densely populated as the U.S.
The richest workers are in New York and Zurich, where they would have to work nine hours to buy an iPod nano, while workers in Mumbai needed to work 20 nine-hour days – nearly one month’s salary – to buy the gadget.
Oh, speaking of rich workers, how about Zurich, Switzerland? If their workers are so rich, surely we don’t lose to them too, right? Think again. Although we have a slightly positive balance of trade with Switzerland, thanks to exports of metals and minerals to Switzerland, we have a large per capita trade deficit with them in manufactured goods. In 2006 it was our 6th worst per capita deficit in manufactured goods at $657 – four times worse than our per capita deficit in manufactured goods with China. Why? Because Switzerland is four times as densely populated as the U.S.
Copenhagen, Zurich, Geneva and New York were the cities where employees had the highest gross wages.
And speaking of Copenhagen, Denmark, the story is exactly the same. In spite of Denmark having some of the highest-paid workers in the world, our per capita trade deficit in manufactured products with Denmark in 2006 was our 11th worst at $522 – three times worse than China. Why? Because Denmark is four times as densely populated as the U.S.
Low wages isn’t what drives our trade deficit. It’s the gross disparity in population between the U.S. and so many of our trade partners. In 2006, of our top 20 trade deficits in manufactured goods, only seven were with relatively poor nations. (China was number 19 on the list.) But thirteen were with nations much more densely populated than our own.
As a trade policy, the blind application of free trade is even dumber than a blanket application of protectionism. Each is nothing more than the two opposite ends of a spectrum of trade policy available to us. America’s trade policy will continue to be an abysmal failure until it takes into account the population density effect.