In Five Short Blasts, I based my conclusions on the relationship between population density and per capita consumption on trade data between the U.S. and the rest of the world. However, if my theory is valid, the same effect upon global trade imbalances (in manufactured products) should be found for every nation’s trade relationship with the rest of the world. Clearly, America’s trade imbalance in manufactured goods with other nations is driven by the disparity in population density between us and our trading partners, especially those much more densely populated. America has huge trade deficits with nations like Japan, Germany and China, for example. So it stands to reason that nations like these should have large trade surpluses with the world as a whole – not just the U.S. And sparsely populated nations like Australia and Canada should have deficits in manufactured goods, much like the U.S.
To determine whether this is true, I’ve begun a study of global trade for every nation on earth*, using data provided by the CIA on “The World Fact Book” page of its web site. Once I had compiled all of that data onto a spreadsheet and calculated the balance of trade for each nation, I was interested in learning how each nation compared when its balance of trade was expressed in per capita terms, putting large and small nations on an equal basis.
Essentially, this is a measure of the effectiveness of each nation’s trade policies. An effective trade policy works to the benefit of that nation’s citizens, with a trade surplus contributing to their wealth. An ineffective trade policy results in a deficit, resulting in a drain of wealth and low or negative savings rates. Effective trade policy trades what a nation has in abundance for what it lacks, while at least maintaining an overall balance. For example, a Middle East nation may trade oil for other resources like food, as well as manufactured products. Or an extremely densely populated nation, lacking resources, may trade manufactured products to obtain those resources.
Here’s the data:
Some observations are in order:
- I’ve made no attempt to correlate this data with population density. (That will come in a subsequent article.) This is just the total trade balance for each nation, divided by the population of that nation.
- By this measure, the United States ranks near the very bottom of nations, coming in at 147th out of 154 nations. Every man, woman and child in America is poorer each year by more than $2700, thanks to our trade policy. (That’s over $10,000 for a family of four!)
- Of the top 13 nations, all are oil-producing nations except one – Ireland. Ireland is world champion in terms of trade among non-oil-producing nations, followed by the Netherlands and Germany.
- For all of the talk about China’s trade surplus with the world, they rank only 36th, with a per capita trade surplus that is less than 3% that of Ireland’s.
- It’s interesting to note that Britain, one of the very worst in terms of trade policy effectiveness, especially considering their exports of North Sea oil, sits right next to Ireland, the world’s best among non-oil producing nations. Ireland is doing something right while the U.K. (like the U.S.) is clearly doing something wrong.
This isn’t an indictment of Obama’s trade policies in particular. It took many years of trade policy bumbling by both Democratic and Republican administrations to get us into such a mess. But it is a call to action for Obama to stop tip-toeing around the issue and begin making bold moves to restore a balance of trade. What should he do? Is our trade balance problem a function of too few exports, too many imports, or both? Where should he focus his attention? I’ll tackle that in the next article.
In a future article, I’ll zero in on manufactured products. In the meantime, I though this data might explode some myths out there in regards to global trade.
* – Small island nations with economies based on tourism are excluded from the study. Tiny city-states like Hong Kong, Singapore and Luxembourg are rolled into the data of their surrounding or neighboring nations.