U.S. Trade Policy Ranks Among World’s Worst

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:

Trade Balance Per Capita, All Nations

Some observations are in order:

  1. 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. 
  2. 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!) 
  3. 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.
  4. 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.
  5. 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.

6 Responses to U.S. Trade Policy Ranks Among World’s Worst

  1. paine says:

    recall your skepticism of the efficacy
    of a dollar forex deval
    read this

    http://www.econbrowser.com/archives/2009/11/china_the_renmi.html
    it attempts to isolate the forex effect on the us china trade gap

    he concludes the forex deval would only be a partial corrective
    but a very large corrective none the less
    “If we take the Goldstein-Lardy misalignment estimates of 20% to heart, then a 20% appreciation would lead to an approximately 91.4 billion (2000$) reduction in the Chinese trade balance.”

    interesting eh ??

    don’t let the nerd talk deflect you
    as an engineer i hope it doesn’t

    • Pete Murphy says:

      I think the first comment in reply to that article said it best. “By the way, what was the impact of the LAST 20% appreciation? Oh, that’s right. The trade balance shot up didn’t it?”

      None of this formulaic mumbo-jumbo takes into account the fact that the Chinese will respond to any change in the exchange rate by simply cutting prices. It happens every time. In spite of a 300% appreciation of the yen over the past three decades, our trade deficit with Japan soared. More recently, in spite of a dramatic decline in the dollar in the past year, prices for products from Japan, Korea and Europe haven’t changed. In fact, government data on import prices shows that prices for imported goods has actually declined in the past 12 months. Back to China: why should we believe that a nation that goes to extraordinary lengths to manipulate the value of its currency in order to sustain its trade surplus won’t be equally as aggressive in manipulating prices for its products if the currency advantage is removed?

      The real problem with our trade imbalance is that American consumers will continue to choose foreign products as long as they remain on the market at a reasonable price, while foreign consumers consume fewer American products simply because they consume less of everything in general, due to the per capita consumption-destroying effects of an excess population density. The only way to restore a balance is to limit the imports into the U.S., either with quotas or by making them relatively more expensive than American-made goods (which obviously means the use of tariffs). There is simply no getting around it.

  2. Mark A. Hall says:

    I just received a letter from Mitch McConnel in response to a recent letter that I submitted to him regarding our trade policies and my proposed tariffs.

    In addition to the usual “Free Trade is Good For the U.S.” jargon, he also cited that the U.S. currently has trade “surpluses” with 12 of the 17 countries that we have free trade agreements.

    He forgot to mention that (6) of these (12) include such economic power houses as Bahrain, El Salvador, Morocco, Oman, Guatemala and Hondurus.

    It is also interesting to note that as recently as 2004 we had trade “deficits” with (15) of these (17) countries. The only exceptions were Australia and Singapore.

    He goes to say that he supports the Trade Adjustment Assistance (TAA) program and that he will continue to monitor the economic impact of our free trade agreements.

    And so the story goes…….

    • Pete Murphy says:

      Thanks for reporting back on this, Mark. His reply is typical and predictable. It’s hard to have much hope that anything will ever improve when our nation is led by morons like these.

  3. ClydeB says:

    It continues to amaze me that so many
    so-called ‘experts’ believe that iodine and a band-aid will cure cancer – retorically speaking.

    As you have demonstrated before, unless the per-capita consumption comparisons are included in the equasion, none of these remedies will have very much impact on the problem.

    Currency manipulators can adjust their formulae all they want but in the end it will be futile unless the per-capita value of manufactured goods or the equivalent monetary value reaches some degree of balance between countries.

    Since the grossly overpopulated countries do not have the physical capacity to consume at an equivalent pace, the tariff idea is all that remains to use as a tool to make the adjustment.

  4. […] States’ trade policies ranks near the very bottom of the nations of the world.  (See U.S. Trade Policy Ranks Among World’s Worst.)  Since the near-total collapse of the global economy last year, most economists who once […]

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