My previous post examined America’s top 20 per capita trade deficits in manufactured goods for 2009. We saw that 18 of the these 20 nations were characterized by a high (in most cases, very high) population density. Only two were less densely populated than the U.S. And, in contrast to conventional wisdom that says that trade deficits are caused by low wages, we saw that 16 of those top twenty deficits were with relatively wealthy nations. All of this supports the theory that it is actually a large disparity in population density that drives trade deficits, a result of the inverse relationship between population density and per capita consumption.
But that’s just one end of the spectrum representing only 20 out of approximately 160 nations that were included in the study. What about the other end of the spectrum? Logic would dictate that, if high population density causes trade deficits, then America’s top 20 per capita trade surpluses in manufactured goods should be with nations characterized by low population density. With that said, here’s the list:
(Sources: U.S. Census Bureau Foreign Trade – trade data; CIA World Fact Book – population, area and purchasing power parity data)
As expected, thirteen of the top 20 surpluses are with nations less densely populated than the U.S. But there are seven exceptions, and it’s worth noting how these densely populated nations ended up on the surplus (and not deficit) end of the spectrum. First of all, Qatar, United Arab Emirates and Kuwait are very small, densely populated nations that just happen to sit atop vast oil reserves. Each sells lots of oil and manufactures virtually nothing, using the proceeds from oil exports to finance the purchase of everything they need, including manufactured products from the U.S.
The inclusion of Lebanon on this list is probably a short-term fluke. The CIA’s World Fact Book has this to say about the Lebanese economy: “The Israeli-Hizballah conflict in July-August 2006 caused an estimated $3.6 billion in infrastructure damage, and prompted international donors to pledge nearly $1 billion in recovery and reconstruction assistance. Donors met again in January 2007 at the Paris III Donor Conference and pledged more than $7.5 billion to Lebanon for development projects and budget support, … Political stability following the Doha Accord of May 2008, helped boost tourism and, together with a strong banking sector, enabled real GDP growth of 7% in 2009 despite a slowdown in the region.” In other words, international aid has fueled a surge in imports into Lebanon during their rebuilding.
Panama is only slightly more densely populated than the U.S. Their economy is fueled by income from the Panama Canal that enables them to import a lot of manufactured products.
Of the seven nations more densely populated than the U.S. that appear on this list, that leaves only Belgium and The Netherlands – both among the most densely populated nations on earth.
In general, sparsely populated nations tend to be rich in resources, and they trade those resources for manufactured products. Canada is America’s biggest source of imported oil. Likewise, Australia is also a big exporter of resources. Even tiny Guyana and Suriname are on the list for the same reason. Suriname depends on exports of bauxite, gold and alumina. Guyana depends heavily on exports of six resources: sugar, gold, bauxite, shrimp, timber, and rice – which represent nearly 60% of the country’s GDP.
Belize has a tourism-based economy, somewhat unusual for a non-island nation. Tourism dollars fuel their purchases of manufactured products.
Finally, as we saw in my study of the relationship between income (PPP) and trade, we see that the largest surpluses are with wealthy nations, just as our largest trade deficits (in per capita terms) are with wealthy nations. High incomes tend to drive trade imbalances, both deficits and surpluses, while low incomes tend to produce smaller trade imbalances.
Now that we’ve looked at both ends of the trade spectrum, representing 40 nations, we’ll examine in an upcoming post the effect of population density of the sum total of all nations on the 2009 U.S. balance of trade.