How Do You Explain Our Trade Deficit with Denmark?

Here’s one that always raises eyebrows whenever I bring it up:  on a per capita basis, our trade deficit in manufactured products with Denmark is three times worse than the deficit with China.  Though our trade deficit in manufactured goods with China (at $294 billion) is 83 times worse than the deficit with Denmark ($3.53 billion), China is 242 times larger.  Here’s a chart of our trade results with Denmark:

Denmark Trade

Pretty similar to the chart of our trade with China, except that the numbers on the y-axis are smaller due to the smaller size of the country in question. 

What do we import from Denmark?  The biggest category of products is pharmaceuticals.  The next biggest category is “generators, transformers and accessories,” made up largely of wind turbine equipment.  (Remember the president’s promise that green jobs would stay in America?  What a joke!)  Beyond that there’s household goods, medical and hospital equipment, industrial machinery and telecommunications equipment.  In return, we export to them a little of this and a little of that.  Nothing much.

So how do you explain this trade deficit?   If you blame low wages for our trade deficit with China, how do you explain a deficit that’s three times worse (in per capita terms) with a wealthy nation like Denmark where GDP per capita is $37,000 per person?  If you blame Chinese currency manipulation for our deficit with China, how do you explain the deficit with Denmark?

The fact is that both low wages and currency manipulation have virtually nothing to do with determining the balance of trade.  The explanation for our deficit with Denmark is the same as the explanation for China:  both are very densely populated.  At 331 people per square mile, Denmark is only slightly less densely populated than China at 360 people per square mile.  By comparison, the U.S. has only 85 people per square mile.  The disparity in population density between the U.S. and these “trading partners” is the explanation.  The markets of both Denmark and China are emaciated by over-crowding that causes low per capita consumption.  Attempt to trade freely with such a country, long on labor and short on market, and you’ll end up with a trade deficit virtually every time. 

The question then becomes why we focus all of our attention on China’s trade deficit when it’s exactly what we should have expected based upon trade results with other nations like Denmark.  How much sense does that make?  U.S. trade policy will remain a disastrous mess until population density is factored into efforts to restore a balance of trade.

U.S. Trade Deficit With China Soars to Record in 2010

My previous post reported on America’s rapidly expanding surplus of trade in manufactured goods with Brazil, a nation with a population density of 61 people per square mile (in comparison to the U.S. population density of 85 people per square mile).  And Brazil isn’t unique.  Among its South American neighbors of Argentina, Bolivia and Chile, the U.S. experienced a record surplus of trade in manufactured products with each one of them in 2010.  And each is less densely populated than the U.S. 

In stark contrast is our trade in manufactured goods with China, a nation with a population density of 360 people per square mile – more than four times the density of the U.S.  Our trade deficit in manufactured goods with China soared to a new record in 2010 – nearly $295 billion.  Here’s the chart:

China Trade

That deficit alone accounts for six million manufacturing jobs lost in the U.S.! 

Nice job, Obama and Geithner.  The Chinese have really taken to heart your demands that they cut their dependence on exports, haven’t they? 

And kudos to Congress, too.  Another year has gone by without labeling China a currency manipulator, opening the door to tariffs – the only measure with any chance of reversing this trend. 

Not that currency exchange rates really have anything to do with it.  Since June of 2005, the dollar has plunged from 8.26 to 6.57 Chinese yuan, a drop of over 20%.  Anybody see any effect on slowing the trade deficit with China?  Economists will tell you that a falling dollar improves our balance of trade.  Bull.  Currency exchange rates have absolutely nothing to do with the balance of trade.  Trade imbalances are driven almost totally by disparities in population density. 

So far, in my updating of this country-by-country trade data, which I’m doing alphabetically, I’ve only made it through most of the “C” countries.  But already it just makes me want to scream.  In nearly every case I’ve examined so far – a total of 32 coutries – our balance of trade with less densely populated nations improved while the balance of trade with more densely populated nations worsened.  How much more obvious can this relationship between population density and balance of trade be?  Is there not a single economist on the planet with the intestinal fortitude to brave the “Malthusian” labels and consider the ramifications of overpopulation?  Is the field of economics so devoid of intellectual curiosity?  Or is it integrity that they find in short supply?  Whatever, it just makes me want to take a metaphorical two-by-four to the head of this collective field of academic B.S. (it’s not worthy of being dignified by the label of “science”).  If there are any economists out there reading this who take offense to this characterization, bring it on!

Why Obama Courts Brazil and Latin America

http://www.reuters.com/article/2011/03/22/us-obama-latinamerica-idUSTRE72G6YT20110322

The above-linked article reports on Obama’s trip to Latin America and his call for a strengthened partnership with that region.  Why the emphasis on Latin America?  Why was he in Brazil just as military operations were being launched against Libya?  Here’s why:

Brazil Trade

Our trade surplus with Brazil, driven by an even larger surplus in manufactured goods, is rising fast.  This chart would look virtually the same for every country in South America.  Obama correctly sees Brazil and Latin America as key to his objective of doubling exports in five years to rebuild the manufacturing sector of our economy. 

What Obama doesn’t understand is why.  Why are we so successful in trade with these countries and with others, like Canada and Australia,  and such an abysmal failure in places like China, Japan and Germany, just to name a few?  We are successful in South America for the very same reason that China, Japan and Germany have trade surpluses with us and for the very same reason that Japan has a trade surplus with China.  We’re more densely populated than South American countries (and Canada and Australia), just as China is more densely populated than us, and Japan is more densely populated that China. 

It’s all about population density and its role in suppressing per capita consumption.  When nations share labor forces and markets through free trade arrangements, the results become lopsided when one has an over-sized labor force and a market stunted by over-crowding and low per capita consumption.

I’ve recently begun my annual updating of trade results for 2010 between the U.S. and each trading partner.  2010 saw a rebound in trade volumes from the recession-affected trough of 2009.  And, in virtually every case, what I’m finding is that our balance of trade in manufactured goods improved with less densely populated nations while it worsened with those more densely populated.  And, I might add, this is in spite of the fact that the dollar fell relentlessly in 2010.  It also holds true regardless of whether the nation in question is wealthy or poor.  (In other words, low wages aren’t a factor.)  I’ll share some selected charts with you for some of the more significant trade partners as I compile the data.  (I’m doing it alphabetically, so Brazil was among the first.) 

Obama would be well-advised to return home and focus not on our trade relations with Latin America.  Nothing he says or does there can work to America’s advantage any more than the disparity in population density does automatically.  Rather, he should focus his efforts on revising trade policy to stem the tide of imports from the overpopulated, export-dependent economies of the world.

We Need More Focus on Overpopulation

http://public.shns.com/content/erbe-we-need-focus-more-overpopulation

Here’s a good opinion piece by Bonnie Erbe of Scripps Howard News Service.  I couldn’t agree with her more, except regarding the following:

… big business plays a role, too, because it wants a continuing stream of cheap labor and most businesses care little about the impact on our planet’s carrying capacity.

More than cheap labor, it’s more consumers that big business is really interested in.  There’s no shortage of cheap labor.  They can find that anywhere.  But you can’t grow sales volume without growing the number of customers. 

But, overall, it’s a great piece.  We need to see more of this kind of writing.

My Take on Japan Events

As a blog devoted to spreading the word of an economic theory that calls for a reduced population, I feel remiss any time that there is a major catastrophe resulting in a big loss of human life without commenting, especially when it happens in a badly overpopulated nation like Japan.  As I’ve done before, I’ll begin by stating that while there are those advocates of a reduced population who derive some satisfaction from the tragic loss of human life that accompanies such disasters, I’m not one of them for two reasons.  First of all, it’s virtually impossible for such disasters to have any significant impact on the global population (aside from a strike by a massive meteor, more massive than any that has occurred during the course of human history), so it’s pointless to look to such events as a respite from our worsening overpopulation.  So why derive any satisfaction from it when it happens?  Secondly, the whole purpose of this blog is to stimulate an awareness of the need to manage our population to a lower level through a reduced birth rate as opposed to the poverty-induced increase in death rate that’s inevitable if we don’t.  If I don’t want to see an increase in the death rate over time, I certainly take no delight in the sudden deaths of thousands of people, and those who do should be ashamed of themselves. 

So, with that said, let’s consider the economic ramifications of this event.  While it may seem cold to engage in such an analysis while events are still unfolding and people are suffering, such analysis happens anyway.  Markets are certainly doing it, reacting negatively in a big way.  The implications are many, and the following are some random thoughts from both the perspective of traditional economics and my new economic theory.

1.  Economists have long maintained that man is ingenious enough to overcome all obstacles to further population growth.  (The result of the beat-down they took from the other sciences following the seeming failure of Malthus’ theory.)  More recently, a new twist on this approach is that we can accommodate a growing population by focusing more on “happiness” instead of consumption, consuming less and simplifying our lives.  Of course, advocates of this approach offer no explanation as to how we’ll maintain full employment if consumption is reduced. 

This disaster won’t change any of that.  In spite of the nuclear power plant failure, the use of nuclear power will grow.  Economists and world leaders will simply see it as another challenge that can be overcome by more technology.  Nuclear plants will be upgraded and hardened.  There’s really no other choice.  Fossil fuel-generated power has run its course and those who see solar and wind-generated power as a solution simply don’t understand the magnitude of the challenge of providing energy to such vast populations, not to mention the fact that the sun doesn’t always shine and the wind doesn’t always blow.

So population growth, supported by ever-riskier technology, will continue.  There is only one obstacle to unending growth that can’t be overcome:  the inevitable increase in the death rate that will result from worsening unemployment and poverty.  The only other possible outcome is a concerted effort to reduce the birth rate and manage our population to an economically and ecologically sustainable level.

2.  This disaster is 20 times worse than it would have been if Japan weren’t so badly overpopulated.  If Japan’s population density was closer to 40 people per square mile instead of nearly 900 – a density that’s both economically sound and ecological sustainable – there would have been no need for nuclear power plants.  There would have been no need for people to live in tsunami-vulnerable,  low-lying plains.  Earthquakes, tsunamis and other natural disasters are inevitable.  Crowding people into situations where they’re vulnerable isn’t.  It’s a choice that was made when we decided that never-ending population growth was what we needed to be prosperous.  So, in a sense, we can blame the field of economics for the exaggerated effects of this natural disaster.

3.  For all the hullabaloo in the media and the outsized negative reactions in the markets, the economic consequences will be minimal.  In the near-term, the economy of Japan will experience a small recession as consumption by displaced populations will be impacted, but not much.  Japan is so badly overpopulated that their per capita consumption is minimal.  They will continue to eat and be clothed, which is little less than the economic activity they were already generating. 

The economies of other nations will be either unaffected or will actually get a boost as shortfalls in Japanese exports must be made up domestically.  At the very least, manufacturers forced to shut down due to shortages of imported Japanese parts and supplies will re-think their supply strategies.  Maybe putting all your eggs in one basket – relying on sole, preferred suppliers – isn’t such a good strategy after all.  Maybe keeping at least one additional supplier – a domestic supplier – is good risk management. 

In the medium-term (next five years, give or take), the economy of Japan will likely be boosted by the rebuilding effort, and by programs to harden the country’s defenses against such disasters, more of which are sure to come. 

The long range impact will be minimal.  If anything, Japan will become even more dependent on manufacturing for export as large swaths of already-scarce land are deemed uninhabitable, whether due to radiation or the abandonment of tsunami-vulnerable areas, effectively raising Japan’s population density and cutting their per capita consumption even further.  The economies of other nations like the U.S., whose manufacturing base pays the consequences for Japan’s overpopulation-driven dependency on exports, will be negatively impacted. 

And our insane obsession with using population growth to prop up economic growth will continue.  Events in Japan have changed nothing.

If an increase in the trade deficit is bad ….

http://www.cnbc.com/id/42005480

The above-linked item appeared on CNBC last week following the release of the January trade data.  The following caught my eye:

A widening trade deficit is bad for the U.S. economy. When imports outpace exports, more jobs go to foreign workers than to U.S. workers.

Oops!  How’d that one slip past the globalization PC police?  Aren’t we constantly told that trade deficits don’t matter, that free trade is always beneficial? 

If “a widening trade deficit is bad for the U.S. economy,” then isn’t it logical that any trade deficit at all is bad as well?  If an increase of $6.0 billion in the monthly trade deficit is “bad,” then isn’t the $40 billion per month trade deficit that we started with much worse?  If it’s bad for the U.S. economy, wouldn’t it make sense to fix it? 

I hope that the next life is a place where logic prevails.

Trade Deficit Soars in January

I’ve been tied up again with personal matters but am now back home and ready to catch up on some issues.  The big piece of data that was released last week while I was out was the January trade deficit.

Just about the time that four months of improving trade data made me start to believe that behind-closed-door pressure by the Obama administration to rebalance the global economy was starting to bear fruit, the January trade data (released last week) blew a big hole in that theory.  The January trade deficit soared to $46.3 billion from $40.3 billion in December.  And it wasn’t some fluke driven by a swing in oil imports.  $4.0 billion of that jump was due to manufactured products. 

For months, imports seemed to have hit a ceiling of around $200 billion per month.  But, with the U.S. economy finally beginning to gain some traction, that figure jumped to over $214 billion. 

It never fails that every time I begin to doubt myself (in this case, my assertion that our trade picture cannot improve without a return to tariffs), I end up regretting it.  With the release of the January trade deficit, we can see that nothing has changed.  The trade deficit was being held down by the global recession, period.  Exports are now increasing at a rate that has them doubling in five years, meeting Obama’s goal, only because overall trade is rebounding at that rate, including imports, which are rebounding even faster. 

Here’s my charts tracking export and trade progress vs. Obama’s goals:

Balance of Trade     Manf’d Goods Balance     Obamas Goal to Double Exports

To my credit, I did hedge my optimism last month with the following possibility:

The slowdown in imports and rise in exports may be nothing more than the result of an economic rebound taking hold in the rest of the world, increasing demand for U.S. products, while a stagnant economy in the U.S. has kept a lid on imports.  This doesn’t seem to be a scenario likely to persist for long (if it’s even real), since so much of the world is dependent on U.S. demand. 

Indeed, it didn’t persist much longer.   Imports are back, the trade deficit is up and it will take a toll on manufacturing jobs.  The trade deficit will once again cut short the budding renaissance in U.S. manufacturing.

Revolutions All About Jobs

http://blogs.reuters.com/chrystia-freeland/

I’m short on time at the moment, so I won’t add a lot to the attached op-ed piece by Reuters columnist Chrystia Freeland, except to add that America’s leaders would be wise to pay attention.  The growing unrest in Madison, Wisconsin and other state capitals is also “all about jobs.”  Unemployment in the U.S. and the accompanying downward pressure on wages and benefits of those still employed is at an intolerable level.  It wouldn’t take much for these demonstrations to spread, expand and potentially turn ugly.

What I find fascinating in these rebellions is how powerless these authoritarian regimes are when the population unites against them, and how quickly other authoritarian leaders take steps to improve the standard of living of their own people out of fear of the same thing happening to them.  That’s the missing ingredient for American workers.  We’re not united.  Our political and business leaders have successfully played us against each other.  Those who have lost their jobs and have had their wages and benefits slashed turn to those who haven’t and ask, “why should they be any different?”  “Cut theirs too!”  Instead, we should unite to demand that all of us enjoy decent wages, benefits and pensions.  But we have no common enemy – no dictator to blame.  Just wait a couple of years.  The regime changes automatically and whatever party is currently out of power can simply promise a better day.  By the time we realize that day isn’t coming, the next regime change is only two years away.  Just be patient  – again.

While Middle Eastern nations are beset by dictatorships and authoritarian rule, Americans are saddled with the benign neglect of care-taker, seat-warmer “leaders” parading through a revolving door, putting in their time and collecting their fat pensions, while the nation slowly crumbles.

Imagine what would happen if American workers stopped squabbling with each other and joined forces to demand jobs and real change.  Again, American leaders had better take notice of what’s happening in the rest of the world and acknowledge that it’s not impossible for it to happen here.  China’s leaders “get it.”  Ours had better not be too complacent.

Real Job Gains in February

http://www.bls.gov/news.release/empsit.nr0.htm

The jobs report for February (link provided above) was the best since the beginning of the Great Recession.  Non-farm payrolls grew by 192,000 and private payrolls grew by 222,000.  (The difference, of course, is due to a decline of 30,000 in government payrolls.)  And this time the numbers are real.  The “employment level” – the total number of Americans employed – grew by 250,000.  And the reliance upon the “mysteriously vanishing labor force” to drive a bogus drop in unemployment seems to have (at least temporarily) been suspended this month, with an actual rise of 60,000 in the “civilian labor force.”  (Still, that’s probably a bogus number since population growth adds, on average, 125-150,000 workers per month.)  So it seems that the one tenth of a percent drop in the unemployment rate to 8.9% is probably real, though the number itself is well below the actual U3 unemployment rate of 11.5%

Here’s my calculation:

Unemployment Calculation

And here’s a chart of the unemployment rate:

Unemployment Chart

One thing I should point out is that the calculation actually uses a slightly reduced figure for U.S. population beginning with this month.  That’s because the Census Bureau stopped publishing its monthly estimate of population with its December 1st estimate.  I’m guessing that it’s in the process of digesting new figures from the 2010 census.  So in the meantime, I’m using the Census Bureau’s U.S. population clock, which seems to be running a little behind where it would be if the growth in the monthly population estimate had been maintained.  What this probably means is that the 2010 census came in a little below the running estimate based on the previous 2000 census.  In other words, population growth has slowed a bit.  That’s good news!

Here’s the charts of unemployment that I’ve been maintaining.  Still a bad picture, but one that showed a little improvement in February.

Unemployed Americans

Labor Force & Employment Level

Per Capita Employment

The job gains, based on the Labor Department’s establishment survey, break down as follows:

• Manufacturing:  + 33,000
• Construction:  + 33,000
• Professional & business services:  + 47,000
• Health care:  + 34,000
• Transportation & warehousing:  + 22,000

The good news is that the economy is finally adding jobs for real.  The bad news is that it’s driven by tsunami of debt and a Federal Reserve program of mopping up that debt to hold down interest rates.  Neither is sustainable.  The other day, Bill Gross, co-chief investment manager of Pimco, the world’s largest bond fund manager – a man who knows a little something about bonds and government debt – predicted an economy-killing rise in interest rates if the Fed ends its “QE2” bond purchase program in June as planned.  

But the Fed is under pressure to do exactly that, from those rightfully concerned about a huge bubble in treasuries.  And lawmakers are under pressure to rein in the debt.  They kicked that can down the road by two weeks, but the threat of a government shut-down still looms.  The time bought by the deficit spending to repair the economy is growing short and has largely been squandered.  Two years into the program, and only now is manufacturing showing signs of rebounding when the time could have been used to fix trade policy, restore a balance of trade, and bring manufacturing jobs home by the millions, instead of by a few tens of thousands.

Made in America!

I don’t know if you’ve been following the “Made in America” series being run this week on the “ABC World News with Diane Sawyer.”  If not, you should definitely check it out.  (You can get caught up by watching the previous segments on the ABC news web site.) 

I came across it by accident, seeing an advertisement for the segment while watching another show on ABC.  I don’t usually watch the ABC news because Sawyer’s style can, at times, be a little sappy for my liking.  (I watch the NBC program with Brian Williams every night.)  But this piece on ABC is outstanding.  They found a family willing to let ABC come into their home, take away everything not made in America, and agreed to live for a day on what was left.  ABC would then refurnish their home with products made in America.  This family believed that their home was filled with American-made products. 

They were shocked to return home and find the house stripped completely bare, with only a vase of flowers left sitting on the floor of an empty bedroom.  Everything was gone – all furniture, all appliances (including the built-ins, leaving gaping holes in the kitchen cabinetry) – everything.  Only the kitchen sink remained – the sink being American-made.  The family slept on bare floors and dined on PB&J sandwiches.  (Lucky for them ABC didn’t dig deeper, or they may have returned to find only a bare foundation, stripped of Chinese-made drywall and a structure fabricated from lumber imported from Sweden, Norway and Canada.)

The point of the series was jobs – and how many have been lost by no longer even caring where products are made.  The point was made that if each American family shifted just 18 cents per day of their spending to American-made products, 200,000 American manufacturing jobs would be created.  Just 18 cents a day.  That’s a total of about $8 billion per year for the whole nation.  Now, doing the math, how many jobs would be created if enough spending were shifted to American-made products to eliminate our trade deficit in manufactured products – about $300 billion per year?  That’s about 8 million jobs, which doesn’t even include the jobs created to support those manufacturers.  Unemployment problem solved.

In fact, there does seem to be a budding manufacturing renaissance taking hold in America.  Since the depths of the recession and the bankruptcy and subsequent government bailout of General Motors and Chrysler, at least some Americans seem to have re-awakened to the critical role that manufacturing plays in our economy.  Sales of American-made autos have taken off and have actually taken back some of the domestic market share from the imports.  And, for whatever reason, whether it’s due to trade negotiations by the Obama administration or merely a more rapid recovery in the developing world, exports of American-made products have been picking up as well.  Manufacturing is currently the shining star of the fragile economic recovery in America.

So kudos to ABC for a great series that can only further renew interest in turning products over in search for the “made in the USA” label!