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:
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.