Comparing Presidential Hopefuls on Immigration

December 31, 2011

https://www.numbersusa.com/content/action/2012-presidential-hopefuls-immigration-stances.html

The above-linked grid provided by NumbersUSA is a good snapshot of where each Republican candidate (as well as President Obama) stands on the issue of immigration – not just illegal immigration, but on reducing immigration overall, both legal and illegal.  And, if you position your mouse over each issue, you’ll get a pop-up explanation of that candidate’s statements and actions that underly the NumbersUSA rating.  It’s the best tool I’ve seen by far for comparing the candidates on immigration. 

Just to summarize, here are the overall grades given by NumbersUSA:

  1. Michelle Bachmann:  B-
  2. Mitt Romney:  C-
  3. Rick Perry:  D
  4. Rick Santorum:  D
  5. Jon Huntsman:  D-
  6. Newt Gingrich:  D-
  7. Ron Paul:  F
  8. Barack Obama:  F-

I continue to believe that Romney will be the Republican candidate.  I also believe that, if he is, he will beat Obama in a close election, due in large part to the sorry state of the economy which, I believe, is going to worsen in 2012.  At least we can look forward to an administration that will be tougher on illegal immigration. 

Many thanks to NumbersUSA for providing this grid and for their outstanding work is raising awareness of immigration’s role in driving destructive population growth and for lobbying in favor of reductions in both legal and illegal immigration. 

 


Yuan Hits All-Time High; So Too Does U.S. Trade Deficit with China

December 27, 2011

http://www.reuters.com/article/2011/12/26/us-markets-china-yuan-idUSTRE7BP03220111226

The above-linked Reuters article reports on a 4% increase in the value of the yuan in 2011, now at a record high.  Why is this significant?  Because economists say that a stronger currency makes exports more expensive and imports cheaper, thus leading to a reduction in the U.S. trade deficit with China.  In fact, the article suggests that China is letting the yuan appreciate to accomplish exactly that – a “rebalancing of trade”:

The currency is likely to continue to appreciate next year as China continues to post big trade surpluses despite a slowdown in exports and amid pressure from the United States to let the yuan rise to balance bilateral trade, traders said.

… The yuan has appreciated 4.27 percent so far this year, with most of the gain being recorded in the first 10 months of the year as China tries to rebalance trade and use the currency to help fight high inflation.

Isn’t that nice of the Chinese?  They’re such good citizens of the global community, with nothing but the common good at heart.  That’s what makes the next sentence in the report so amusing:

While the government has recently halted yuan appreciation amid slowing exports, it also seems to be wary of a weaker yuan that may lead to capital outflows.

They’ve halted yuan appreciation because of slowing exports?  Wasn’t that the whole idea – to rebalance trade – which can only happen when exports slow and imports increase?  Maybe China isn’t so interested in rebalancing trade after all.  Maybe they’re just looking out for themselves.

The fact is that none of this matters.  In the same year that the yuan has appreciated by over 4% to a record high against the dollar – and has now appreciated 23% since 2005 – the U.S. trade deficit with China is on track for another record in 2011.  The following chart tracks the decline in the value of the dollar vs. the yuan against the U.S. trade deficit with China, both overall and for manufactured goods. 

$US-Yuan Rate vs Balance of Trade

(Note that the 2011 trade deficit is annualized based on data through October, the latest month for which data has been released.  Data for manufactured products isn’t yet available for 2011, since I haven’t yet gone through the tedious process of sorting it out.) 

The most logical conclusion that one can draw from the data is that the exchange rate has followed the trade deficit, with the dollar declining as the trade imbalance has worsened.

The least logical conclusion is that the falling dollar will reverse the trade imbalance.  That conclusion is defied by the data.  Last year I presented the results of a study of changes in exchange rates vs. change in the balance of trade with the U.S. for sixteen of America’s largest trading partners.  There was no correlation.  A change in exchange rate was as likely to have the opposite effect on balance of trade as it was to have economists’ predicted effect. 

Again, there is no correlation.  Never has been.  Never will be.  How can this be?  How can economists lob this theory out there and get it so wrong?  Because, they would likely respond, there’s no need to spend valuable time doing the donkey-work of gathering data to prove theories that are self-evident and intuitively obvious.  Economists have much better things to do, like constructing sophisticated mathematical growth models, writing paid-for reports and analyses that support political and corporate stances, and so on.  Nevertheless, the data proves them wrong. 

The data also proves that a disparity in population density is a very reliable predictor of balance of trade.  Once you understand that, the debunking of the exchange rate theory isn’t so surprising.  A change in exchange rate can easily be negated by cost-cutting and improvements in efficiency by the nation with the trade surplus.  But it’s impossible to negate the effects of population density without actually resorting to tariffs.

Still, economic ignorance prevails and our politicians follow the lead of their economists, pinning their hopes on exchange rate tinkering to rebalance global trade.  We’re still waiting for the predicted effects.  It hasn’t happened in six years with China, and we’re still waiting for it to happen with other nations, like Japan and Germany, after six decades.  Thirty-six consecutive years of trade deficits that are only getting worse.  Nice call, economists.


Immigration Report

December 14, 2011

It’s been quite a while since I’ve posted anything about immigration, and I feel bad about that, given its importance to America’s economy.  I suppose I’ve been comforted by what I’ve seen going on at the state level, especially in Arizona and Alabama, but including many, many other less publicized actions that are steadily making life miserable for illegals. 

The issue is once again front and center, beginning with Republican candidates’ attempts to reassure their base that they are, in fact, tough on illegal immigration when everyone knows otherwise, based on their previous statements and track records.  I had hoped to begin posting about the Republican candidates, believing that although there’s no hope for any change in trade policy with a change in administrations, at least we’ll get someone who’s tougher on immigration.  But now I see that there’s no hope for that either.  We’ll merely trade a bleeding heart advocate of illegal immigrants for someone who talks tough on illegal immigration while boosting legal immigration channels like H1-B to satisfy their corporate benefactors.  Completely lost in the Republican debates over immigration is the root cause of the concern among voters:  immigrants taking scarce jobs from Americans.  Does anyone believe that anything is different if those immigrants are documented instead of undocumented?  Where is the broader discussion about the folly of expanding our labor force at a time when the demand for labor is growing ever more out of balance with the supply?

Then, in the last couple of days, comes the announcement from the Supreme Court that they’ll take up the Arizona immigration law.  Oh, boy.  Don’t hold your breath on this one.  My concern is not so much the Court as it is our outdated constitution, written at a time when no one could imagine the day when we’d have our own “huddled masses,” and written in terms rendered moot by 200 years of social and technological change.

But, what’s prompted me to write this post are the last two issues of the “Immigration Report,” published by FAIR (the Federation for American Immigration Reform), an organization dedicated to restoring some common sense to immigration policy, primarily focused on efforts to eradicate illegal immigration.  These last two issues have left me shaking my head.  I want to share with you some of the headlines.

From the October issue comes the following:

  • “Treasury Department Says Illegal Aliens Collect Billions in Tax Credits.”  The article reports on data taken from tax returns that have been filed using ITINs (Individual Tax Identification Numbers) instead of social security numbers.  The vast majority of such returns are filed by illegal aliens.  Why do they file them?  Because “… 72% of tax returns filed by ITIN users claimed the ACTC (Additional Child Tax Credits)” and, if they owe no taxes, like virtually all illegal alien households, then they get $1,000 per child paid to them.  It’s one more way in which they’re robbing American citizens.  And our government is a willing accomplice.  Unbelievable.
  • A bill that would make E-Verify mandatory was passed by the House Judiciary Committee.  All 22 Republicans voted in favor.  All 13 Democrats voted against it.  (Two abstained.)
  • The California “Dream” Act was approved by the legislature, and governor Jerry Brown was expected to sign it into law.  The act makes illegal aliens eligible for taxpayer-subsidized grants, fee waivers and other financial assistance to attend public colleges and universities in California.
  • New Mexico is one of only two states (the other being Utah) which continues to give drivers’ licenses to illegals.  New Mexico’s governor is trying to change that.  But the Mexican American Legal Defense and Education Fund sued, and a District Court Judge has issued a temporary restraining order that allows New Mexico to continue issuing drivers’ licenses to illegals.
  • President Obama’s jobs plan ignores the fact that 7 million jobs are held by illegal aliens.  Clearly, the most effective jobs plan would be to round them up and deport them. 
  • President Obama’s uncle was taken into custody by ICE (Immigration and Customs Enforcement) for being in the U.S. illegally.  He had crashed his car and had a blood alcohol content twice the legal limit.  He has been sought by ICE since 1992 when he failed to comply with a deportation order.  He’s now free on bail.

From the November issue comes this:

  • Homeland Security Secretary Janet Napolitano faced questions from both the Senate and House Judiciary Committees about the Obama adminstration’s plan to allow illegals to remain in the country through the exercise of “prosecutorial discretion,” which amounts to ignoring them, effectively granting them amnesty.
  • A federal appeals court upheld nearly all of Alabama’s immigration law.  Only two provisions were blocked:  making it a state misdemeanor for aliens to fail to carry their registration documents and the requirement for schools to collect immigration status information.
  • A recent report by the Mexican think tank BBVA Bancomer Research estimates that some 100,000 illegal aliens and dependent family members left Arizona within a year of passage of the law there, and that some 23,000 returned to Mexico during the first three months.
  • Washington D.C. “.. has adopted one of the most far-reaching illegal alien sanctuary policies in the country.”  The D.C. mayor signed an executive order that bars all city public safety agencies from inquiring about immigration status  or from cooperating with ICE unless a criminal investigation is involved.
  • In California, the Santa Clara County Board of Supervisors approved a measure barring the use of county funds to hold individuals wanted by federal authorities for immigration violations.
  • The U.S. Department of Labor reports that $7  million in federal stimulus money intended to put unemployed Oregonians back to work was instead used by contractors to pay 254 foreign workers.  The federal contractors claimed they couldn’t find American workers to fill forestry jobs. 
  • The Rhode Island Board of Governors made an “end around” the state legislature to grant in-state tuition subsidies to illegal aliens.  The governor praised the move. 

There’s some good news here, but plenty of other news that’s enough to make you sick.  Maybe that’s why I’ve laid off the topic for a while.  It’s been good for my blood pressure.

Seriously, though, stay involved and raise hell with your elected officials.  And challenge them as to why we continue high rates of legal immigration while unemployment is so high.  Beyond that, consider joining either FAIR and/or NumbersUSA to boost their lobbying efforts against our idiotic immigration policies.


A $22 Trillion Economic Stimulus Plan That Costs Nothing

December 12, 2011

On Friday morning, the Bureau of Economic Analysis released its monthly report of the U.S. balance of trade for the month of October.  The October trade deficit marked a very significant, sad milestone that went completely unnoticed by the media, perhaps because I’m the only one tracking this data.  In October, the cumulative U.S. trade deficit since our last trade surplus in 1975 reached $11.01 trillion (expressed in current dollars). 

It’s no mere coincidence that the growth in the cumulative trade deficit tracks closely with the growth in our national debt over the same time frame.  Deficit spending is used by the federal government to offset the economic drain caused by the trade deficit.  Dollars spent on imports return to the U.S. in the form of purchases of treasury bonds – bonds used to fund deficit spending.  The following is a chart of the growth in the cumulative trade deficit vs. growth in the national debt.  (Note that the trade deficit figure for 2011 is through October, while the national debt figure is current.)

Cumulative Trade Deficit vs Growth in National Debt

Now, imagine the effect on our economy if we had that $11 trillion back – real money invested in the economy instead of bonds held by China, Germany and Japan.  No one would be talking about the solvency of Social Security and Medicare.  There would be no unemployment problem.  There woud be no debt problem. 

In fact, the effect would be doubled, since the effect of the trade deficit upon GDP (gross domestic product) is understated by half.  Why?  Because the trade deficit is merely a subtraction from GDP.  As an example, suppose someone buys a Japanese car for $20,000.  That reduces our GDP by $20,000.  So, if that person forgoes the purchase of that car and buys nothing at all, our GDP rises by $20,000.  However, if that person then buys a domestic vehicle for $20,000, then another $20,000 is added to GDP.  That’s a $40,000 swing in GDP.  So if $11 trillion in imports were replaced with domestically-made prodcuts, our GDP would grow by $22 trillion.  Compare that to the economic stimulus programs the Obama administration has pushed to jump-start the economy, programs of a few hundred billion.  Now it should be clear just how damaging our trade deficit has been.  Simply changing our trade policy to assure a balance of trade would have the same effect as a $22 trillion economic stimulus plan, but would cost absolutely nothing. 

* * * * *

By the way, notice that the growth in the national debt has raced ahead of the growth in the trade deficit before, back in the early 90’s, when the economy was also mired in a recession.  It appears that we’re repeating the same pattern.  The growth in the debt is likely to be slowed in the next few years, given the pressure to rein in our spending.  But it’s unlikely that there will be any let-up in the growth in the cumulative trade deficit, barring a radical change in trade policy.  So I expect these lines to converge again.


October Trade Deficit – Another Dismal Report

December 9, 2011

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

As reported by the U.S. Bureau of Economic Analysis (BEA) this morning, America’s trade deficit contracted only very slightly in October, but that’s only because the deficit for September was revised upward.  (See the above link to the report.) 

The overall trade deficit shrank for the 4th month in a row to -$43.47 billion, its lowest level in 10 months.  Here’s the chart:

Balance of Trade

But that overall figure can be deceptive.  In spite of a decline in oil prices and a corresponding decline in petroleum imports, petroleum exports continued to swell in October to a record level and are now 129% higher than in January, 2010.  In addition, something that I didn’t realize until I read this CNBC article this morning, exports are also being propped up by exports of gold:

… for the first 10 months of 2011, non-monetary gold exports totaled $27.8 billion, compared to $14.8 billion in the same period last year.

What really matters is the balance of trade in manufactured goods.  There, the news isn’t so hot.  Exports of manufactured goods have stalled, rising less than $1 billion in the last four months.  Our trade deficit in manufactured goods worsened in October for the 2nd month in a row.  So, while the Obama administration remains pretty much on track for meeting its goal of doubling exports in five years (again, propped up by petroleum and gold exports), progress in manufactured goods is lagging.  In fact, both imports and exports of manufactured goods seem to have flattened out and threaten to shrink, a clear red flag for the possibility of a coming recession.  Here’s the charts:

Obamas Goal to Double Exports        Manf’d Goods Balance

Other bad news in the report:

  • Imports of food, feeds and beverages rose to a record in October.
  • Imports from China rose to a record in October, and our trade deficit with China is on track to rise to a new record for 2011.
  • Imports from Japan rose to their highest level in 3-1/2 years. 

The October trade deficit report also marks a very sad milestone, so significant that I’ll cover it in a subsequent post.  Stay tuned.


Population Density Effect on Trade Intensifying

December 7, 2011

Now that we’ve examined the two ends of America’s trade spectrum in 2010 – our top 20 per capita trade deficits and surpluses in manufactured goods – let’s take a look at how population density has affected our balance of trade with the world as a whole.  Figure 7-4 on page 125 of Five Short Blasts displayed America’s balance of trade in manufactured goods with the nations of the world divided evenly into two groups – those above the median population density and those below.  Same number of nations; starkly different results.  The following is an update of that graph through 2010.  (Note that 2007 and 2008 results are not provided since I didn’t tabulate the data for those two years.)

Deficits Above & Below Median Pop Density

You can see from this graph that the effect of population density on our balance of trade is intensifying with each passing year.  Our surplus with less densely populated nations is growing, as is our deficit with more densely populated nations. 

Some additional points about the 2010 data:

  • The median population density in 2010 was 168 people per square mile.  In 2006 it was 153 people per square mile.  The world is quickly growing more densely populated. 
  • Even that median population density is more than double the population density of the U.S.  What happens if we split the world’s nations at that density?  With the nations less densely populated than the U.S. we had a trade surplus in manufactured products of $133 billion.  With those more densely populated, we had a deficit of $511 billion. 
  • Some may argue that the results are skewed by dividing the nations around the median population density, since the more densely populated half of nations has a much larger share of the world’s population.  OK, let’s divide the nations of the world around population, so that half of the people live in more densely populated nations and half live in less densely populated nations.  Unfortunately, that’s not quite possible because I’d have to divide China in half.  If we leave China in the more densely populated half, then we come closest to an even split, with 58% of the world’s population in the more densely populated “half,” and 42% of people in the less densely populated “half.”  If we do that, the U.S. had a surplus in manufactured goods of $62 billion with the “half” of people living in less densely populated nations, and a deficit of $439 billion with the “half” of people living in more densely populated nations.  Still an enormous disparity.
  • Or, some may argue that the trade balance should be divided based on area, the more densely populated half of the world based on area vs. the less densely populated half.  If we do that, the results change little.  With the half of the world’s surface area that is less densely populated, we had a trade surplus in manufactured goods of $95 billion.  With the more densely populated half of the world’s surface area, we had a deficit of $472 billion.

No matter how you cut it, population density has an enormous effect on balance of trade, and the effect is getting more pronounced the longer we remain wedded to one extreme end (the “free” trade end) of the spectrum of trade policy available to us.  Free trade makes a lot of sense in a lot of situations – like trade in natural resources and trade in manufactured products with nations of comparable population density – but we must employ other trade policy tools, including the intelligent application of tariffs, when dealing with badly overpopulated nations where free trade has proven to be such an abysmal failure.


America’s Top 20 Customers of Made-in-the-USA Products

December 6, 2011

In a previous post we looked at a list of America’s 20 worst per capita trade deficits in manufactured products.  Today we look at the other end of the spectrum – our top 20 trade surpluses in manufactured products.  In per capita terms, these are the people of the world (other than Americans themselves) who are America’s best customers for American made products.  You may be surprised.  Here’s the list:

 Top 20 Surpluses, 2010

The nations that you see high-lighted in yellow are net exporters of oil.  More about that in a minute.  First, though, it’s important to note that, unlike the list of our worst per capita trade deficits, which was dominated by densely populated countries (only 3 were less densely populated than the U.S.), this list is dominated by sparsely populated countries. 

But there are some notable exceptions, beginning with the top 2 countries – Qatar and United Arab Emirates (UAE).  In general, sparsely populated nations are rich in natural resources and maintain balances of trade by trading those resources for manufactured goods, including American products.  But Qatar and UAE are rare exceptions.  They are very tiny, densely populated nations who just happen to be literally afloat on a sea of oil.  Thus, in spite of their dense populations, they still have large surpluses in those resources that they can trade for manufactured goods, just like the more sparsely populated larger nations, rich in resources, like Canada and Australia.  Kuwait and Brunei are two more examples who appear on the list – tiny, densely-populated nations afloat on a sea of oil, just like Qatar and UAE. 

That leaves four other nations on the list who are more densely populated than the U.S. – Belgium, Panama, The Netherlands and Lebanon.  Panama is easy to explain.  They are only slightly more populated than the U.S. and derive the lion’s share of their wealth, which they’re then able to trade for American manufactured goods, from an unusual source – operation of the Panama canal. 

That leaves only Belgium, The Netherlands and Lebanon – very tiny nations and the three most densely populated nations on the list, by far – as the only remaining anomalies.  The first two are among the wealthiest nations on earth.  And even Lebanon ranks close to the top third of nations in terms of purchasing power.  How do these nations defy the population density bugaboo that makes virtually every other densely populated nation on earth dependent on manufacturing for export?   

First of all, it’s important to note that these three are very tiny nations who, combined, are smaller than the state of Indiana.  Together they make up only 0.07% of the earth’s land mass while the remaining 17 nations on the list account for over 18%.  Nations so small as these tend to have unusual economies that are heavily skewed toward services, especially financial services, and they then trade those services for manufactured goods.  It’s the very reason that I rolled the data for tiny city states like Singapore, Liechtenstein, Luxembourg, San Marino and others into the data for the larger, surrounding countries. 

Regarding Lebanon’s economy, the CIA World Fact Book has this to say:

The Lebanese economy is service-oriented; main growth sectors include banking and tourism.

Tourism?  Really?  While few Americans aside from those with family ties would choose to travel to Lebanon, it seems that their Mediterranean beaches are a big draw for people in that part of the world.  And this is actually the reason that I excluded tiny island nations from my study of population density and per capita consumption.  All have very unique economies dependent on tourism, and they trade tourist dollars for American-made products.  It’s also the same reason that Belize appears on this top 20 list.  While not an island, it too is a small country heavily dependent on tourism. 

In the final analysis, aside from the anomalies of these three tiny, densely populated countries and a few tiny major oil exporters, low population densities dominate the list of nations with whom the U.S. has surpluses in manufactured goods.  The combined population density of the 20 nations on this list is only 20 people per square mile.  Compare that to the list of our top 20 trade deficits, where the combined population density was 343 people per square mile.  The contrast is so stark it bears repeating:  20 people per square mile vs. 343 people per square mile (four times the population density of the U.S.).

If the president wanted to make real progress on restoring a balance of trade, he’d drop his goal of doubling exports and instead focus on boosting free trade with sparsely populated nations while implementing tariffs on imports from densely populated nations. 

Now that we’ve looked at both ends of the trade spectrum, we’ll next consider the entire trade picture for 2010.  Stay tuned.


315,000 More Workers Vanish in November

December 5, 2011

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

As reported by the Bureau of Labor Statistics (BLS) on Friday in its monthly “Employment Situation” report, another 315,000 workers mysteriously vanished from the labor force in November or, as the BLS chooses to explain, they simply gave up looking for work.  The result of the supposed big decrease in the labor force was an even larger decline in unemployment, which fell in November t0 8.6% from 9.0% in October.  (See the above link to the report.)  Within the report, the BLS concedes that:

The civilian labor force participation rate declined by 0.2 percentage point to 64.0 percent. The employment-population ratio, at 58.5 percent, changed little.

Actually, thanks to a nice gain in the employment level in the household survey, per capita employment grew in November for the fourth month in a row and for the 15th time in the last 24 months.  Even so, per capita employment remains stuck at the same level as at the start of that 24-month stretch.  Here’s the chart:

Per Capita Employment

The number of unemployed also fell for the fourth straight month, but remains near the worst level of the recession:

Unemployed Americans

And, as you can see, the employment level has risen nicely, by nearly 2.8 million, since the worst level reached in December, 2009:

Labor Force & Employment Level

Unfortunately, during the same time frame, the population grew by six million.  So the net result is, as the BLS noted, “… the employment/population ratio changed little,” in spite of the supposed big drop in unemployment from 10% in December, 2009 to 8.6% today.  So the gap between the government’s U3 calculation and my own U3a calculation of unemployment is near the worst level of the recession:

Unemployment Chart

If President Obama has been smart enough to restrain the growth in the population through cuts in immigration, he’d now be talking about a real, significant drop in unemployment – one that actually feels like an improved economy – instead of one that’s been trumped up by proclaiming that millions have simply given up looking for work.  What a crock. 

Here’s my spreadsheet with the raw data and unemployment calculations:

Unemployment Calculation

When all is said and done, Friday’s unemployment report is nothing more than further confirmation of the “New Normal” economy of high unemployment.

* * * * *

The gain of 120,000 jobs reported by the BLS from its establishment survey breaks down as follows:

  • Retail:  + 50,000
  • Professional & business services:  + 33,000
  • Leisure and hospitality:  + 22,000 (a gain of 33,000 in food services and drinking establishments and a loss of 12,000 in motels/hotels)
  • health care:  + 17,000
  • Manufacturing:  no change
  • Construction:  no change
  • Government:  – 5,000 (postal workers)

The bubble in health care spending and employment continues to grow, a bubble sure to burst when future cuts in Medicare and Medicaid begin to bite. 

Also, for a president committed to growing the economy through an export-driven growth in manufacturing, the continued flat employment in manufacturing isn’t good news.

Note that, at the bottom of the report, revisions are expected next month that will make it impossible to compare new reports of unemployment to the old ones.  I expect that this will mean an unusual drop in unemployment next month too. 


America’s Top 20 Per Capita Trade Deficits in 2010

December 1, 2011

I feel bad that I’m just now reporting on 2010 trade data.  But I think I can be forgiven when you realize the work involved in compiling the data for 163 countries.  First of all, the data for imports and exports (which wasn’t available until late February)  must be downloaded from spreadsheets found on the Census Bureau web site – a total of 326 spreadsheets.  Then, the results from each must be compiled on a separate spreadsheet.  Then, updated data for population and per capita purchasing power parity data must be extracted for each individual nation from the CIA World Fact Book site.  Finally, the data must be sorted, analyzed and tabulated.  In the meantime, there’s a matter of eating, sleeping and enjoying life.  Still, I hope to be able to report 2011 data in a more timely fashion following its release in late February of 2012. 

So, having made all of my excuses, here we go.  It’ll take several posts to cover the analysis of this data, but I want to begin with a list of the top 20 per capita trade deficits in manufactured goods in 2010.  In case you’re new to this site, I express the trade results in per capita terms – that is, the deficit divided by the population of the nation in question – in order to put all nations on the same footing.  It’s the only way to make this a meaningful analysis of the effectiveness of trade policy with each nation, instead of being merely a measure of the sheer size of each nation. 

So here’s the list:

Top 20 Deficits, 2010

There are a number of points to be made about this list:

  1. Only three of these twenty nations are less densely populated than the U.S.:  Sweden, Estonia and Finland.  Among the top ten, only Sweden – at number 9 – is less densely populated.
  2. The average population density of the top ten is 558 people per square mile, more than 6-1/2 times more densely populated than the U.S.
  3. This list is loaded with wealthy nations, disproving the theory that large trade deficits can be blamed on low wages.  The average purchasing power parity (PPP) per capita for these nations is $26,650.  Only three of these nations have PPP less than $10,000.  Of the top ten nations, only one – Costa Rica – has a PPP of less than $20,000.  The average for the top ten is $32,800.
  4. For all of the uproar about the size of our deficit with China, when expressed in per capita terms it’s only the 16th largest.  Our deficit with eleven other nations is at least twice as bad.  The point is that our huge trade deficit with them is exactly what we should have expected when the same trade policy that was already a proven failure with other densely populated nations around the world was applied to a nation with one fifth of the world’s population. 
  5. Since 2006 (when this data was first presented in Table 7-2 of Five Short Blasts), the deficit with Ireland has dramatically worsened and is now 26 times worse than our per capita deficit with China, in spite of some growth in the latter as well.  Why is the per capita deficit with Ireland so large?  Pharmaceuticals.  Because of favorable tax treatment, Ireland is America’s drug manufacturer of choice.  And, perhaps because of that favorable tax treatment, Ireland’s budget deficit is the largest in the world (as a percentage of GDP) and is a major factor driving the Euro zone to the brink of collapse.
  6. Of the three nations on the list less densely populated than the U.S., two of them – Sweden and Finland – may not be there much longer as the effects of population density become more pronounced with each passing year.  Sweden has fallen from number two in 2006 to number nine in 2010.  Finland has fallen from number 13 in 2006 to number 15 in 2010.  Estonia is a newcomer to the list.  Imports of telecommunications equipment from Estonia exploded in 2010, increasing 40-fold from just the year prior.  (My guess is that someone in Europe relocated a telecommunications plant to Estonia to take advantage of their nearby port facilities and cut their shipping costs.)
  7. Other newcomers to the list, all densely populated, include Costa Rica, Slovakia and Cambodia.  As recently as 2008, the U.S. had a record surplus of trade in manufactured goods with Costa Rica.  But in two years, that’s changed dramatically as imports of computers and semiconductors from Costa Rica have exploded.  Clearly, some company (companies) have recently relocated to Costa Rica.  No doubt, some CEOs wanted to enjoy the lavish resort facilities nearby during their visits.   
  8. Since 2006, when our per capita deficit with Malaysia was the 8th largest, Malaysia has fallen completely off the list to its current rank as 26th. 

To summarize, the disparity in population density between the U.S. (with a population density of 85 people per square mile) is clearly, by far, the driving force behind these trade deficits.  Seventeen of these twenty nations are more densely populated than the U.S.  Sixteen are at least twice as densely populated.  Ten are at least four times as densely populated.  By contrast, while all have lower PPP than the U.S. (at $47,000), few could be considered “low wage” nations where wages are low enough to offset the costs of transportation and logistics. 

In the next post, we’ll take a look at America’s top 20 per capita surpluses in manufactured goods to see how population density may affect that end of the trade spectrum as well.