Population Density Effect on Trade Intensifying

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.

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