Who cares about the U.S. trade deficit with a tiny country like Denmark? You should, as should anyone concerned about our much larger trade deficit with China and our even larger overall trade deficit. Because, though Denmark is a tiny country, it’s a perfect example of what’s wrong with our trade policy. It’s a perfect example of the inverse relationship between population density and per capita consumption at work driving global trade imbalances. Here’s a chart of U.S. trade with Denmark:
Our trade deficit with Denmark – almost all of which is in manufactured goods – climbed to a new record in 2011, just as our trade deficit with China did. What do Denmark and China have in common? Their population densities are nearly identical, with each more than four times as densely populated as the U.S.
In per capita terms, our trade deficit with Denmark in manufactured products is three times worse than our deficit with China. And that’s in spite of the fact that Denmark is a very wealthy nation. In 2011, Denmark’s GDP per capita rose by roughly 10% to over $40,000 per person – close to that of the U.S. It’s one more bit of proof that what economists say about low wages causing trade deficits is flat wrong. The opposite is true: that wages in densely populated nations rise as their trade surpluses with the U.S. grow – just as we also see happening in China.
You may wonder what Denmark exports in order to have such a large trade surplus with the U.S. Their major manufactured exports are machinery and instruments, pharmaceuticals, furniture and wind generators.
Trade with Denmark is a microcosm of what’s wrong with American trade policy. Free trade with densely populated nations, big or little, rich or poor, is a consistent, sure-fire loser.