America’s Worst Trade Partners in 2013

Top 20 Deficits, 2013

In a recent previous post, I reported that the U.S. suffered a record trade deficit in manufactured goods with those half of nations above the median population density, and a healthy surplus with the other half of nations. The relationship between population density and trade imbalance is clear.

To make it even more clear, let’s take a look at the opposite ends of the spectrum of trade imbalances – those nations with whom we have the worst trade deficits in manufactured goods and those nations with whom we enjoy the biggest surpluses. This post will look at the top twenty deficits. In order to factor out the geographic size of nations as a factor, these trade imbalances are expressed in per capita terms – dollars per person.

Above is a link to a spreadsheet showing the top twenty per capita trade deficits in manufactured goods in 2013. The following are some observations about this list:

• Of these top twenty nations, eighteen are more densely populated than the U.S. Most are much more densely populated. The average population density of the nations on this list is 504 people per square mile. This is almost six times the population density of the U.S.
• The thing that may surprise people the most is that China, the nation everyone thinks of first when the subject of our trade deficit comes up, barely makes the list of the top 20 deficits, coming in at number 17. In per capita terms, our deficit with other nations including Israel, Taiwan, Japan, South Korea and a number of European nations, is much worse.
• Low wages are often blamed for our trade deficit in manufactured goods. Manufacturing jobs, it is said, are shipped overseas to take advantage of cheap labor. So I’ve included the “purchasing power parity” (or “PPP”) – essentially the gross domestic product of each nation per person – to see whether this claim holds water. PPP is a measure of the purchasing power of the citizens of each nations, and is a good indication of the average wages paid. As you can see, our worst deficit are with rather wealthy nations. (By comparison, the PPP of the United States in 2013 was $49,000.) The average of PPP of these twenty nations is $35,330. Only two nations are below $10,000: China and Nicaragua. It should be noted that China’s PPP has more than doubled in the last eight years. If “low wages” were the cause of trade deficits, then we should begin to see our deficit with China decline as PPP rises. Instead, our trade deficit with China set a record in 2013. Our trade deficit with Switzerland, the wealthiest nation on this list, also worsened in 2013 to $1,859 per person from $1,680 in 2012, moving Switzerland from 3^rd to 2^nd place on this list.
• South Korea moved from 12^th place in 2012 to 11^th place in 2013 as our trade deficit with them worsened from $426 to $496 per person. Our deficit with South Korea continues to worsen dramatically in the wake of the 2012 trade deal which the Obama administration hailed as a “big win for American workers.”
• In the most dramatic move on the list, Malaysia went from 13^th place in 2012 to 21^st place – vanishing from the list – as our trade deficit with them was cut in half in 2013. This allowed Mexico to move up to 13^th place in spite of a 20% decline in our deficit.

There are a couple of key take-aways from this list. First is that population density plays the major role in determining trade imbalances. If it did not, one would expect the ratio of more densely populated nations to less densely populated nations to be somewhere around 1:1. Instead, the ratio here is 9:1. Secondly, low wages clearly have absolutely nothing to do with these trade deficits. This list is heavily skewed toward wealthy, high-wage nations like Ireland, Switzerland, Germany, Japan, Israel, Taiwan, Denmark and others.

The problem with attempting to trade freely with these badly overpopulated nations is not that their wages are too low. The problem is that they buy too little from the U.S., thanks to a level of per capita consumption that has been decimated by their extreme population densities. People who live in such crowded conditions simply can’t consume products at the same level as people who live in more reasonably populated conditions like we enjoy in the U.S.

Trade Deficit in Manufactured Goods Shatters Record

The trade deficit in manufactured goods soared to $62.9 billion in March, obliterating the previous record of $52.1 billion set only two months earlier.  Here’s the chart:  Manf’d Goods Balance of Trade.  The overall trade deficit also hovered near its record level.  The deficit is far worse than expected and will almost surely result in a revision to 1st quarter GDP that will put the economy in contraction.

The port slowdown on the West Coast that was resolved in mid-March is surely to blame for some of the sudden jump, but not that much.  To blame the port slowdown on a sudden, big jump in imports also suggests that it should have made up for a slow-down in previous months.  Look again at the chart.  There’s absolutely no evidence of any slowdown.  The trade deficit had continued to worsen at a steady pace in the months leading up to March.

Normally, such a big jump in the deficit could be explained by a robust economy that was gathering steam, driving a demand for imported products.  But that’s not what’s happening.  The economy slowed in a big way in the 4th quarter of last year and then either completely stalled in the 1st quarter of this year or actually contracted.

Some may blame the strong dollar, claiming that it hurts exports and makes imports more affordable to American consumers.  However, exports in March were at the same level that they’ve been at for over three years.  (So much for the President’s promise of doubling exports.)  And an exchange rate-fueled shift toward imported products vs. domestically manufactured products only makes sense if the price for imported goods has actually been cut.  Can anyone cite any examples of such price cuts?  (Remember, oil is not a manufactured product.)  Also, a big demand for imports would also be corroborated by a jump in consumer spending data.  There’s been no such jump.

What’s actually happening is that the pace at which manufacturing is shifting overseas is accelerating, which is exactly what should be expected when free trade policy continues to be applied to badly overpopulated nations.

Though it rarely does, the stock market reacted to the trade data with a big drop over concerns about the decline in GDP that would result.  I find it puzzling that an economy and political system so focused on growth continues to tolerate a huge trade deficit knowing that it’s a major drag on growth.  Why is it that economists and political leaders and the Federal Reserve, who are willing to try every trick in the book to fuel economic growth, turn a blind eye to the one thing – fixing our idiotic trade policy – that’s assured to do more than all other remedies combined to make our economy grow?

Effect of Population Density on Trade Sets Record in 2013

Each year I vow to publish this analysis in a more timely manner and, it seems, that each year it gets tougher to do.  But this is a massive undertaking, so I hope you’ll cut me some slack.

First, a little about my methodology is in order.  For each nation, I tallied the imports from and exports to that nation for hundreds of end-use-code product categories.  For example, here’s a link to the web site that tallies the imports from China:  http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html.  That’s just the imports.  There’s another page for exports to China.  Those are then combined, and the end use codes that represent manufactured products are identified and tallied.  Population data is taken from the CIA World Fact Book web site, and is up-to-date through 2013.  So, with all of that said, I think you can understand the difficulty involved in compiling this data for 166 countries.*

This chart, updated through 2013, shows the U.S. balance of trade in manufactured products with the half of nations above the median population density, and the other half of nations below the median population density: Deficits Above & Below Median Pop Density.  In 2013, with the half of nations below the median population density (182 people per square mile), the U.S. enjoyed a surplus of trade in manufactured products of $147 billion.  (It should be noted that the U.S. population density is approximately 87 people per square mile.)  In stark contrast, the U.S. suffered a trade deficit in manufactured goods with the half of nations above the median population density of $634 billion – a record.  And the disparity between the two figures – $781 billion – is also a record.  The same number of nations.  A huge contrast in results.  And, the longer the U.S. continues to pursue free trade policy that ignores the role of population density, the worse the disparity becomes.

It’s also interesting to note that the half of nations above the median population density occupy only 25% of the earth’s land mass.  This means that the U.S. has a surplus of trade in manufactured goods of $147 billion with 75% of the earth’s land mass (outside the U.S.).  With the remaining 25% – the densely populated 25% – the U.S. has a trade deficit of $634 billion.

This data is undeniable proof of a powerful relationship between population density and trade in manufactured products, a relationship first revealed in Five Short Blasts.  Without some mechanism (like tariffs) to counter the effect of population density, it’s a near certainty that trade with very densely populated nations will yield a large trade deficit and result in the loss of many manufacturing jobs.

In upcoming posts I’ll dig deeper into the 2013 data for more evidence of the role of population density in trade, and to examine whether the other popular scapegoats – low wages and currency exchange rates – play any role at all.

In the meantime, I’ll also begin compiling the 2014 data!

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* Small island nations are excluded from the study, since they enjoy unique economies, usually based on tourism.  Also excluded are tiny city-states.

Baltimore Orioles’ John Angelos NAILS IT!

http://www.cbsnews.com/videos/orioles-exec-vp-games-not-important-in-grand-scheme-of-baltimores-protests/

If you didn’t see CBS This Morning today, then you have to watch this interview.  Baltimore Orioles Executive Vice President John Angelos explains a tweet he made concerning the real root cause of the riots in Baltimore.  He lays the blame squarely at the feet of “political elites” who have shipped American jobs overseas.  I encourage you to watch the interview (link provided above) if you can suffer through the dumb Toyota Camry ad that precedes it.  But the following quote from the interview says it all:

…my greater source of personal concern … is focused rather on the past four decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore.

He went on to explain that by “American political elite” he means both Democrats and Republicans who have embraced this trade policy.  His analysis of the situation in Baltimore is dead on.  As is the case throughout America, there is a seething anger over what trade has done to our economy and, as we’ve seen with the Freddie Gray case, any spark can set it off.

Good for you, Mr. Angelos!  I’ve suddenly become an Orioles fan!