America’s Best Trading Partners

In my previous post, we examined a list of America’s twenty worst per capita trade deficits in manufactured goods in 2013.  We saw that the list was heavily dominated by very densely populated nations.  Eighteen of those twenty nations were more densely populated than the U.S. (most being far more densely populated) and the average population density was 504 people per square mile – almost six times the population density of the U.S.  And we also saw that low wages had nothing to do with these deficits.  Most of these nations were among the wealthiest in the world.  We concluded that population density was clearly the driving force behind these trade deficits.

If that’s true – that population density affects our balance of trade – then we should see the opposite effect at the other end of the scale.  The list of America’s largest per capita trade surpluses in manufactured goods should be dominated by nations with lower population densities.  Here’s the list:  Top 20 Surpluses, 2013.  There are far fewer densely populated nations on this list, but there are seven that are more densely populated than the U.S.:  United Arab Emirates, Qatar, Belgium, Brunei, Panama, the Netherlands and Kuwait.  Of these seven, it’s important to note that four are oil exporters.  (Net oil exporters are highlighted in yellow.)  Since oil is priced in dollars, which can only be spent on U.S. products and services, it’s inevitable that these nations appear on the list, regardless of their population density.

That leaves only three of the twenty nations on this list that seem to defy the population density effect – Belgium, the Netherlands and Panama.  Belgium and The Netherlands are tiny, neighboring European nations whose economies are heavily dependent on trade and who take advantage of a unique asset –  they share the only European seaport on the non-Baltic Atlantic coast.  Both import and then re-sell American-made goods.

The average population density of the nations on this list is 197 people per square mile.  However, the weighted population density – the total population of the nations on this list divided by their total land mass – is only 17 people per square mile.  Compare that to 358 people per square mile – the weighted population density of the nations that account for our twenty worst per capita trade deficits.  17 vs. 358.  Could the role of population density in driving trade imbalances be any more clear?

It’s also interesting to note that the nations on the list of our best surpluses represent nine million square miles of the earth’s surface.  The nations that account for our worse deficits – deficits that total far more than our surpluses, represent only 5.4 million square miles.

Finally, it’s important to note that the average purchasing power parity (PPP) of the nations on our list of our best surpluses is $38,725.  That’s little different than the average PPP of the nations on the list of our worst deficits – $35,330.  In other words, wealth (analogous to wages) plays no role whatsoever in determining trade imbalances.

And yet we go on pretending that population density doesn’t matter, applying free trade policy to all of them, just as we have for well over a half century.

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