U.S. Trade: A Tale of Two Worlds

Divide the world in half by population density and the results couldn’t be more different.  In 2014, it grew worse again.  The half of nations with a population density above the world’s median – 184 people per square mile – left the U.S. with a trade deficit in manufactured goods of $669 billion in 2014.  That’s up by $35 billion from the record set in 2013.  It has worsened every year since 2009.

The other half of nations – those with a population density less than the median – yielded starkly different results.  The U.S. enjoyed a trade surplus in manufactured goods of $132 billion with those nations.  That’s down from $147 billion in 2013 and down from the record of $153 billion set in 2011.

Here’s the chart:  Deficits Above and Below Median Pop Density.  If this isn’t proof of the relationship between population density and trade imbalances, I don’t know what is.  The number of nations is the same, but the less densely populated nations give us a $132 billion surplus, while the more densely populated nations leave us with a $669 billion deficit.  Still the U.S. applies the same free trade policy to all nations without any consideration to population density.  Doesn’t make much sense, does it?

One may counter that the results are skewed by the fact that the more densely populated half of nations includes more people than the other half, and that it includes China, which accounts for more than half of the above deficit.  Fine, so let’s analyze the data in some other ways:

  • Dividing the world in half by population is a little awkward, because China falls right in the middle.  It requires including some of China’s people in the more densely populated half, and some in the less densely populated half, and dividing our deficit with China proportionately.  If we do that, we find that the U.S. has a trade deficit in manufactured goods of $464 billion with the half of people living in more densely populated conditions.  By contrast, we have a trade deficit of $72.8 billion with the half of people living in less densely populated conditions.  The trade deficit with the more densely populated half of people is more than six times worse than our deficit with the half of people in less crowded conditions.
  • Let’s look at it another way.  Let’s divide the world’s land mass (not including Antarctica) exactly in half and compare the more densely populated half to the less densely populated half.  Then we have a trade deficit in manufactured goods of $666.8 billion with the people living in the more crowded half of the world, and a trade surplus of $130 billion with the less crowded half of the world.
  • Instead of dividing the world in half, let’s divide it around the U.S. population density – those nations more densely populated vs. those less densely populated.  Of the 165 nations studied, 112 are more densely populated than the U.S. and 53 nations are less densely populated.  The U.S. has a trade deficit in manufactured goods of $701.2 billion with nations that are more densely populated, and a surplus of $164.5 billion with those that are less densely populated.  That’s a difference of $865.7 billion.
  • The U.S. has a trade deficit in manufactured goods with 56 nations.  Of these 56 nations, only four are less densely populated than the U.S.:  Sweden, Finland, Estonia and Laos.

Any way that you look at it, the relationship between population density and trade imbalance just absolutely screams out at you.  But economists don’t see it.  They don’t see it because they won’t look.  They won’t look because of their adamant refusal to give any credence to the notion that population growth has any economic consequences.

Trade deficits, they say, are the result of other factors:  low wages, currency manipulation, lax environmental and labor standards, etc.  Or they say that trade imbalances are merely transitory, that such imbalances will correct themselves as the economies of underdeveloped nations grow.

Proving that trade imbalances are caused by disparities in population density also requires disproving the above pet theories of economists.  We’ll tackle that in my next posts.

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