In my previous post, we examined the list of America’s worst trading partners in 2015 and found that it was heavily dominated by nations that are much more densely populated than the U.S. Additionally, we saw that low wages, often blamed by the ill-informed for our trade deficit, played no role whatsoever. In fact, the very top of the list was populated with wealthy nations – some even wealthier than the U.S.
If, in fact, population density is what really drives global trade imbalances, then we should see the same effect at the opposite end of the spectrum. That is, we should find a list of nations with whom we have the largest surpluses dominated by low population densities. Let’s take a look. Here is the list of America’s twenty largest trade surpluses in manufactured goods in 2015: Top 20 Surpluses, 2015.
At the very top of the list is Canada, by far and away America’s best trading partner. At $50.2 billion, our surplus with Canada is more than 2-1/2 times larger than the next biggest surplus on the list. In the past ten years, our surplus with Canada has exploded by 245%. With a population density of only ten people per square mile, Canada is one of the least densely populated nations on earth.
But as you scan down the list, you see a mix of nations with both low and high population densities. At first glance, this would seem to cast doubt on the whole population density theory, until you realize the role that oil plays in landing some of these nations on this list. Oil is universally priced in American dollars, regardless of the nation that is exporting the oil. American dollars are legal tender only in the United States so, ultimately, all of those dollars must be returned to the U.S. This happens predominately through either the purchase of American goods or through the purchase of American debt – bonds issued by the government or by American corporations. So it’s almost automatic that net oil exporters like Qatar, Kuwait and Nigeria, among others, appear on this list in spite of their high population densities.
Actually, Canada is America’s biggest source of imported oil, which helps to explain their position on the list. That, coupled with their low population density, is what has driven them so far to the top.
If we discount the seven nations on the list who are net oil exporters, of the remaining thirteen only three have population densities that are above the world median: the Netherlands, Belgium and Egypt. Seven of the thirteen are less densely populated than the U.S. (at 87 people per square mile). Regarding the Netherlands and Belgium, these tiny nations share the only deep-water port on the Atlantic coast of Europe and use that to build their economies around trade, importing American goods and redistributing throughout Europe. Egypt appears on the list because they are a big recipient of foreign aid. All foreign aid is booked as exports at face value even though it is given away.
The average population density of these twenty nations is 240 people per square mile, in contrast to the average population density of 737 people per square mile on the list of our worst trade partners. But it’s a little misleading to average the figures in this way, since the population density of a few tiny nations can skew the data. If we calculate the population density of the list by dividing their total population by their total land mass, the population density drops to 45 people per square mile – half that of the U.S. For the list of our twenty worst trading partners, that figure is 503 people per square mile – more than ten times as densely populated.
Look at the purchasing power parity of this list of nations. Take away tiny, inordinately rich Qatar, and the average wealth of the remaining nineteen nations is $32, 268 – almost identical to the average wealth of the nations on the list of our twenty worst trading partners. So wealth – roughly analogous to wages – plays no role on these two lists whatsoever.
Now let’s look at this from another perspective. If we factor out the sheer size of nations, which nations’ citizens, man-for-man (in per capita terms), are our best trading partners? If population density is a factor in determining trade imbalances, we should once again see a list that is dominated by less densely populated nations and, probably, net oil exporters. So here’s the list: Top 20 Per Capita Surpluses, 2015.
Though the list is a little different now, we see the same thing. There are seven net oil exporters on the list. Of the remaining thirteen, all but three – the Netherlands and Belgium again, and Costa Rica – have population densities less than the global median. Of the remaining ten, all but one – Panama – is less densely populated than the U.S. The average density for these twenty nations is 206 people per square mile. But the population density of the group as a whole – the total population divided by their land mass – is down to 20 people per square mile. For our worst trade partners, that figure is 372 people per square mile. It bears repeating. The population density of our twenty worst trade partners is more than 18 times that of our best trade partners.
The data that I’ve presented here in my last few posts is absolute, undeniable proof that population density is what drives global trade imbalances. Not wages. Trade policy that fails to recognize this relationship and fails to employ some mechanism (like tariffs) to maintain a balance of trade is doomed to yield the huge trade imbalances that have been growing and eroding our economy for decades.