I’ve finished compiling and analyzing America’s trade data for 2017, which was released by the Bureau of Economic Analysis in late February. Why the delay? Tabulating the results for hundreds of 5-digit end use code products for 165 nations is no small feat. What we’re looking at here are the deficits in manufactured goods as opposed to services and various categories of natural resources. Why? Because manufacturing is where the jobs are. Yes, there are jobs associated with the harvesting and mining of natural resources but, pound for pound, those jobs pale in comparison to the number generated by manufacturing.
And it should be noted that there are more than 165 nations in the world. The CIA World Factbook lists 229. Nearly all of the 64 nations that I left out of this study are tiny island nations with whom combined trade represents only a tiny fraction of America’s total. Also, their economies tend to be unique in that they rely heavily on tourism and their manufacturing sectors are virtually non-existent, if for no other reason than a lack of space to accommodate manufacturing facilities.
It should also be noted that I’ve “rolled” the results for tiny city-states into their larger surrounding nations – states like Hong Kong, Singapore, San Marino, Luxembourg, Liechtenstein, Monaco and others. They too tend to have unique economies, heavily dependent on services like financial services, and mostly devoid of manufacturing for the same reason as small island nations – a lack of space. There is no room for sprawling manufacturing complexes.
So, with that said, let’s begin with a look at America’s biggest trade deficits. Here are the top twenty: Top 20 Deficits, 2017
It comes as no surprise that China once again has topped the list with a whopping $384.7 billion deficit. But there are many interesting observations that can be made about this list:
- There’s a lot of variety on this list – nations big and small, rich and poor, Asian, European and Middle Eastern nations. But there’s one thing that all except one have in common – a high population density. The average population density of this list is 734 people per square mile. Compare that to the population density of the U.S. at 91 people per square mile. On average, the nations on this list are eight times more densely populated than the U.S.
- With a few exceptions, these are not poor countries where wages are low. Half of the top ten nations have a “purchasing power parity” (or “PPP,” a measure of wealth that is roughly analogous to wages) near or, in one case (Ireland), above that of the U.S. ($59,500). Only one nation in the top ten – Vietnam – has a PPP of less than $10,000. So, the claim that low wages cause trade deficits isn’t supported by this list.
- Two nations on this list – China and India – represent 40% of the world’s population. On the other hand, there are others that, combined, make up less than 1% of the world’s total. Naturally, if we have a trade deficit with a big nation, it tends to be really big. In order to identify the factors that influence trade, we need to factor sheer size out of the equation.
- On average, the U.S. trade deficit in manufactured goods has risen by 81% with this group of nations over the past ten years. Whatever it is that drives trade deficits has a very potent effect. The fastest growing deficit is with Vietnam, rising by 335% in ten years. Vietnam is the 2nd poorest nation on the list. Perhaps low wages do play a role here? On the other hand, the 2nd fastest growing deficit is with Switzerland, the 2nd wealthiest nation on the list – wealthier than the U.S. – debunking the low wage theory.
- It’s often said that America needs to be more productive in order to compete in the global economy. Yet we see nations like France and Italy on this list – nations notorious for long vacations, short work weeks, etc. – not exactly bastions of productivity.
- In 2017, the U.S. had a total trade deficit of $724 billion in manufactured goods. Of these 165 nations in this study, the top eight deficits on this list account for more than that entire total. The U.S. actually has a small surplus of trade with the other 157 nations of the world.
In my next post, we’ll take a look at the other end of the spectrum – America’s top twenty trade surpluses in manufactured goods. If population density is a factor, then we should see that list comprised of nations with low population densities. And if low wages aren’t a factor, we shouldn’t see anything much different than what we saw on this list presented here. So stay tuned.