In my last post, we looked at a list of America’s twenty worst trade deficits in manufactured goods in 2017 and saw that the list was dominated by nations much more densely populated than the U.S. We also saw that, contrary to conventional wisdom, low wages don’t seem to be a factor in driving these deficits.
Now let’s examine the other end of the spectrum – America’s twenty biggest trade surpluses in manufactured goods in 2017. Here’s the list: Top 20 Surpluses, 2017
There are actually a couple of factors that jump out on this list. Most importantly, notice that this list is peppered with nations with low population densities. The average population density of the twenty nations on this list is 209 people per square mile, compared to 734 people per square mile on the list of our twenty worst deficits. However, the difference is actually much more dramatic when you account for the fact that four of the nations on the list of surpluses are very tiny nations with small (but dense) populations – the Netherlands, Belgium, Kuwait and Qatar. If we calculate the population density of the twenty nations on this list as a composite – the total population divided by the total land area – we arrive at a population density of only 34 people per square mile. Doing the same with the twenty nations on the deficit list yields a population density of 509 people per square mile. Thus, the nations with whom we have our largest trade deficits are fifteen times more densely populated than the nations with whom we have our largest trade surpluses.
Why do the aforementioned nations – the Netherlands, Belgium, Kuwait and Qatar – seem to buck the trend? The first two nations are tiny European nations who take advantage of their deep sea port – the only one on the Atlantic coast of the European Union – to build their economies around trade, importing goods from the U.S. for distribution throughout Europe. These surpluses offset somewhat the much larger trade deficit that the U.S. has with other European nations. Even with the Netherlands and Belgium included, the trade deficit with the European Union is still enormous – second only to China.
The presence of Kuwait and Qatar on the list of trade surpluses, in spite of their dense populations, illustrates the other factor that drives trade surpluses. Both of these nations, along with the other nations highlighted in yellow on the list, are net oil exporters. Since all oil is priced in U.S. dollars, it leaves these nations flush with U.S. dollars that can only be used to buy things from the U.S. It makes a trade surplus with an oil exporter almost automatic.
Now, look at the “purchasing power parity” (or “PPP,” roughly analogous to wages) for the nations on this list. The average is just under $40,000, compared to an average PPP on the deficit list of $35,000. However, that average is skewed significantly by tiny Qatar, who has a PPP of $124,900. Take Qatar out of the equation and the average drops to $35,500 – almost exactly the same as the nations on the list of our biggest deficits.
So, of these two factors – population density and wages – which do you now think is the real driver of trade imbalances? Is it the one that differs by a factor of fifteen between the two lists, or the factor that is virtually the same on both lists? Clearly, population density seems to be a much more likely factor in driving trade imbalaces, at least from what we’ve seen from these two lists.
But both lists contain nations that are very large and very small. It seems only natural that, if we’re going to have a trade imbalance with any particular nation, it will be a much bigger imbalance if that nation is very large. We need to factor the sheer size of nations out of the equation. That’s what we’ll do next in upcoming posts. Stay tuned.