In previous posts we examined lists of America’s biggest trade deficits, both in terms of sheer size and on a per capita basis, and found that both lists were dominated by nations with very high population densities. If population density is a factor in driving trade imbalances, then we should see the same but opposite effect at the other end of the spectrum. If we look at America’s biggest trade surpluses in manufactured goods, we should find the list dominated by nations with low population densities. Here’s the list: Top 20 Surpluses, 2017.
On this list we find that there are actually two factors at play. First of all, the list is dominated by nations with lower population densities. Eleven of these twenty nations are less densely populated than the U.S. (On the list of our biggest deficits, only two nations were less densely populated.) Only six nations on the list are significantly more densely populated than the U.S. The average population density of the nations on this list is 209 people per square mile. Compare that to the average for our biggest deficits – 734 people per square mile. And if we calculated the population density of this group of twenty nations taken together – the total population divided by the total land mass – we find a population density of only 34 people per square mile, compared to a population density of 509 people per square mile on the list of the biggest deficits.
Still, how do we explain the presence on this list of some nations with some very high population densities? Of those six nations that are significantly more densely populated than the U.S., three – United Arab Emirates, Kuwait and Qatar – are net oil exporters. As such, it’s almost automatic that we will have a trade surplus in manufactured goods with such nations, regardless of their population density. Why? Because oil is priced in American dollars which can only be used to purchase things from America. Even if the U.S. itself buys little or no oil from such countries, the countries who do must still pay in American dollars. Strange, I know, but that’s how it is. The end result is that oil exporters buy American products, either for their own consumption or for re-export to other nations.
That leaves three nations – the Netherlands, Belgium and Ecuador – unexplained. The Netherlands and Belgium are tiny, adjoining nations who together enjoy the only deep water sea port on the Atlantic coast of Europe. They use this to their advantage, making themselves into major points of entry for imports from America and for their distribution to the rest of Europe. So their presence on the list is more of a geographic anomaly than anything else.
At number one on the list, Canada is both very sparsely populated while also being a huge oil exporter. In fact, they are America’s biggest source of imported oil. This is why the surplus with Canada is more than three times the size of our next largest surplus. The U.S. has no better trade partner than Canada – hands down. While I give Trump high marks for taking on the trade issue, I wish he’d find a way to exempt Canada from tariffs. Canada has a legitimate beef regarding these tariffs. Canada is not the problem.
By the way, does it come as a surprise to see Russia on the list? It’s less surprising when you look at their population density.
Also, take a look at the Purchasing Power Parity (PPP, roughly analogous to wages) of the nations on this list. The average PPP is just under $40,000 per capita. The average of the nations on the list of our biggest deficits was $35,000 – a difference of only 15%. The difference in population density between these two lists is 1400%. Which do you think is more likely to be the real driver of trade imbalances – wages or population density?
As was the case with our list of the biggest trade deficits, the list of our biggest trade surpluses is also populated with very large and very tiny nations. In order to factor sheer size out of the picture, let’s next take a look at our biggest trade surpluses expressed in per capita terms. Stay tuned for the next post.