In my last post, we looked at a list of America’s biggest trade surpluses in 2017 and found the list populated primarily with two groups of nations – primarily those with low population densities and those who are net oil exporters. It also included nations both large and small. What we’re studying here is the effect of population density on per capita consumption and its effect on trade. Does a low population density facilitate high per capita consumption (and a high standard of living), making the people who live in less densely populated conditions better trading partners? The only way to know is to factor the sheer size of nations out of the equation and look at our trade surpluses expressed in per capita terms. On that basis, here is a list of the top twenty nations whose people import the most American-manufactured products: Top 20 Per Capita Surpluses, 2017.
Again, the list is dominated by two groups of countries – those with low population densities and net oil exporters. Twelve of the twenty nations have population densities less than that of the U.S. Eight are net oil exporters. (Canada and Norway share both characteristics.) That leaves only two nations with high population densities – the Netherlands and Belgium. As I noted in my previous post, both of those tiny nations share the only deep water sea port on the Atlantic coast of Europe, which they use to their advantage as a distribution hub for American imports.
The average population density of these twenty nations is 210 people per square mile (compared to 551 for the nations with whom we have the worst per capita trade deficits). The population density of these twenty nations taken as a whole – the total population divided by the total land mass – is only 21 people per square mile. (The average was skewed by tiny oil exporters with high population densities.) Compare that to 375 people per square mile for our worst trade partners.
Note too that the average purchasing power parity (PPP, roughly analogous to wages) of the nations on the list of our best trade partners is $46,000 – which is actually slightly less than the PPP of our worst trading partners at $50,700 per person. Clearly, low wages play absolutely no role in driving trade imbalances. That’s not to say that low wages don’t attract business to locate in such nations. But when they do, wages quickly rise where there is a low population density and any trade imbalance soon vanishes. But where there is a high population density, labor is in such gross over-supply that wages rise little and a trade deficit persists. It’s the high population density that causes a long-term trade deficit, not the low wages.
Now that we’ve examined the two ends of the spectrum of trade imbalances – our twenty worst per capita trade deficits in manufactured goods vs. our twenty best surpluses – we’ve found a very compelling relationship between trade imbalance and population density. Next we’ll look at all 165 nations included in my study and see if the relationship still holds.