America’s Biggest Trade Surpluses in 2018

October 23, 2019

In my previous post, we examined the list of America’s biggest trade deficits.  Of the top 20 trade deficits, all but one were with nations more (usually much more) densely populated than the U.S.  It appears that population density may be a factor in driving these deficits.  But what will we find at the other end of the spectrum?  Will a list of our top 20 trade surpluses be dominated by more sparsely populated countries?  Well, let’s see.  Here’s the list:  Top 20 Surpluses, 2018.

We do see more sparsely populated nations on the list, but we also see a half dozen very densely populated nations.  At first glance, there doesn’t appear to be much correlation with population density.  But let’s take a closer look at those densely populated nations.  Do they all have something in common?  Indeed they do.  Most of them, but not all, are net oil exporters.  Canada, United Arab Emirates (UAE), Saudi Arabia, Qatar, Kuwait, Norway and Nigeria are all net oil exporters.  Why is that significant?  Because all oil is priced and sold in U.S. dollars.  And, ultimately, there is only one place where those U.S. dollars can be spent as legal tender – in the United States itself.  So those oil exporters use their “petro dollars” to buy products from the U.S.

Consider an example.  If China buys oil from Saudi Arabia, they have to pay for it with U.S. dollars.  No problem for China.  They’re rolling in dollars that Americans spent on their exported manufactured goods.  So now Saudi Arabia has a bunch of dollars.  They have no choice but to use it to buy American goods or American investments, like U.S. bonds.  But their economy is built around oil.  They don’t manufacture anything else to speak of.  So they have dollars to spend on manufactured goods and the only place they can spend those dollars is in the U.S.  Thus, the U.S. has a trade surplus in manufactured goods with Saudi Arabia and, for the same reason, with virtually every nation that is a net oil exporter.

That leaves two other very densely populated nations on the list that are thus far unexplained – Belgium and The Netherlands.  They’re 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.

Now, back to the subject of population density.  With all of the above said, the list of our top 20 trade surpluses is still dominated by eleven nations that are less densely populated than the U.S., and three more that are only slightly more densely populated.  The average population density of these twenty nations is 239 people per square mile, compared to the average population density of 629 for the nations that represent our biggest trade deficits.  The combined population density of all twenty nations on the surplus list (total population divided by total land surface area) is  43 people per square mile, compared to 502 for the deficit list.  It certainly appears that population density is a real factor in driving trade imbalances.

A few more observations about this list of our biggest trade surpluses is in order:

  1. 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.
  2. Are you surprised to see Russia on the list?  It’s less surprising when you look at their population density.
  3. 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 almost 1200%.  Which do you think is more likely to be the real driver of trade imbalances – wages or population density?

When it comes to the sheer size of trade imbalances, of course our deficit with China is bigger than our deficit with other, much smaller nations.  And of course our trade surplus with Canada is much larger than, say, our surplus with New Zealand.  Does that mean that Canada should enjoy more favorable trade terms than New Zealand, or that China should be punished with harsher trade terms than, say, Japan or Germany?  Hardly seems fair.  Trade policy should be formulated to address the factor that actually drives trade imbalances, regardless of the size of the nation in question.  That factor is population density.  In order to factor sheer size out of the equation, let’s now look at our trade deficits and surpluses in per capita terms, starting with our biggest per capita trade deficits.  The results are fascinating.  Stay tuned.


America’s Worst Trade Deficits in 2018

October 22, 2019

With little more than two months left in 2019, I’ve finally finished compiling and analyzing America’s trade data for 2018.  Why the delay?  Thanks to the government shutdown early this year, the trade data wasn’t released this year until nearly July – four months later than usual.  And 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, 2018.

It comes as no surprise that China once again has topped the list with a whopping $416 billion deficit – up from $385 billion the year before.  It’s more than four times as large as the next biggest deficit – Japan.  But Japan is less than one tenth the size of China, making the deficit with Japan nothing to scoff at.  Look at our deficit with Ireland.  It’s one tenth that of China, but China is 200 times as large as Ireland.

There are many other interesting observations that can be made about this list:

  1. 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 629 people per square mile.  Compare that to the population density of the U.S. at 92 people per square mile.  On average, the nations on this list are seven times more densely populated than the U.S.
  2. 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 two cases – Ireland and Switzerland, 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 conventional wisdom that low wages cause trade deficits isn’t supported by this list.
  3. 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.
  4. On average, the U.S. trade deficit in manufactured goods has risen by 166% 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 India, rising by 428% in ten years.  India is the 2nd poorest nation on the list.  Perhaps low wages do play a role here?  On the other hand, nearly tied with India (in terms of the rate of growth in the deficit, not the deficit itself, which is actually larger) is Switzerland, the 2nd wealthiest nation on the list – wealthier than the U.S. – debunking the low wage theory.
  5. 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.  So if productivity is an issue, why are we losing out to nations who are much less productive?
  6. In 2018, the U.S. had a total trade deficit of $816 billion in manufactured goods.  Of the 165 nations in this study, the top nine deficits on this list account for more than that entire total.  The U.S. actually has a small surplus of trade with the other 156 nations of the world combined.

Trade deficits matter.  As noted above, our overall deficit in manufactured goods in 2018 was $816 billion.  On a per capita basis, that’s a deficit of $2,500 for every man, woman and child in the U.S., or a deficit of nearly $10,000 for an average household of four.  That’s how much poorer you are than if we had a balance of trade.

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 – a list peppered with rich and poor nations alike.  So stay tuned.  You won’t find this in-depth analysis of trade or the factor that actually drives it anywhere else.


August Trade Data – More Evidence that Tariffs Work

October 7, 2019

You won’t find it in the headline number, but the August trade data that was released on Friday provides more evidence that tariffs work to reduce trade imbalances.

The overall trade deficit in August remained in the same tight range where it’s been for over a year, at $54.9 billion.  Imports remained locked in the same range where they’ve been for a year, while exports remained at the same level where they’ve been for two years.  The deficit in manufactured goods, which came in at $73.8 billion, may be showing signs of finally leveling off, although it’s too early to draw that conclusion.  (Here’s a chart of that all-important trade category:  Manf’d Goods Balance of Trade.)

What’s significant is what’s happening in trade with China.  Through August, the trade deficit with China is on track to finish at about the same level as 2014 – $345 billion – after soaring to $420 billion in 2018.  It will likely end the year even lower as companies ramp up efforts to shift manufacturing to tariff-free suppliers.

The August trade data also illustrates that all of the talk of the tariffs hurting farmers is a bunch of baloney.  Through August, total farm exports are off from the previous year by less than 1%.  Exports of soybeans, which gets so much attention, are actually up in 2019 to $17.3 billion from $15.3 billion during the same period in 2018.

Unfortunately, the exodus of companies from China to find other tariff-free manufacturers hasn’t yet led to a boost in manufacturing in the U.S.  The trade deficit with other suppliers like Mexico, Vietnam, South Korea and others is actually getting worse as companies turn to them, their alternate, back-up manufacturers, to provide the capacity that’s been pulled out of China.  That won’t change until Trump begins extending his tariff policy to those countries as well.  Tariffs on all auto imports would be especially helpful.   As I said last month – what’s he waiting for?