In previous posts, we’ve noted the apparent role of population density at both ends of the spectrum of our trade imbalances – the top deficits and surpluses in manufactured goods. Now let’s look at the world as a whole. Let’s include all 165 nations in the study and let’s divide those nations equally around the median population density (which is 192 people per square mile), such that there are 82 nations with densities above the median and 83 nations below the median. Look at this chart: Deficits Above & Below Median Pop Density.
With the half of nations with population densities above the median we had a deficit of $815 billion in manufactured goods in 2018. With the other half of nations we had a deficit of only $0.5 billion (the first deficit with that group of nations since 2005). $815 billion vs. $0.5 billion. Same number of nations. How much more obvious can it be that population density is, by far and away, the single biggest force in driving trade imbalances? How much more evidence do you need?
More? “That’s not a fair comparison,” you might say. “The half of nations that are more densely populated have a lot more people than the other half. There needs to be the same number of people included in each group.” OK, fair enough. Let’s divide the world in half by population. Half of the world’s population lives in more densely populated conditions, and half lives in less densely populated conditions. In order to divide the world that way, however, the dividing line falls on China. Not surprising since that country has one fifth of the world’s population. So to make the populations of the two halves equal, almost 40% of China’s population – a nation with a population density four times that of the U.S. – must be included with the half of people living in “less densely populated” conditions. Nevertheless, if we do that, and if we allocate 40% of our trade deficit with China to the less densely populated half, the result is that we still have a trade deficit (in manufactured goods) of $557 billion with the half of people living in more densely populated conditions and a trade deficit of $259 billion with the less densely populated half of the world’s population. The trade imbalance is still more than double with the more densely populated half.
If we include all of China in the more densely populated half of people, then the split of people is 4.15 billion vs. 3 billion. If we do that, the deficit with the more densely populated “half” of people is $730 billion vs. $86 billion for the less densely populated “half” – 8-1/2 time bigger.
I would argue that an even better comparison is to divide the world in half by land area: the half of the world that is more densely populated vs. the half that is less densely populated. If we factor out Antarctica and the United States (because we are evaluating our trade partners), the world’s land surface area is 47.3 million square miles. If we divide that in half by population density, we find that 6.66 of the 7.15 billion people occupy the more densely-populated half of the world’s surface area while the other half of the world holds only 0.49 billion people. With that more densely-populated half of the word we have a trade deficit in manufactured goods of $923 billion and a trade surplus of $107 billion with the less densely populated half. That’s a difference of over one trillion dollars in trade with the more densely populated half of the world vs. the less densely populated half.
Finally, let’s look at one more split – probably the most relevant: the nations more densely populated than the U.S. vs. the less densely populated nations. The U.S. has a population density of approximately 92 people per square mile. 114 of our trading partners are more densely populated and 41 are less densely populated. With those more densely populated we have a trade deficit in manufactured goods of $934 billion vs. a surplus of $119 billion with those less densely populated. Again, that’s a difference of over one trillion dollars!
Clearly, any trade policy that doesn’t take population density into account is virtually guaranteed to yield absolutely horrible results, yet that’s exactly what the U.S. does. It completely ignores population density and attempts to trade freely with everyone regardless of population density. And in a few decades it’s transformed the U.S. from the world’s preeminent industrial power and the wealthiest nation on earth into a virtual skid row bum, plunging us into $20 trillion of debt.
But why is population density such a factor? I could write a book on the subject. Actually I already did. It’s what this blog is all about. But I’ll summarize it for you in the next post. Stay tuned!