America’s Worst Trade Deficits in 2019

I’ve just finished the long, tedious process of analyzing the international trade data for 2019, which was posted by the Commerce Department in late February this year, instead of the mid-summer release caused by the government shutdown last year.  We’re going to look at this data in a lot of different ways in this and upcoming posts, so let’s begin with the basics.  The biggest problem with international trade is that the U.S. has been running a massive, ever-growing trade deficit for the past forty-five years.  All of the deficit is due to imports – and very weak exports – of manufactured products, and this category of products is where it hurts the most.  A deficit in manufactured products hurts the most because that’s where the most – and the highest-paying jobs – are lost.

So let’s begin this analysis with a list of our worst trade deficits in manufactured goods:  Top 20 Deficits, 2019.  The deficit with these 20 nations is almost $1 trillion!  It’s no great surprise that our deficit with China leads the list, by a wide margin.  And it would be worse by $20 billion if I hadn’t included Hong Kong with China.  (The Commerce Department tracks them separately, but we’re kidding ourselves to think that Hong Kong is an independent city-state.)  What’s new and interesting however is that the deficit with China is actually down substantially – by $73 billion – from 2018.  This is thanks to the Trump administration’s program of imposing tariffs on Chinese imports.  Look at how much the deficit with China has changed over the past ten years.  Though it grew rapidly for the first nine years of this period, it fell enough last year to yield only a 24% growth in the last ten.  That’s the 2nd slowest growth among the twenty nations on this list.

The deficit with Mexico has grown rapidly – 154% over the past ten years – to become our 2nd worst trade deficit.  However, if we are to believe the President, this should begin to change as the new USMCA agreement with Mexico and Canada – which replaces the now-defunct NAFTA agreement – begins to take effect this summer.  We’ll see.

Note that, contrary to the belief that low wages cause trade deficits, this list of our worst trade deficits is actually dominated by wealthy, developed nations, including many European nations.  In fact, if we add up the EU nations on this list, the combined deficit is $187 billion.  (The UK and Switzerland are not in the EU.)  By the way, the growth in the deficit with the U.K. – 3,125% in ten years – isn’t a typo.  When I first wrote Five Short Blasts in 2007, the U.K. was one of a few anomalies where, in spite of the high population density, we actually enjoyed a trade surplus with them.  But that trade surplus evaporated and, in 2010, the U.S. actually had a very small trade deficit with the U.K.  The deficit of $9.6 billion in 2019 is more than thirty times larger than the small deficit in 2010.  It’s growing rapidly.

As we’ve seen every year, it’s not low wages that cause our trade deficit.  So what does cause it?  I just gave you a hint.  Look at the population density of the nations on this list and compare it to the population density of the U.S. – 93 people/square mile.  The average population density of the nations on this list is almost seven times greater.  The combined population density of the nations on this list – the total number of people divided by the total land mass – is more than five times greater.  Only Sweden, near the bottom of the list, is less densely populated.  Nineteen of these twenty nations are more densely populated than the U.S.  Most are more than four times as densely populated.  Now that’s a powerful correlation to our balance of trade!

But why?  Why does something so seemingly unrelated have such a powerful effect on the balance of trade?  It’s because people who live in over-crowded conditions are incapable of using as many products as people who enjoy living in more wide open spaces.  They have no place to store them and no place to use them.  (Think cars.  the average Japanese person doesn’t have a garage and the roads are too crowded to drive anyway.)  Yet, they are every bit as productive.  The inescapable consequence is that, in order to be gainfully employed, they must produce far more than they consume, and there’s ony one thing that can be done with their excess production:  export it.  Unless the nation that those excess products are exported to takes some kind of action to keep those products out, their own citizens are now doomed to be put out of work by the market share they’ve lost.  Trading freely with badly overpopulated nations causes a massive shift of manufacturing jobs to the more densely populated nation.

But I’m getting ahead of myself.  Trade deficits are just one end of the trade spectrum.  What about surpluses?  Will we find that those nations are less densely populated, which the population density theory would predict?  Stay tuned.

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