In my last post, we saw from the list of America’s worst trade deficits that every country but one was more densely populated than the U.S., suggesting a relationship between population density and balance of trade. If that’s true, then we should see the opposite when we look at a list of our biggest trade surpluses. We should see a list of countries with lower population density. So here’s the list of our biggest trade surpluses in manufactured goods in 2019: Top 20 Surpluses, 2019.
At first glance, this list doesn’t seem quite as supportive of a relationship between population density and balance of trade. Exactly half of the nations on this list are less densely populated than the U.S., whose density is 93 people per square mile. But look more closely at the list and some countries jump out at you: United Arab Emirates, Saudi Arabia, Qatar, Kuwait and Nigeria. Four of these five nations are far more densely-populated than the U.S. What comes to mind when you look at this list? Oil. All are net exporters of oil to the U.S. And without exception (including smaller oil exporters who didn’t make this list), the U.S. has a trade surplus with net oil exporters. Why? Because all oil sold world-wide is priced in U.S. dollars. If you want to buy oil from Saudi Arabia, you pay for it with U.S. dollars. If you want to buy oil from Nigeria, you pay with U.S. dollars. The result is that net oil exporters are loaded with U.S. dollars and – you may not realize this – but the United States is ultimately the only place where U.S. dollars can be used as legal tender (with the one exception of oil in other countries), meaning that net oil exporters must buy something from the U.S. with those dollars. It can be anything – products, government securities, real estate – anything that is sold in the United States. A good share of those petro-dollars are used to buy American exports.
Two other very densely-populated, non-oil-producing nations on the list also need explanation. The Netherlands and Belgium are both very densely populated. But together they have the only deep-water ports on the Atlantic side of the European Union. So many of the American exports that are destined for other nations in Europe are imported through those two countries. Ships arrive full of American exports. Somehow, however, only half as many imports from those countries head back to the U.S. Obviously, those ships don’t return only half full. So how do I explain it? Frankly, I can’t, but what I suspect is happening is that imports from other European nations that depart from the Netherlands and Belgium ports are actually booked as exports from those originating nations and not from the port of departure. We need to look at Europe as a whole (a continent nearly as densely populated as China) and, when we do, we find a massive trade deficit.
In spite of the presence of those nations that cloud the results from this list, the validity of the relationship between population density and the balance of trade is still evident. The average population density on this list is 248 people/square mile vs. 617 people/square mile on the list of our biggest trade deficits. And the combined population density (total people divided by total land mass) is only 46 people/square mile vs. 510 people/square mile on the list of deficits. That’s a pretty powerful correlation!
There are other important takeaways from this list:
- The total of the trade surpluses on this list is $180.4 billion, vs the total of our top twenty trade deficits of $978.7 billion. That’s a difference of almost $800 billion, which pretty accurately represents the amount of money drained from our economy each year through trade.
- Over the past ten years, the average growth in the trade surpluses with the nations on this list is only 7%, which is less than the rate of inflation, meaning that our actual trade surpluses are shrinking. Compare that to the average rate of growth in the deficits of 298%. It’s clear that the manufacturing sector of our economy is very rapidly being decimated by trade.
- The average “purchasing power parity” (“PPP”) of the nations on the list of our top twenty trade surpluses is $36,780. That almost exactly matches the average PPP of the list of our top twenty trade deficits: $35,445. It seems clear from comparing these two lists that wages play absolutely no role in determining balance of trade.
These two lists that we’ve compared contain both very large countries and very small countries. For example, the list of deficits includes China and India who together represent almost half of the world’s population, but also include Ireland and Denmark who together represent less than one tenth of one percent of the world’s population. Is it possible that these results are skewed by the sheer size of countries? Can we factor that out? Yes, and that’s exactly what we’ll do in an upcoming post.
However, before we do that, and now that we’ve looked at both ends of the spectrum, we’ll take a look at the entire trade picture with the whole world to see whether the influence of population density is still evident. That’ll be my next post.