So far we’ve looked at the two ends of the spectrum of America’s 2019 balance of trade – our worst trade deficits and our best trade surpluses. We found that the list of our worst trade deficits is heavily dominated by nations with a high population density. Conversely, we found the list of trade surpluses is dominated by two groups of nations – low population densities and net oil exporters. Now let’s look at the whole 2019 trade picture, which includes 165 nations. (The CIA World Fact Book lists a total of 229 nations in the world. Not included in my study are tiny island nations and city-states which, combined, account for less than 1% of trade.) Here’s a chart of America’s balance of trade with all nations that are more densely populated than the U.S. vs. all nations that are less densely populated, from 2005 through 2019: Balance of Trade Above & Below U.S. Pop Density.
The difference in the results couldn’t be more stark. With those nations that are less densely populated than the U.S., we enjoyed a small surplus of $111 billion in 2019 – down slightly from $119 billion in 2018 and essentially flat for the past ten years. With those nations that are more densely populated than the U.S., we suffered an enormous deficit of $941 billion in 2019 – a deficit that has exploded over the past decade, more than doubling from $428 billion in 2009.
There are 114 nations more densely populated than the U.S., and 51 nations that are less densely populated. So, you might think, maybe the uneven distribution of countries was a factor in skewing the results. Fine. Let’s divide the countries evenly – 82 nations that are more densely populated vs. 83 that are less densely populated. The results are little different. With the half of nations more densely populated, the U.S. suffers an enormous trade deficit of $842 billion, vs. a trade surplus of $129 billion with the 83 nations that are less densely populated. By the way, the median population density is 193 people/square mile – about double that of the U.S.
I should point out that, divided around the median population density, the half of nations that are above the median account for 5.6 billion people, while the half of nations below the median population density account for only 1.7 billion people. One might argue that, to be a fair analysis, there should be an equal number of people on each side, and not an equal number of nations. OK, let’s look at it that way. In order to do that, because it has such a large population, China has to be divided, allocating 59% of its population to the more densely populated half, and 41% of its population to the less densely populated half. The deficit with China will be divided proportionately. If we do that, the U.S. has a trade deficit of $557 billion with the half of the world’s population that lives in more densely populated conditions vs. a trade surplus of $273 billion with the half of the population living in less densely populated conditions.
But splitting the population evenly, as we did above, results in a huge discrepancy in the land surface area of the world in one half of the analysis vs. the other – 5.2 million square miles vs. only 0.7 million square miles. If we divide the world evenly in terms of surface area, the U.S. has a trade deficit of $924 billion vs. a trade surplus of $94 billion with the more densely populated half of the world’s surface area vs. the less densely populated half.
No matter how you look at it, population density is consistently the biggest driving force in determining the balance of trade. So if the U.S. wants to achieve a balance of trade with the rest of the world, it’s only logical to employ a mechanism aimed at population density – a tariff structure, for example, that’s indexed to a nation’s population density. Applying tariffs on any other basis isn’t fair. Should a nation be punished because it’s big instead of little? Developed vs. undeveloped? “Free trade” is an example of an unfair tariff system – unfair to the U.S. It applies a tariff of zero to everyone on no basis whatsoever – without any justification – and the results speak for themselves. The U.S. is being killed with a huge trade imbalance that has destroyed its manufacturing sector.
Who would (or should) be hit hardest by a population density-indexed tariff structure? We’ll look at that next.