America’s Worst Trade Deficits in 2020

March 29, 2021

Many people – perhaps most – have little understanding of the economic impact of the balance of foreign trade. The best way I can explain it is to use your own checking account as an example. If more money is drawn out of your account than the income that goes into it, then you’re steadily getting poorer and, if kept up long enough, you’ll eventually be broke. Until you reach that point, you create an illusion of prosperity by buying more than you can afford, but it’s just that – an illusion. Your day of reckoning – of financial ruin – is fast approaching.

The United States, just like every other nation, has a national account that’s very much like your checking account. Influxes of money, like income taxes, other federal taxes, tariffs on imports and the money collected from foreign entities for exported goods make us richer. Conversely, outflows are bad – like money spent by the federal government (for defense, domestic programs, etc.) and money spent on importing goods. Those make us poorer.

Therefore, our balance of trade with the rest of the world makes us either richer or poorer, depending on whether it’s a surplus or a deficit. And we’re not just talking about red numbers on some obscure balance sheet deep within the Department of Treasury. A trade deficit hits you directly in the wallet. For every $50,000 increase in the trade deficit, another American’s job is lost. If it wasn’t your job, you’re still hit in the wallet when an ever-growing number of unemployed compete for your job and put downward pressure on your wages. Do the math. Since our last balance of trade in 1975, the deficit in manufactured goods has grown by $1 trillion. Divided by $50,000, that’s a loss of 20 million high-paying manufacturing jobs. The downward pressure on wages has been enormous.

With all that said, let’s take a look at how we did in 2020. Each year I think to myself that America’s trade picture couldn’t get worse, but each year it does. The year 2020 was no different. If anything, our downward spiral accelerated. Our deficit in manufactured goods came in at $911 billion, blowing past the “old” record of $831 billion set only one year earler. Which countries were our worst trading partners? Here’s the list: America’s 20 worst trade deficits in 2020.

First of all, look at the total deficit for these twenty countries. It was $1.001 trillion. That’s more than America’s trade deficit with the entire world. In fact, our entire trade deficit is due to our deficit with only the top twelve nations on this list. Think about that. Take away those twelve nations, and the U.S. enjoys a balance of trade with the other 216 nations of the world.

Now look more closely at the list. It’s no surprise to see China at the top. They’ve been there for at least the last fifteen years. What is a surprise is that the deficit with China fell precipitously in 2020, from a record high of $416 billion in 2018. Why? Because of the 25% tariffs that the Trump administration imposed on half of all Chinese imports. It’s proof that tariffs work.

Unfortunately, those tariffs on Chinese imports also explain, at least in part, the explosive growth in the deficit with other nations, most notably Vietnam. Companies scrambled to move their manufacturing operations out of China to avoid the tariffs. Trump should have applied the tariffs to these other countries as well, leaving companies no alternative but to bring their manufacturing back to America.

Note that most of the nations on this list are actually quite wealthy, high-wage nations, on a par with the U.S. (Ireland and Switzerland are even wealthier.) This casts doubt on economists’ claim that low wages are the driving force behind trade deficits. So if low wages don’t drive trade imbalances, what does? The list includes nations both very large and very small, and nations from Europe, Asia and Central America. Is there something that these nations have in common – something that should be factored into our trade policy to return us to a balance of trade?

Indeed there is. Look at the population density of the nations on this list and note that all but one (Sweden) are more densely populated than the United States, which has a population density of 94 people per square mile. Most are far more densely populated. The average population density of the nations on this list is six times greater than the U.S. There clearly seems to be a relationship between population density and balance of trade. But why? What is it that makes people who live in more crowded conditions poor trade partners for the United States?

We need to look at this more deeply. We need to factor out other variables, like the sheer size of nations, which puts China at the top of this list with a deficit three times bigger than the next nation on the list – Mexico – which is only one tenth the size of China in terms of population. In my next post, we’ll sort the nations of the world by population density and see how their balance of trade with the U.S. stacks up.


United States the “World’s Breadbasket” No More

March 11, 2021

There was a time when the United States was known as the “World’s Breadbasket.” It’s “amber waves of grain” and “fruited plains” – noted in the first verse of “America the Beautiful” – supplied food wherever it was needed anywhere in the world. Even the Soviet Union turned to the U.S. for grain when its own harvests fell short of its needs.

Now, it seems that the “… pilgrim feet, whose stern, impassioned stress a thoroughfare for freedom beat across the wilderness” – from the 2nd verse of the same song, written originally in 1893 when the U.S. population was 65 million people – have grown the “alabaster cities” of the fourth verse to the point where we are the “World’s Breadbasket” no more. With a population of five times larger than when that song was written, we can’t even feed our own people any more.

At least that’s what our trade data tells us. Look at this chart. The category of foods, feeds and beverages – agricultural products – was once a bright spot in America’s ever-darkening trade picture. We always had a surplus for export to feed the world’s hungry, but no more. Our balance of trade in agriculture products has steadily eroded to the point where we’ve now run a deficit for the fourth year in a row. It improved a little in 2020 but, as you can see, it’s on a downward trajectory.

I have always steered clear of the subject of overpopulation in terms of resource shortages. Thomas Malthus hypothesized in 1798 that the world’s population would outstrip its ability to produce food. As decades wore on and the food supply grew even faster than the population, the other sciences mocked economists and proclaimed that mankind is clever enough to overcome all obstacles to further population growth. That has certainly proven true so far and may be true to a point, but any thinking person knows that there will eventually come a tipping point. In fact, it was only by ignoring the possibility of resource shortages and by pondering what else might happen as the population continues to grow that I was able to discover the inverse relationship between population density and per capita consumption – and its ramifications for worsening unemployment and poverty.

Nevertheless, I can’t help taking note of this trade data for agricultural products. Mind you, I’m no expert in the subject. One could argue that there are many other factors involved. Federal agriculture policy such as price supports, policies that encourage farmers to allow fields to lie fallow, etc. may all be playing a part here. Whether or not that explains the deficit in agriculture, I can’t say.

However, the data doesn’t lie. For the past four years, America is growing increasingly dependent on imports to feed its ever-growing population. That should be cause for concern for everyone. It’s bad enough that America is dependent on imports for virtually all things manufactured. That makes us weak and vulnerable. Being dependent on others for our food supply is far worse. Having enough to eat is a matter of total food production divided by the total population. Both factors need to be considered if we’re going to rectify this situation. It isn’t enough to simply consider how to boost production. (Do we really want more genetically-modified crops, more pesticides in our produce and more hormones in our meat?) It’s time to consider whether the number of “pilgrim feet” and whether the size of our “alabaster cities” has begun to overwhelm our “fruited plains.”

Immigrants, take note. Bring some grain and fruit with you, because we’re all out.


In a test of Biden’s backbone, China reneges on trade deal.

March 10, 2021

Under a threat by the U.S. to expand its 25% tariffs to all Chinese imports, In January of 2020, China signed the “Phase 1” trade deal with the U.S. They agreed to boost their imports of American goods significantly in 2020, followed by an equally large increase in 2021. Very specific goals were set for boosting its imports of manufactured goods, energy products, agriculture products and overall goods. And the consequences for failing to meet those goals were also very specific – extending the 25% tariffs that already were applied to half of all Chinese imports to include the other half.

When it comes to trade, tariffs are the only thing China understands. Those tariffs were devastating for China. Their surplus of trade with the U.S. shrank by roughly 25% as companies abruptly abandoned China and took their manufacturing elsewhere. China was desperate to avoid any more tariffs.

However, based upon America’s long track record of failure to follow through on virtually every trade deal it’s ever negotiated when the terms of the deal weren’t met, China figured the same would happen again. So far, they’re right. Their imports fell far short of the 2020 milestones. Actually, they didn’t just fall short of the 2020 goals. They barely exceeded the 2017 baseline in all four categories of goods. The U.S. didn’t utter a peep of protest.

Now the results for January are in. Their imports of total goods from the U.S. fell 37% short of the goal. Their imports of manufactured goods were 42% short, and their imports of energy products were 71% below the goal. Only their imports of agriculture products were close to the goal, falling only 5% short.

Biden has vowed to continue Trump’s tough stance against China. He has to act. The whole world is watching. This wasn’t some Trump executive order that he can choose to ignore. It’s a signed agreement between the United States and China. If he allows them to thumb their nose at this trade deal, we’ll have zero credibility with the rest of the world regarding trade and beyond. We’ll be seen as a patsy. The U.S. is being economically crushed by our trade deficit, not just with China but with many other nations that prey on the U.S. market to support their bloated labor forces at the expense of American workers. If Biden won’t show some backbone on this critical issue, then no one can take him seriously on anything.


January Trade Deficit: 2021 Off to a Bad Start

March 8, 2021

2020 was, by far, the worst year on record in terms of America’s trade deficit. To be sure, the COVID-19 pandemic was a big factor as imports of medical equipment and supplies exploded and COVID stimulus checks, intended to stimulate the U.S. economy, instead were used to purchase a flood of imported goods. Meanwhile, American exports felt the sting of a global economic slowdown. As a result, the goods trade deficit in 2020 was $915.6 billion, all of which – and a little more – was due to the deficit in manufactured goods, which tallied $919 billion. It’s not a stretch to suggest that America’s trade policy was actually a bigger drag on the American economy in 2020 than was the COVID-19 pandemic. Yet, the pandemic got all of the attention while the media, as usual, barely took notice of the trade deficit.

If January is any indication, don’t look to 2021 for any signs of hope. The report released by the Commerce Department on Friday revealed an overall trade deficit of $68.2 billion in January, the 2nd worst month on record and just $0.8 billion shy of the record set only two months earlier. The deficit in manufactured goods was worse – $86.5 billion, the 3rd worst month on record and just $0.7 billion shy of the record set the previous month. Annualized, the deficit in manufactured goods tops $1 trillion per year.

The only bright spot in the report is China, thanks to the 25% tariffs imposed by the Trump administration on half of all of its goods. The trade deficit with China came in at $310.8 billion in 2020 – bad, but a big improvement over the record of $419 billion set in 2018. In January of this year, the deficit with China was $26.25 billion – an annualized rate of $315 billion.

But even the news on China isn’t all good. I’ll cover how China did relative to the “Phase 1” trade agreement it signed with the U.S. in January, 2020 in my next post.

And there’s more bad news to be found in the January report that I’ll also cover in a subsequent post.