America’s Best Trade Partners

In my last couple of posts, we’ve seen that, once again, in 2020, America’s worst trade deficits, in both absolute and in per capita terms, were with very densely populated countries. There seemed to be a clear link between population density and balance of trade. If there is such a link, then we should find the opposite effect at the other end of the spectrum. We should find that our biggest trade surpluses are with more sparsely populated countries.

Here’s the data – America’s biggest trade surpluses in manufactured goods in 2020. At first glance, the population density effect doesn’t seem as clear on this list. Half of these nations are less densely populated than the U.S. Among the other half, some are actually far more densely populated. There’s something else going on here. Note that I’ve highlighted in yellow six nations that are net oil exporters. This is important because the U.S. is virtually assured of having a trade surplus in manufactured goods with oil exporters, even if the U.S. itself imports very little oil from those nations. Why? Because all oil, worldwide, is priced in U.S. dollars. When an oil exporter like Saudi Arabia, for example, sells a barrel of oil, they’re paid in U.S. dollars. The only other place where U.S. dollars can be spent is in the United States. So Saudi Arabia then has no choice but to use those dollars to purchase American goods.

There are three very densely populated nations on the list – The Netherlands, Belgium and Guatemala – that can’t be explained away as oil exporters. The first two – The Netherlands and Belgium – are tiny adjoining nations who take advantage of their geographic advantage as the only seaport on Europe’s Atlantic coast to be ports of entry for U.S. goods for much of Europe.

Strip away the above effects of the oil trade and the role of The Netherlands and Belgium as ports of entry, and the effect of population density becomes clear once again. The average population density of this list is 265 people / square mile – high, but less than half that of the nations that comprise our twenty worst deficits. Also, the average is grossly exaggerated by the presence of very tiny nations on the list. The population density of this group of twenty nations, as a composite, is only 46 people / square mile. Compare that to the composite density of the twenty nations with whom we have our worst trade deficits – 499 people / square mile, more than ten times greater.

How about economists’ claim that it’s low wages that drive trade imbalances? That theory is debunked by this list of our trade surpluses, just as it was by the list of our trade deficits. The average purchasing power parity (or “PPP”) on this list is actually about $5,000 lower the average of the nations with whom we have our worst deficits – not a big difference, but it’s actually the opposite of what the low wage theory would predict. Whether our trade partners are rich or poor has absolutely no impact on our balance of trade.

Finally, there’s data in this list that should be cause for alarm. Over the past ten years, our average surplus with these nations has shrunk by 34% while our average deficit with the twenty nations who make up our worst deficits has grown by 113%. Our manufacturing sector has been so canibalized by the densely populated nations of the world that there is increasingly little left for others to buy from us. The manufacturing sector of our economy is on the brink of collapse. This may be the greatest existential threat that our country faces. We got a taste of it during the Covid pandemic when we found ourselves at the mercy of foreign suppliers for virtually everything, including the simplest of things like face masks and gowns and more complex items like respirators. How long could we sustain ourselves in a crisis like a war when our foreign suppliers could simply cut off our supplies of virtually every manufactured product? Even as I write this our auto plants are idled by a shortage of imported semiconductors.

As we did on the deficit end of the spectrum, we’ll next look at a list of the twenty nations who, in per capita terms (man-for-man) are our best trading partners.

2 Responses to America’s Best Trade Partners

  1. Matt Raft says:

    If I buy more products and services from you and thus create an imbalance between us, then don’t I get more leverage to demand my terms and conditions–both legally and financially–be used?

    If I create a trade imbalance by buying more from you, and I am the richer country, can’t I loan you money in my currency, thus bolstering my currency’s utility and my banking sector at your expense?

    • Pete Murphy says:

      Good questions, Matt. Though we might like to think that international trade is about leverage and terms and conditions and such, it isn’t. The flip side of you buying more from me is that I buy less from you. Why? Not because of leverage and terms and conditions but because I live in overcrowded conditions and have no ability to consume at the same level as you. You live in a nice home on a spacious lot with lawn and gardens, all of which require maintenance. You drive to work in a car that requires maintenance. You engage in various recreational activities which require sports equipment. I, on the other hand, live in a tiny apartment in a high-rise, take the bus or train to work, and my recreation consists of walking crowded streets, watching television and playing video games. I can’t play golf or tennis or go boating because everything is too crowded and such activities are only available to the wealthy. So you buy more from me than I buy from you.

      It’s this disparity in living conditions created by the disparity in population densities that drives the trade imbalance between you and I, and no amount of leverage or terms or conditions can change that. Only tariffs can change it – tariffs that restore the motivation to make all the things I need domestically, driving up the demand for labor and incomes along with it, making those domestically made products even more affordable than they were when I bought them from you.

      Without using tariffs to restore a balance, your nation is steadily drained of its financial resources, making you dependent on deficit spending by your government to maintain an illusion of prosperity. The trade imbalance creates an imbalance in the supply vs. demand for labor in your country as the manufacturing sector of your economy is eroded, suppressing your wages and making you more dependent on tax breaks and social safety net programs (the government deficit spending I just mentioned) to keep you whole financially.

      Virtually all of our economic challenges and social problems are rooted in our massive trade imbalance, making us ever-more dependent on government intervention.

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