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.