The U.S. trade deficit in manufactured goods with the EU (European Union) rose to a new record of $148.2 billion in 2017. Here’s a chart of that deficit, dating back to 2001: EU. After falling slightly in 2016, it rose again to eclipse the record 2015 deficit by $0.3 billion.
This deficit is a lot less than our deficit with Red China, but some perspective is in order. The population of the EU is 556.6 million people. The population density of the EU is 327 people per square mile. The population of Red China is 1.38 billion people and their population density is 383 people per square mile. Our trade deficit in manufactured goods with Red China in 2017 was $405 billion. In per capita terms, our trade deficit in manufactured goods with Red China was $294. In per capita terms, our trade deficit in manufactured goods with the EU was $246.
So the only reason that our deficit with the EU is that much less than our deficit with Red China is that the EU is that much smaller. If the EU were the same size as China, our deficit with the EU (in manufactured goods) would have been $367.4 billion – only 9% less than our deficit with Red China. The reason for this is that the EU is nearly as densely populated as Red China – only 14.6% less densely populated.
Some say that our huge trade deficit with Red China is due to low wages. Then how do you explain that, in per capita terms (which factors out the sheer size of a country), the trade deficit with EU, where wages are about 2-1/2 times higher than Red China, is nearly as bad as the deficit with Red China? In fact, almost half of our trade deficit with the EU is with Germany, where wages are nearly on a par with those in the U.S. How do you explain that? It’s because trade imbalances are caused not by low wages, but by disparities in population density. The EU is more than three times as densely populated as the U.S. China is four times as densely populated. Germany is six times. Trade deficits with such nations are virtually assured because their over-crowded conditions drive down their consumption while they produce just as much. They can’t absorb their own output, much less consume imports from America.
Trade negotiations with nations that are so badly overpopulated are utterly futile because it’s impossible to negotiate down the disparity in population density. The only thing the less densely populated nation (the U.S., in these circumstances) can do to restore a balance of trade is to levy tariffs or set quotas. It’s the only way.
If still not convinced, my next posts will take a broader look at U.S. trade results with the world as a whole, and you’ll see that the population density effect is absolutely undeniable.