America’s Biggest Trade Surpluses in 2017

May 4, 2018

In my last post, we looked at a list of America’s twenty worst trade deficits in manufactured goods in 2017 and saw that the list was dominated by nations much more densely populated than the U.S.  We also saw that, contrary to conventional wisdom, low wages don’t seem to be a factor in driving these deficits.

Now let’s examine the other end of the spectrum – America’s twenty biggest trade surpluses in manufactured goods in 2017.  Here’s the list:  Top 20 Surpluses, 2017

There are actually a couple of factors that jump out on this list.  Most importantly, notice that this list is peppered with nations with low population densities.  The average population density of the twenty nations on this list is 209 people per square mile, compared to 734 people per square mile on the list of our twenty worst deficits.  However, the difference is actually much more dramatic when you account for the fact that four of the nations on the list of surpluses are very tiny nations with small (but dense) populations – the Netherlands, Belgium, Kuwait and Qatar.  If we calculate the population density of the twenty nations on this list as a composite – the total population divided by the total land area – we arrive at a population density of only 34 people per square mile.  Doing the same with the twenty nations on the deficit list yields a population density of 509 people per square mile.  Thus, the nations with whom we have our largest trade deficits are fifteen times more densely populated than the nations with whom we have our largest trade surpluses.

Why do the aforementioned nations – the Netherlands, Belgium, Kuwait and Qatar – seem to buck the trend?  The first two nations are tiny European nations who take advantage of their deep sea port – the only one on the Atlantic coast of the European Union – to build their economies around trade, importing goods from the U.S. for distribution throughout Europe.  These surpluses offset somewhat the much larger trade deficit that the U.S. has with other European nations.  Even with the Netherlands and Belgium included, the trade deficit with the European Union is still enormous – second only to China.

The presence of Kuwait and Qatar on the list of trade surpluses, in spite of their dense populations, illustrates the other factor that drives trade surpluses.  Both of these nations, along with the other nations highlighted in yellow on the list, are net oil exporters.  Since all oil is priced in U.S. dollars, it leaves these nations flush with U.S. dollars that can only be used to buy things from the U.S.  It makes a trade surplus with an oil exporter almost automatic.

Now, look at the “purchasing power parity” (or “PPP,” roughly analogous to wages) for the nations on this list.  The average is just under $40,000, compared to an average PPP on the deficit list of $35,000.  However, that average is skewed significantly by tiny Qatar, who has a PPP of $124,900.  Take Qatar out of the equation and the average drops to $35,500 – almost exactly the same as the nations on the list of our biggest deficits.

So, of these two factors – population density and wages – which do you now think is the real driver of trade imbalances?  Is it the one that differs by a factor of fifteen between the two lists, or the factor that is virtually the same on both lists?  Clearly, population density seems to be a much more likely factor in driving trade imbalaces, at least from what we’ve seen from these two lists.

But both lists contain nations that are very large and very small.  It seems only natural that, if we’re going to have a trade imbalance with any particular nation, it will be a much bigger imbalance if that nation is very large.  We need to factor the sheer size of nations out of the equation.  That’s what we’ll do next in upcoming posts.  Stay tuned.

 

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America’s Best Trading Partners

April 24, 2014

Earlier this month, we examined the list of America’s twenty worst trading partners – those with whom the U.S. has the largest trade deficits in manufactured goods on a per capita basis.  We saw that the list was dominated by nations with very high population densities.  Eighteen of the twenty were more densely populated than the U.S.  The average population density of the group was five times that of the U.S.  And they were wealthy nations, with an average purchasing power parity of $35,000 per person, debunking the myth that trade deficits are due to low wages.

What about the other end of the scale?  Who are America’s best trading partners – those with whom the U.S. has the largest trade surpluses in manufactured goods on a per capita basis?  Here’s the list:  Top 20 Surpluses, 2012.  This list looks very different.  Thirteen of these twenty nations are less densely populated than the U.S.  Of the remaining seven who are more densely populated, there is a very simple explanation why four of them – United Arab Emirates, Qatar, Kuwait and Brunei – are big buyers of American manufactured exports:  they are tiny nations literally afloat on large seas of oil.  They are flush with American petro-dollars which, ultimately, can only be used for purchase of American goods, services and investments.

Of the remaining three that are more densely populated than the U.S. – Panama, the Netherlands and Belgium – Panama is only a bit more densely populated than the U.S.  But Belgium and the Netherlands are each more than ten times as densely populated, seeming to defy the population density theory for trade deficits.  But both are very small nations, and both are the only nations on the European continent with deep water ports on the Atlantic coast.  Perhaps they are merely distributors of American products to other European countries.  If rolled into the Euro zone, the U.S. still has a large trade deficit with the Euro zone.

In contrast to the list of our twenty worst trade partners, whose average population density was almost 500 people per square mile, the average population density of America’s twenty best trade partners is only 188 per square mile.  But that’s a figure that’s skewed by a few very tiny but very densely populated nations.  If we divide the total population of these twenty nations by their total land area, the population density is only 19 people per square mile.  (This figure is 344 people per square mile for our twenty worst trade partners.)

It’s also interesting to note that the average purchasing power parity (a good measure of the wages paid in those nations) for our twenty best trading partners is almost exactly the same as our twenty worst trading partners – about $35,000 per person.  Clearly, wages have absolutely no role in determining trade imbalances.

The data is clear.  This is absolute, undeniable proof that population density plays a dominant role in determining whether free trade with any given nation will yield a trade deficit or surplus.  It’s irresponsible to apply free trade in a manner that’s blind to this reality.  When trading with badly overpopulated nations, tariffs must be employed to maintain a balance of trade, to offset those nations’ inability to provide us with access to a market that’s equivalent to ours in terms of its citizens’ ability to utilize products.

 

 


America’s Top 20 Customers of Made-in-the-USA Products

December 6, 2011

In a previous post we looked at a list of America’s 20 worst per capita trade deficits in manufactured products.  Today we look at the other end of the spectrum – our top 20 trade surpluses in manufactured products.  In per capita terms, these are the people of the world (other than Americans themselves) who are America’s best customers for American made products.  You may be surprised.  Here’s the list:

 Top 20 Surpluses, 2010

The nations that you see high-lighted in yellow are net exporters of oil.  More about that in a minute.  First, though, it’s important to note that, unlike the list of our worst per capita trade deficits, which was dominated by densely populated countries (only 3 were less densely populated than the U.S.), this list is dominated by sparsely populated countries. 

But there are some notable exceptions, beginning with the top 2 countries – Qatar and United Arab Emirates (UAE).  In general, sparsely populated nations are rich in natural resources and maintain balances of trade by trading those resources for manufactured goods, including American products.  But Qatar and UAE are rare exceptions.  They are very tiny, densely populated nations who just happen to be literally afloat on a sea of oil.  Thus, in spite of their dense populations, they still have large surpluses in those resources that they can trade for manufactured goods, just like the more sparsely populated larger nations, rich in resources, like Canada and Australia.  Kuwait and Brunei are two more examples who appear on the list – tiny, densely-populated nations afloat on a sea of oil, just like Qatar and UAE. 

That leaves four other nations on the list who are more densely populated than the U.S. – Belgium, Panama, The Netherlands and Lebanon.  Panama is easy to explain.  They are only slightly more populated than the U.S. and derive the lion’s share of their wealth, which they’re then able to trade for American manufactured goods, from an unusual source – operation of the Panama canal. 

That leaves only Belgium, The Netherlands and Lebanon – very tiny nations and the three most densely populated nations on the list, by far – as the only remaining anomalies.  The first two are among the wealthiest nations on earth.  And even Lebanon ranks close to the top third of nations in terms of purchasing power.  How do these nations defy the population density bugaboo that makes virtually every other densely populated nation on earth dependent on manufacturing for export?   

First of all, it’s important to note that these three are very tiny nations who, combined, are smaller than the state of Indiana.  Together they make up only 0.07% of the earth’s land mass while the remaining 17 nations on the list account for over 18%.  Nations so small as these tend to have unusual economies that are heavily skewed toward services, especially financial services, and they then trade those services for manufactured goods.  It’s the very reason that I rolled the data for tiny city states like Singapore, Liechtenstein, Luxembourg, San Marino and others into the data for the larger, surrounding countries. 

Regarding Lebanon’s economy, the CIA World Fact Book has this to say:

The Lebanese economy is service-oriented; main growth sectors include banking and tourism.

Tourism?  Really?  While few Americans aside from those with family ties would choose to travel to Lebanon, it seems that their Mediterranean beaches are a big draw for people in that part of the world.  And this is actually the reason that I excluded tiny island nations from my study of population density and per capita consumption.  All have very unique economies dependent on tourism, and they trade tourist dollars for American-made products.  It’s also the same reason that Belize appears on this top 20 list.  While not an island, it too is a small country heavily dependent on tourism. 

In the final analysis, aside from the anomalies of these three tiny, densely populated countries and a few tiny major oil exporters, low population densities dominate the list of nations with whom the U.S. has surpluses in manufactured goods.  The combined population density of the 20 nations on this list is only 20 people per square mile.  Compare that to the list of our top 20 trade deficits, where the combined population density was 343 people per square mile.  The contrast is so stark it bears repeating:  20 people per square mile vs. 343 people per square mile (four times the population density of the U.S.).

If the president wanted to make real progress on restoring a balance of trade, he’d drop his goal of doubling exports and instead focus on boosting free trade with sparsely populated nations while implementing tariffs on imports from densely populated nations. 

Now that we’ve looked at both ends of the trade spectrum, we’ll next consider the entire trade picture for 2010.  Stay tuned.