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 20 Best Trade Partners

July 26, 2012

Back in June, I published a list of America’s 20 Worst Trade Partners.  We saw that the list was heavily dominated by nations more densely populated (most were far more densely populated) than the U.S.  Which begs the question:  who are America’s best trading partners and what role, if any, does population density play in that list?  So, using the per capita balance of trade in manufactured goods as our criteria once again, here’s the list:  Top 20 Surpluses, 2011

Here are the key take-aways from this list:

  • The list is dominated by two groups of nations:
    • Net oil exporters.  Regardless of their population density, net oil exporters are flush with U.S. dollars to spend on U.S. goods.  Net oil exporters tend to be large nations with small populations, leaving them with a surplus of oil.  But the list includes four very unique countries, all very tiny and with relatively large populations for their size, but literally afloat on seas of oil:  United Arab Emirates, Qatar, Kuwait and Brunei. 
    • Low population density countries.  Aside from the four net oil exporters mentioned above, only three of the remaining 16 nations are more densely populated than the U.S.:  Belgium, the Netherlands and Panama.  Panama is the least  densely populated of the three, and enjoys a unique situation.  They are flush with U.S. dollars, like net oil exporters, but their dollars are derived from operation of the Panama Canal. 
  • While the average population density of America’s 20 worst trade partners was 491 people per square mile, the average population density of America’s 20 best trade partners is only 191 per square mile.  But here’s a piece of data that really drives home the difference between the two groups:  the total population density of America’s 20 worst trade partners (their total population divided by their total area) is 350 people per square mile.  The total population density of America’s 20  best trade partners is 22 people per square mile.  America’s 20 worst trade partners are 17 times more densely populated than America’s 20 best trade partners.
  • In terms of wealth, the average Purchasing Power Parity (PPP) of America’s 20 best trade partners is $32,630, nearly identical to the average PPP of America’s 20 worst trade partners ($33,770) – further evidence that wages (as measured by wealth) play no role in determining global trade imbalances.
  • Canada is second only to United Arab Emirates on the list of our best trade partners.  Canada has two things going for them:  they’re both a net oil exporter (in fact, America’s biggest source of imported oil) and they enjoy a very low population density.  By contrast, Mexico, our other NAFTA trade partner, is America’s 14th worst trade partner.  They too are net oil exporters, but they’re 15 times more densely populated than Canada. 
  • Five South American nations appear on the list.  Not a single South American nation appears on the list of America’s 20 worst trade partners.  Why?  Not a single South American nation is more densely populated than the U.S.

Finally, it’s worth noting here how the countries of these two lists would be impacted by the population density-indexed tariff structure I proposed in Five Short Blasts to restore a balance of trade in manufactured goods.  Of our 20 worst trade partners, all but two – Sweden and Estonia – would have been subjected to such a tariff.  Not a single nation on the list of our 20 best trade partners would be subjected to a tariff – either because of their low population density or because they are already net importers of American manufactured goods.  This would also leave our largest sources of imported oil free of tariffs.  The point is that the U.S. would have nothing to fear in terms of retaliatory tariffs. 

Now, having examined these two lists of our best and worst trade partners, and the obvious role that population density plays in determining those lists, how much sense does it make to ignore it and apply the same free trade policy to both groups of nations?

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.