America’s Worst Trading Partners

January 12, 2016

I have finally finished tabulating the trade data for each country for 2014.  (2015 data won’t be released by the Bureau of Economic Analysis until sometime in March.)  What took me so long?  This is no small task.  Since the BEA doesn’t track “manufactured products” as a category, I have to take the data for hundreds of product codes for each of 165 nations and subtract out the categories of raw materials in order to arrive at a figure for manufactured products.  I maintain a massive spreadsheet for each nation and then compile the results for all on an even bigger spreadsheet.

Anyway, the results are in and over the next couple of weeks or so, beginning with this post, we’ll break down and analyze the results.  I like to begin by listing America’s 20 worst per capita trade deficits in manufactured goods.  In essence, this is a list of America’s 20 worst trade partners.  These trade deficits are expressed in per capita terms in order to put the citizens of all nations on an equal footing.  For example, our trade deficit with China, when expressed in dollars, dwarfs that of every other nation because they represent one fifth of the world’s entire population.  But when it comes to trade, borders are meaningless and China could just as easily be 100 smaller nations instead of one.  It would have no effect on our total trade deficit whether we draw a line on a map around 1.3 billion people, or draw 100 lines around clusters of 13 million people each.  Expressing the deficits in per capita terms eliminates the sheer size of nations as a factor.

If you’re new to this web site, you probably expect to see this list populated with poor nations.  You’d be wrong and, by the end of this post, you’ll understand why.  So let’s take a look at the list for 2014:  Top 20 Deficits, 2014.  Some observations are in order:

  1. The key take-away from this list is that 18 of these 20 nations are more densely populated than the U.S.  Most are much more densely populated.  The average population density of this list is 539 people per square mile.  This compares with the U.S. population density of about 87 people per square mile.  This average is up from the average population density of 504 people per square mile on the 2013 list.
  2. Instead of poor, low wage nations, this list is populated by rather wealthy, high wage nations.  The average purchasing power parity (PPP) of the nations on this list is $40,700 per person, up from $35,330 in 2013.  Only one nation on this list has a PPP of less than $10,000 – Vietnam, at $5700 per person.  Only three other nations have a PPP of less than $20,000 – Costa Rica, Mexico and China.  By comparison, U.S. PPP was $54,400 in 2014.
  3. Though our trade deficit with China has exploded since they were first granted “Most Favored Nation” status in 2000, their position on this list has barely budged since I published Five Short Blasts in 2007.  They were 19th on the list in 2006 and have risen only one point to 18th in 2014.  That’s because our trade deficit with nearly all of these nations has grown just as rapidly.  To illustrate this, I’ve included a column on the chart that shows the percent change in our balance of trade with each nation over the past ten years.  Our deficit with China has grown by 82%.  But the results with some other nations have been even worse.  In 2006, Costa Rica didn’t even appear on this list.  In fact, in 2005, we had a trade surplus with Costa Rica.  That has now reversed into a large trade deficit, big enough to move them to number 8 on this list.  The same is true for Vietnam.  In 2005 they were nowhere close to being on this list but, in the past ten years, our deficit with Vietnam has worsened by almost 500%.  Our deficit with Switzerland has worsened by over 200% in the last ten years, moving them to 2nd on the list.  It’s worth noting here that Switzerland is the one nation on the list that is even wealthier than the U.S.  But the one thing all of these nations have in common is a high population density.
  4. In case you’re tempted to conclude that Costa Rica, Vietnam, Mexico and China are on this list because of low wages (low PPP), consider this.  In the past ten years, their PPPs have risen by 41%, 136%, 50% and 184% respectively.  If wages are a factor in trade imbalances, then such rapidly rising wages should tend to slow or even reverse our trade deficit with these nations.  Instead, each is accelerating.
  5. It’s also worth noting here than one of the only two nations on the list less densely populated than the U.S. – Sweden – is slowly sliding off of this list.  Our trade deficit with Sweden has actually improved by 44% over the past ten years – the only such improvement on this list.  As a result, they’ve slid from no. 2 on the list in 2006 to no. 12 in 2014.
  6. Another nation that has slid noticeably on this list is Japan.  They were no. 4 on the list in 2006, sliding to no. 10 in 2014.  Why?  Other nations, most notably South Korea and Germany (who have each risen on the list), have cannibalized their auto exports.  This explains why Japan’s economy has been mired in recession for years.

In 2014, the U.S. suffered a total trade deficit in manufactured goods of $539.9 billion.  The trade deficit in manufactured goods with just the twenty nations on this list was $728.3 billion.  In other words, these twenty nations account for our entire trade deficit in manufactured goods, and then some.  It should be clear to anyone that it’s the large disparity in population density between the U.S. and these nations that drives our trade deficit.  It’s just as clear that low wages play no role whatsoever.  Any trade policy that fails to take into account the role of population density in driving trade imbalances is doomed to failure, just as U.S. trade policy has been for decades.

Those who blame trade imbalances on low wages either don’t understand trade or are simply lying.  So too are those who blame currency valuations – something we’ll examine later.  And those who tell you that we simply need to be more competitive are playing you for fools.  The only way to restore a balance of trade is by applying tariffs to counteract the effect of population density.

Not enough proof?  Stay tuned.  In my next post we’ll take a look at the opposite end of the spectrum – America’s twenty best trade partners – and see if population density is a factor there too.

 

 


America’s Top 20 Per Capita Trade Deficits in 2010

December 1, 2011

I feel bad that I’m just now reporting on 2010 trade data.  But I think I can be forgiven when you realize the work involved in compiling the data for 163 countries.  First of all, the data for imports and exports (which wasn’t available until late February)  must be downloaded from spreadsheets found on the Census Bureau web site – a total of 326 spreadsheets.  Then, the results from each must be compiled on a separate spreadsheet.  Then, updated data for population and per capita purchasing power parity data must be extracted for each individual nation from the CIA World Fact Book site.  Finally, the data must be sorted, analyzed and tabulated.  In the meantime, there’s a matter of eating, sleeping and enjoying life.  Still, I hope to be able to report 2011 data in a more timely fashion following its release in late February of 2012. 

So, having made all of my excuses, here we go.  It’ll take several posts to cover the analysis of this data, but I want to begin with a list of the top 20 per capita trade deficits in manufactured goods in 2010.  In case you’re new to this site, I express the trade results in per capita terms – that is, the deficit divided by the population of the nation in question – in order to put all nations on the same footing.  It’s the only way to make this a meaningful analysis of the effectiveness of trade policy with each nation, instead of being merely a measure of the sheer size of each nation. 

So here’s the list:

Top 20 Deficits, 2010

There are a number of points to be made about this list:

  1. Only three of these twenty nations are less densely populated than the U.S.:  Sweden, Estonia and Finland.  Among the top ten, only Sweden – at number 9 – is less densely populated.
  2. The average population density of the top ten is 558 people per square mile, more than 6-1/2 times more densely populated than the U.S.
  3. This list is loaded with wealthy nations, disproving the theory that large trade deficits can be blamed on low wages.  The average purchasing power parity (PPP) per capita for these nations is $26,650.  Only three of these nations have PPP less than $10,000.  Of the top ten nations, only one – Costa Rica – has a PPP of less than $20,000.  The average for the top ten is $32,800.
  4. For all of the uproar about the size of our deficit with China, when expressed in per capita terms it’s only the 16th largest.  Our deficit with eleven other nations is at least twice as bad.  The point is that our huge trade deficit with them is exactly what we should have expected when the same trade policy that was already a proven failure with other densely populated nations around the world was applied to a nation with one fifth of the world’s population. 
  5. Since 2006 (when this data was first presented in Table 7-2 of Five Short Blasts), the deficit with Ireland has dramatically worsened and is now 26 times worse than our per capita deficit with China, in spite of some growth in the latter as well.  Why is the per capita deficit with Ireland so large?  Pharmaceuticals.  Because of favorable tax treatment, Ireland is America’s drug manufacturer of choice.  And, perhaps because of that favorable tax treatment, Ireland’s budget deficit is the largest in the world (as a percentage of GDP) and is a major factor driving the Euro zone to the brink of collapse.
  6. Of the three nations on the list less densely populated than the U.S., two of them – Sweden and Finland – may not be there much longer as the effects of population density become more pronounced with each passing year.  Sweden has fallen from number two in 2006 to number nine in 2010.  Finland has fallen from number 13 in 2006 to number 15 in 2010.  Estonia is a newcomer to the list.  Imports of telecommunications equipment from Estonia exploded in 2010, increasing 40-fold from just the year prior.  (My guess is that someone in Europe relocated a telecommunications plant to Estonia to take advantage of their nearby port facilities and cut their shipping costs.)
  7. Other newcomers to the list, all densely populated, include Costa Rica, Slovakia and Cambodia.  As recently as 2008, the U.S. had a record surplus of trade in manufactured goods with Costa Rica.  But in two years, that’s changed dramatically as imports of computers and semiconductors from Costa Rica have exploded.  Clearly, some company (companies) have recently relocated to Costa Rica.  No doubt, some CEOs wanted to enjoy the lavish resort facilities nearby during their visits.   
  8. Since 2006, when our per capita deficit with Malaysia was the 8th largest, Malaysia has fallen completely off the list to its current rank as 26th. 

To summarize, the disparity in population density between the U.S. (with a population density of 85 people per square mile) is clearly, by far, the driving force behind these trade deficits.  Seventeen of these twenty nations are more densely populated than the U.S.  Sixteen are at least twice as densely populated.  Ten are at least four times as densely populated.  By contrast, while all have lower PPP than the U.S. (at $47,000), few could be considered “low wage” nations where wages are low enough to offset the costs of transportation and logistics. 

In the next post, we’ll take a look at America’s top 20 per capita surpluses in manufactured goods to see how population density may affect that end of the trade spectrum as well.