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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Red China Runnin’ Scared

April 18, 2018

https://www.reuters.com/article/us-usa-trade-china-eu-exclusive/exclusive-china-seeks-trade-firewall-with-u-s-allies-in-rush-of-ambassador-meetings-sources-idUSKBN1HO1Y0

It all began with Trump’s tariffs on steel and aluminum.  Red China responded with tariffs on about $3 billion of American exports.  Trump upped the ante with a proposal for tariffs on $50 billion in Chinese imports.  Red China responded in kind, including tariffs on American soybeans, and they promptly began buying their soybeans from Brazil.  No dummies, the Brazilians.  They raised their prices.  And the EU, now unable to buy from Brazil, placed big orders for American soybeans.  No skin off the noses of American soybean farmers.

Trump then responded with a proposal for tariffs on another $100 billion of imports from Red China, whose tit-for-tat strategy was now exhausted since they import so little from the U.S.  Instead, they threatened severe retaliation in some form that remains unspecified.  But their rhetoric was threatening.  Not Islamist “rivers of blood running through your cities” threatening, but scary enough to those who don’t really understand international trade.

Now it’s looking a whole lot like a bluff.  As reported in the above-linked article, the Chinese are now running scared, trying to drum up support for “free trade” (their version of it) with the EU (European Union).

Some of the western diplomats involved in the meetings with Fu Ziying, who is also a vice-commerce minister, have viewed the approaches as a sign of how anxious Beijing is getting about the expanding conflict with Washington, the sources said.

The rush of meetings last Thursday and Friday with ambassadors from France, Germany, the United Kingdom, Spain, Italy, and the European Union, may be a signal that China is trying to build a firewall against Trump’s aggressive trade measures, the severity of which some foreign diplomats said Beijing had miscalculated.

“China is showing confidence, but internally they appear quite concerned. They have apparently underestimated Trump’s resolve on trade,” the diplomat said, adding that Beijing is nervous about China’s major trading partners siding with Washington.

It’s not likely they’re getting much sympathy from the EU.  In 2016, the EU had a $175 billion trade deficit with Red China.  If anything, the EU is probably realizing that America’s new get tough policy has Red China running scared and, just maybe, they ought to try a little of that tariff medicine themselves.


U.S. Trade Deficit with EU Rises to New Record in 2017

April 5, 2018

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.


U.S. Trade with The E.U.

May 13, 2013

In his State of the Union address in February, President Obama called for a new free trade deal between the U.S. and the European Union, or EU.  (See this article for more information:  http://www.nytimes.com/2012/11/26/business/global/trade-deal-between-us-europe-may-pick-up-steam.html?pagewanted=all&_r=0.)

It’d be a huge deal, no doubt.  But would it be a good deal for the U.S.?  Since the signing of the Global Agreement on Tariffs and Trade in 1947 and since the inception in 1995 of its offspring, the World Trade Organization, the U.S. has been steadily moving toward freer trade with the rest of the world, including the 27 member states of the Euroean Union.  It only makes sense to examine the results of free trade with the EU thus far before deciding whether or not a further move toward freer trade would be a good deal for the U.S.

But first, a few facts about the EU are in order.  The European Union was established in 1993 and includes 27 members:  Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.  In other words, most of Europe, with a couple of noteworthy exceptions:  Norway and Switzerland. 

If the EU were a nation, it would be the 7th largest in the world in terms of suface area with over 1.6 million square miles and would be the 3rd most populous, with just over a half billion people, exceeded only by China and India. 

So how have we fared in trade with the EU, particularly in the all-important, job-creating category of manufactured goods?  Here’s a chart of our balance of trade with the EU since 2001:  EU.  As you can see, the U.S. suffers a large trade deficit with the EU.  Though it began to shrink beginning in 2006 – a process helped along no doubt by the overall decline in global trade that accompanied the onset of the “Great Recession” in late 2007, it began to deteriorate rapidly again in 2010.  In only three years since 2009, our trade deficit with the EU in manufactured goods has more than doubled. 

Now, let’s consider the factors involved:

Population Density:

With 503 million people, the population density of the EU, at 309 people per square mile, is only slightly less than that of China (359 per square mile).  It is approximately 3.6 times as densely populated as the U.S. (85 per square mile).  In per capita terms, our trade deficit with the EU in manufactured goods is $223, remarkably similar to our per capita trade deficit with China ($210).  Once again, we see that population density is a consistent predictor of whether we will have a surplus or deficit with any particular country and what the size of that imbalance might be expected to be. 

Currency Exchange Rate:

Economists are fond of blaming trade deficits on exchange rates that are kept artificially low by “currency manipulation,” accomplished by tactics such as currency printing by central banks.  The theory is that a currency that is kept artificially low makes that nation’s exports cheaper for American consumers while making American exports more expensive for that nation’s consumers. 

In 2012, the Euro weakened against the U.S. dollar by 14.3%.  And, in fact, as economists would predict, our trade imbalance with the EU worsened by 14%.  But that’s just one year in which the Euro took an uncharacteristic dip.  Since 2001, the Euro has risen by 31% against the dollar.  But, instead of improving, our trade imbalance with the EU worsened by 104%. 

Wealth:

Economists also blame trade deficits on low wages in other nations.  We have no data on average or median wages, but what’s known as purchasing power parity (“PPP”) – roughly a nation’s GDP (gross domestic product) per capita – is pretty analogous.  By that measure, the EU has a PPP of $34,500 and, if it were a nation, would rank in the top 20% of the world’s 229 nations.  The EU is not poor and wages are not low.  Since 2001, of the 26 EU member nations, 14 have experienced a PPP that has grown faster than the U.S.; that is, they have grown wealthier vs. the U.S.  In spite of that, our trade imbalance has actually worsened with 10 of these 14 nations. 

That leaves twelve EU nations whose wealth deterioriated vs. the U.S.  since 2001.  Of these 12 nations, our trade imbalance worsened with 9 of them. 

So, of these 26 member nations, our trade imbalance responded as economists would predict (based on the “low wage” theory) in 13 cases – exactly half.  In other words, there’s no relationship between low wages (or wealth) and trade imbalance whatsoever.   Falling wealth and wages are no more likely to worsen our trade imbalance than they are to improve it. 

Exports to the EU:

Well, OK, maybe our trade imbalance with the EU has worsened because we’ve imported more from the EU.  Maybe a new trade deal can make that up by boosting our exports to them, right?  Not likely.  In the past year, exports of manufactured goods to the EU actually declined by 1%.  This is in spite of President Obama’s goal of doubling exports within five years.  If the EU had any capacity for absorbing more American exports, shouldn’t we have seen some evidence of that in 2012 in light of the president’s push? 

Given the results of steadily liberalizing trade with the EU – results that were quite predictable given the relationship between population density and trade imbalances – further liberalization of trade with the EU makes absolutely no sense whatsoever.  It makes no more sense than liberalizing trade with China.  The result if the same.  It only makes sense to those vested in 19th century trade policy, economists too afraid of pondering the ramifications of population growth out of fear of being exposed as frauds.


Rebuttal to The State of The Union

February 14, 2013

Tuesday night’s State of The Union address by President Obama will likely go down in history as one of the least inspiring – mostly a themeless chronicling of the woes we face, followed by a brief attempt at cheerleading an agenda for a brighter tomorrow, seemingly led by one who hadn’t listened to the first part of his own speech. 

It began in the usual fashion:

Fifty-one years ago, John F. Kennedy declared to this Chamber that “the Constitution makes us not rivals for power but partners for progress…It is my task,” he said, “to report the State of the Union – to improve it is the task of us all.”

Tonight, thanks to the grit and determination of the American people, there is much progress to report. After a decade of grinding war, our brave men and women in uniform are coming home.

Good.  That’s a relief.  OK, what else have you got? 

After years of grueling recession, our businesses have created over six million new jobs.

Uhhh, wait a minute, that’s just a little disingenuous.  Yes, the economy has added six million new jobs, but we’ve also added that many workers to the labor force, thanks to growing the population by twelve million.  In other words, no progress has been made in putting the unemployed back to work, and our labor force participation rate is left incrementally lower than it was four years ago.  That’s not really good news, Mr. President.  Got anything else?

We buy more American cars than we have in five years, and less foreign oil than we have in twenty.

In other words, sales of American cars hasn’t grown in five years, while our population has grown by 15 million people, so our per capita consumption of American cars has actually declined even further.  And our consumption of foreign oil has declined because people can no longer afford bigger cars.  Yeesh.  I’m still looking for some evidence of “progress” here.  Anything else?

Our housing market is healing, our stock market is rebounding, and consumers, patients, and homeowners enjoy stronger protections than ever before.

The stock market is rebounding, thanks mostly to the Fed’s quantitative easing programs to buy up treasuries and mortgage-backed securities, effectively crowding other investors out of those markets into the only market left – the stock market.  It has little to do with economic recovery.  And are you sure about that housing market part?  A rise of a few percent from a 50% decline is scant evidence of a recovery, and just yesterday morning the Mortgage Bankers’ Association announced that mortgage applications fell 10% last week, erasing much of the previous gains. 

Together, we have cleared away the rubble of crisis, and can say with renewed confidence that the state of our union is stronger.

Stronger than it was at the depths of the Great Recession, that’s for sure, but weaker than it was before the onset of the recession and, one could argue (especially based upon what’s happened to our national debt), that it’s weaker than it’s been in decades. 

And that was it.  That was the extent of the “much progress to report.”  One paragraph, the first paragraph, in a speech approximately 80 paragraphs long.  Most of the remainder of the speech dealt with slowing the growth of our national debt, raising revenue and cutting spending, sharing the burden and trying to breathe life back into the middle class.  In other words, the minutae involved in managing our decline. 

The key to reinvigorating out economy is bringing manufacturing jobs back home, and that fact isn’t lost on the president:

Our first priority is making America a magnet for new jobs and manufacturing.

After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three. Caterpillar is bringing jobs back from Japan. Ford is bringing jobs back from Mexico. After locating plants in other countries like China, Intel is opening its most advanced plant right here at home. And this year, Apple will start making Macs in America again.

Remember the six million jobs the president boasted of adding during his first term?  Half a million – or 8.3% – were in manufacturing.  Sounds good until you realize that the manufacturing sector accounts for 12% of our economy.  So, in other words, while we’ve grown the economy by stoking it with population growth, manufacturing’s share of the economy has actually declined.  And for every example of companies bringing manufacturing jobs back home that the president cited, I could give you two examples of companies outsourcing more jobs.  For every step forward there have been two steps backward that the president doesn’t mention. 

There are things we can do, right now, to accelerate this trend. Last year, we created our first manufacturing innovation institute in Youngstown, Ohio. A once-shuttered warehouse is now a state-of-the art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything. There’s no reason this can’t happen in other towns. So tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Departments of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs. And I ask this Congress to help create a network of fifteen of these hubs and guarantee that the next revolution in manufacturing is Made in America.

Mr. President, there’s no mystery about how to revive manufacturing.  Stop importing everything we consume and leave something for us to manufacture.  Government-funded showpieces that will vanish as soon as the funding dries up (and it will dry up) isn’t the way to do it. 

The president then launched into a long laundry list of ideas for putting Americans back to work – supporting research, achieving energy independence, infrastructure modernization, support for homeowners, pre-school education, upgrading high school curriculums and making college more affordable.  All of it followed by this:

Our economy is stronger when we harness the talents and ingenuity of striving, hopeful immigrants. And right now, leaders from the business, labor, law enforcement, and faith communities all agree that the time has come to pass comprehensive immigration reform.

After rattling on for half an hour about the challenges of putting Americans back to work, the president then slaps all American workers in the face by intimating that Americans are too stupid to do the job and we need to import people who are better-equipped.  He’s falling back on economists’ age-old macroeconomic crutch:  we need more people.  In other words, what business  needs is more customers.  So much for the preceding issues of unemployment, over-dependence on foreign oil and global warming.  To hell with all of that!  Business wants more total sales volume, so we’ll give it to ’em regardless of the fact that it will exacerbates all of the overpopulation-driven problems he just spent 45 minutes addressing. 

And speaking of exacerbating our problems, then comes this:

To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.

Mr. President, has it escaped your attention during your four years in office that, thanks to the drive toward free trade, we now have a trade deficit with the EU of $116 billion (the final tally for 2012) – a figure that’s seven times worse than it was just 15 years ago?  And you want to make it worse?  Are you nuts?

The second terms of the last two presidents both ended the same way – in recession.  Clinton left office with the stock market in a state of collapse.  Bush left office with the stock market and the global economy and financial system in a state of collapse.  Both made the mistake of attempting to cut the federal deficit without addressing the root cause of deficit spending – the trade deficit.  Now, under intense pressure to unwind the deficit spending necessary to stave off the near-depression he inherited, President Obama is headed down the exact same path.  How much worse will things be next February after he’s sucked more taxes out of the economy and put less of that money back into it, while turning us into more of a trade patsy and exploding our population with more immigrants?  How bad will things get before he finally, mericfully leaves office?


Manufacturing Trade Deficit Jumps to Worst Reading of Obama’s Administration

May 10, 2012

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

In January of 2010, President Obama set a goal of rebalancing trade by doubling exports over the next five years.  Since then, America’s trade deficit has steadily worsened.  This morning, the BEA (Bureau of Economic Analysis) announced that America’s trade deficit in March jumped to $51.83 billion, only a whisker shy of the worst level of the Obama administration – $52.52 billion – set only two months earlier.  Here’s a chart of the U.S. balance of trade beginning when the president set that goal:  Balance of Trade.  By the way, most of the increase in the trade deficit came at the hands of the European Union.  The trade deficit with the EU rose by $3.9 billion in March. 

Exports jumped by over $5 billion in March, but that was swamped by an $11.6 billion jump in imports.  The jump in exports still left the U.S. shy of Obama’s goal by $7 billion – the 6th consecutive month that exports have been below goal.  In the more critical category of exports of manufactured goods – they rose by about $4 billion.  But that was swamped by a $10 billion rise in manufactured imports.  The monthly trade deficit in manufactured goods rose to $24.5 billion – the worst level of the Obama administration.  Here’s the chart of trade in manufactured products:  Manf’d Goods Balance.  Exports of manufactured goods fell short of the president’s goal for the 11th consecutive month. 

And here’s the chart tracking the progress toward the president’s goal of doubling exports:  Obamas Goal to Double Exports.  As you can see, we’re losing ground with import growth outstripping our growth in exports.  The net result is more lost manufacturing jobs. 

The president is failing in his goal to rebalance trade and reverse the trend in lost manufacturing jobs.  He failed to keep his campaign pledge to re-write NAFTA.  He failed in his campaign pledge to reverse the trend in trade.  Now he has failed in his goal to rebalance trade by focusing on exports.  It’s time to call the president on the carpet.  Of course, that’s exactly what will happen in November – not a moment too soon.  Not that Romney will necessarily do any better.  But a failing grade by this president demands that we try something new.  Romney is the only option.


China Wants International Supervision of U.S. Economy

April 19, 2009

http://www.reuters.com/article/newsOne/idUSPEK33230620090418

If you’ve followed this blog, you know that one of the negative consequences of our trade deficit that I’ve repeatedly harped on is that with ownership comes control.  Our trade deficit is financed by a sell-off of American assets, both public – in the form of treasuries – and private – in the form of corporate stocks and bonds.  With ownership comes control of those assets – both in the form of actual control of our corporations and in the form of influence on public policy. 

The link provided above takes you to an article reporting on a speech by Chinese Premier Wen Jiabao in which he calls for international supervision of America’s economy:

“We should strengthen the supervision of the economic policies of the main reserve currency economies and push forward the establishment of a diversified international monetary system,” he said in his opening address to the Boao Forum for Asia, held annually in the Chinese island province of Hainan.

It was the second time this month that China has made such an appeal, following President Hu Jintao’s call at the London G20 summit earlier this month for the International Monetary Fund to strengthen its oversight of reserve currency-issuing economies.

No doubt, some better supervision of our economy is in order, but not from the global community.  Constitutional amendments that mandate a balance of trade (See “28th Amendment to the Constitution of the United States“) or even a balanced budget would be a good start.  But restoring America’s economy to health isn’t what Jiabao has in mind.  His only interests are that the U.S. not adopt any protectionist trade measures and that the value of its dollar-denominated reserves be preserved. 

Evidence of such international control of U.S. policy is already manifesting itself.  Obama went to the G20 with one goal in mind – to get the European Union to boost its own economies with stimulus plans similar to what he had recently enacted.  He got none of it.  Instead, Europe got a boost from the International Monetary Fund and America got the bill. 

During his confirmation hearing, Treasury Secretary Tim Geithner said that China was manipulating its currency, a move that would open the door to tariffs, restoring a balance of trade with China.  But now that the economic realities of being literally owned by the Chinese have settled in, he now refuses to label them as such, fearing the consequences of China dumping its mountain of U.S. treasuries. 

Though still a neophyte clinging to the apron strings of the World Trade Organization, China has become an economic know-it-all, believing that a decade of being lavished with American wealth through dumb trade policy has made them some sort of economic experts qualified to lecture the U.S., like a freshman quarterback swaggering onto the field and telling the coach how to run the team.  The situation would be comical were it not such a pathetic spectacle for the U.S. 

What Jiabao needs is a swift kick in the ass, a healthy dose of gratitude for America’s role in pulling his economy out of the third world cesspool and a hefty tariff bill for any future exports.  After a decade of balanced trade with the U.S., then let’s evaluate which economy might need some supervision.