Why is Finland the best place to have a baby?

March 5, 2019

https://www.cbsnews.com/news/why-finland-is-consistently-ranked-one-of-the-best-places-in-the-world-to-be-a-mom/

The above-linked segment aired on “CBS This Morning” today, reporting that Finland is one of the best places in the world to have a baby because of the low infant mortality rate and the fact that, on average, the medical bill is only about $60.  Why?  The story highlights higher taxes in Finland which fund their socialized health care program.  Finns don’t seem bothered.  In the U.S., if the government raised taxes enough to fund a health care program similar to Finland’s, many Americans then couldn’t put food on the table.

I bring this up because it’s worth considering how balance of trade factors into the equation.  In 2017, Finland enjoyed a $4.4 billion surplus of trade with the U.S., which accounts for approximately 80% of its surplus of trade with the rest of the world as a whole.  That may not sound like much, but in per capita terms the surplus is almost $800 per person, or $3200 per family of four.  That’s how much money the U.S. injects into their economy through trade.  The rest of the world injects about a quarter of that, or another $800 per family of four, for a total of $4,000.

Now consider the U.S., which has a trade deficit with the rest of the world of about $720 billion.  In per capita terms, that’s a deficit of about $2,200 per person, or $8,800 per family of four.  That’s how much the trade deficit sucks out of the U.S. economy.  And that’s how much the federal government needs to inject back into the economy through deficit spending – much of which is accomplished by under-taxing its citizens.

The trade deficit makes Finn families $4,000 richer and makes American families $8,800 poorer.  It’s as simple as that.  That’s why Finland is able to afford a health care system that Americans can only dream of, or that older Americans can remember from decades ago when company-provided health care that required almost no out-of-pocket expense was a benefit that virtually all working Americans expected.

“Wait a minute,” you may be thinking.  When we talk about the trade deficit, we all think of China, and maybe Japan and Germany.  But Finland?  How do we have a deficit with Finland?  Well, for starters, in 2017 we imported $1.14 billion worth of cars from Finland.  Can you name what brand of car is imported from Finland?  I doubt it.  All of them are Mercedes-Benz’s.  Finland’s Valmet Automotive manufactures Mercedes models under contract with Mercedes.  How many cars does America export to Finland in return?  In 2017, we exported only about $32 million worth of cars.  To put that into perspective, we import 20 cars from Finland for every car that we export to them.

Our next biggest import from Finland is pharmaceuticals – about $0.7 billion worth in 2017.  How much pharmaceuticals do Finns buy from us?  About $47.8 million in 2017 – only one fifteenth of what we buy from them.  And on it goes across hundreds of categories of products.

Finland is merely one tiny example of how balance of trade matters – how a trade deficit drags down our economy and our standard of living while boosting them in other countries.  But no one ever explains it to the American people because it’s too complicated a subject to be covered in a five minute story on “CBS This Morning,” or in a 60-second story on the evening news.

I wonder how many people who complain about the sorry state of health care in America are also those eager to lambast Trump for trying to get tough with our trade partners, not understanding the connection?  Is it any wonder that we’re in such a mess?

 


America’s Worst Trading Partners in 2015

May 19, 2016

It’s time for my annual ranking and analysis of America’s best and worst trading partners for 2015.  No surprise, it was another dismal year for American manufacturers, racking up the 40th consecutive year of trade deficits and setting a new record in the process – a deficit of $648 billion.  That surpasses last year’s record deficit by a whopping $109 billion.

Since the surpluses of trade with our best trade partners is overwhelmingly swamped by the deficits with our worst partners, let’s begin there.  This year I’m going to first present the list in the most basic terms – a list ranked in order of the sheer size of the deficits. Check out this list of America’s twenty worst trade partners in terms of our deficit in manufactured products:  Top 20 Deficits, 2015.

The nations at the top of this list should come as no surprise to anyone.  Trade with China dwarfs them all with a deficit of $367.5 billion – more than four times larger than our second largest deficit with Japan.  That’s not surprising when you realize that China has ten times as many people as Japan.  China actually accounts for about one fifth of the entire world’s population.  The following are some other key observations about this list:

  • Look at the population density of these nations.  The average population density is 737 people per square mile.  That’s eight times the density of the United States.  With only one exception – Sweden – every nation on this list is more densely populated than the U.S.  Most are much, much more densely populated.
  • Eight of these nations are wealthy European nations.
  • Over the past ten years, our trade deficit has worsened with 17 of these nations.  Most have worsened dramatically.  The nation with whom our balance of trade has improved the most (that is, with whom the deficit has declined the most in the past ten years) is Sweden – the only nation on the list less densely populated than the U.S.
  • Our trade deficit with Japan has actually declined by 18% over the past ten years.  Why?  Simple.  South Korea is “eating their lunch.”  Imports of South Korean cars – Hyundais and Kias, along with imports of South Korean appliances like those made by LG, Samsung and others – has cut into Japan’s market share.  Remember when President Obama signed a new trade deal with South Korea in 2012, proclaiming it a “big win for American workers?”  In three short years our trade deficit with South Korea jumped 50%.
  • Our fastest growing trade deficit is with Vietnam, growing by 440% in the last ten years.  Some may point to the fact that at $6100 per person, Vietnam has the lowest purchasing power parity of any nation on this list – only slightly better than India – and that this is the reason for the explosive growth in our trade deficit with them.  However, our second-fastest growing trade deficit is with Switzerland, a nation that is actually more wealthy (with higher wages) than the U.S.  What Vietnam and Switzerland do have in common is a high population density.  It’s the one thing that (nearly) all of these diverse nations have in common.

Many people will look at this list and quickly conclude that, when it comes to our trade deficit, the problem is China and so that’s where we should focus.  Somehow, some way, they’re obviously not playing fair with us.  They’re manipulating their currency, they’re ignoring workers’ rights.  They’re trashing the environment.  And so on.  So let’s get tough with China.

The problem is that China can legitimately complain that of course our deficit with them is big, simply because they are a big nation.  Person-for-person, our trade deficit with Japan is worse.  OK, so in an effort to be fair, let’s broaden our efforts to include Japan.  “Not so fast!” the Japanese will complain.  “What about Germany?  Their surplus with you is nearly as large and they have only half as many people as we do!”

The point is that in determining the root cause of these enormous deficits in order to formulate an effective trade policy, we need to factor out of the equation the sheer size of these nations.  Let’s determine who are really our worst trade partners on a person-for-person basis.  So here’s a list of our worst trade partners in terms of the per capita trade deficits:  Top 20 Per Capita Deficits, 2015.

Now we can see what a mistake it would be to simply conclude that China is the problem.  In per capita terms, they barely make the list of the top twenty worst deficits.  In fact, there are now ten European nations on this list and, in per capita terms, our trade deficit in manufactured products is worse with all ten of them than it is with China.  Here are some more key observations about this list:

  • Once again, all but two of the nations on this list – Sweden and Finland – are more densely populated than the U.S.  Most are far more densely populated.  Only three have population densities less than the median population density of the world, which is 184 people per square mile.  One – Ireland – is right on the median.  The other 80% of the nations on this list are much more densely populated.
  • Most of these are wealthy nations, with an average purchasing power parity of $44,370 per person.  In fact, the top of the list is dominated by the wealthiest.  Clearly, the argument that low wages cause trade deficits doesn’t hold water.  If anything, the cause and effect is exactly the opposite.  Running large trade surpluses makes nations wealthier.
  • There is one nation on this list that is a net oil exporter – Mexico.  I point this out because oil is priced in U.S. dollars, and every dollar spent on oil produced by foreign countries must be repatriated to the U.S., since that is ultimately the only place where they are legal tender.  Those dollars are repatriated in several ways, primarily through the purchase of American bonds or through the purchase of American goods.  The latter tends to make net oil exporters strong buyers of American products, which usually means that the U.S. enjoys a surplus of trade in manufactured products with such nations.  But not Mexico.  What this means is that the large trade deficit in manufactured goods that we have with Mexico is actually even worse than it appears.  For a nation whose population density is one of the lowest on the list – less than twice that of the U.S. – it means that something beyond population density – such as some unfair trade practice – is at work here.  Ditto for Ireland, which has fashioned itself into a tax haven for manufacturers, virtually bankrupting itself during the “Great Recession” of a few years ago.

If you are seeing such data for the first time, it may be a little early, based on this data alone, to conclude that population density is the driving force behind trade imbalances.  More proof is needed.  If such a relationship exists, then we should see exactly the opposite at the other end of the spectrum.  We should see a list of America’s best trade partners – those with whom we have trade surpluses – loaded with nations with low population densities.  We’ll take a look at that list in my next post.

If you’re already acquainted, however, with the relationship between population density and trade imbalances, which I explored thoroughly in Five Short Blasts, then this data is just further proof that population density is, in fact, the driving force behind these trade imbalances.  Such deficits are inescapable when applying free trade theory, which fails to account for large disparities in population density, to such nations.  It will only get worse with each passing year, exactly as we have seen.

 


America’s Worst Trading “Partners”

April 2, 2014

The word “trade” implies a mutually beneficial exchange of goods and services.  I buy stuff from you and, in return, you buy stuff from me.  A good trading partner is a nation that buys (imports) as much as it sells (exports).  A bad trade relationship is one in which a nation sells (or exports) while buying little in return.  Such a relationship isn’t mutually beneficial.  In such a relationship, one nation creates jobs at the other’s expense and drains funds away from the other’s economy.

America’s free trade policy has resulted in both good and bad trade relationships.  On balance, its many beneficial trade relationships have been more than offset by a minority of really bad ones.  But what’s the best way to judge?  Some differences in trade imbalances are due to a huge disparity in the size of nations.  Is a big nation that maintains a large trade surplus with the U.S. any better than a tiny nation with a proportionately large imbalance?  The only way to judge such imbalances fairly is to express them in per capita terms.  That is, how much does each person in that nation buy from the U.S. vs. how much they manufacture and sell to us? 

When expressed in per capita terms, the results are surprising.  Here’s the list:  Top 20 Deficits, 2012.  The key take-aways from this list are as follows:

  • Note the population density of the nations on this list.  By comparison, the population density of the U.S. is approximately 86 people per square mile.  Eighteen of these twenty nations are more densely populated than the U.S.  Eight are more than five times as densely populated.  In fact, the average population density of the nations on this list is 493 people per square mile – more than five times the density of the U.S.  Only two are less densely populated – Sweden and Finland.  When I first published this list in 2006 in Five Short Blasts, Sweden ranked number two.  By 2012, they have fallen to number eleven.  And their surplus with the U.S. has been reduced by half. 
  • Note the “per capita purchasing power parity (PPP)” of the nations on this list.  By comparison, U.S. PPP is approximately $48,500.  Most of the nations on this list are relatively wealthy nations, debunking the myth that trade deficits are caused by low wages.  If low wages are to blame, how do you explain the presence of Ireland, Switzerland, Taiwan, Denmark, Germany, Japan and Austria (among others) in the top ten of this list?  Also, the PPP of this list has risen dramatically in the past six years.  (More on this topic in a later post.)
  • Though China gets all of the attention for its massive trade deficit with the U.S., it barely makes the top 20 list, coming in at number 18.  It has risen only one place on this list since 2006.  In per capita terms, its trade imbalance with the U.S. is rather unremarkable relative to the other nations on this list.  In fact, when you understand the role that population density plays in driving trade imbalances, the huge trade deficit with China, given its sheer size and enormous population, is exactly what should have been expected. 

People who live in overcrowded conditions buy fewer products because they have no room to utilize them.  They buy or rent smaller homes because there is no room for larger homes.  They own fewer cars because their roads are choked with traffic and they choose mass transit instead.  Because their homes are smaller, they buy less furniture, far less lawn and gardening equipment and smaller appliances.  They buy less sporting equipment like boats, golf equipment, tennis equipment – you name it – simply because of the scarcity of resources for using such.

When two nations grossly disparate in population density atttempt to trade freely with each other, the work of manufacturing is spread evenly across the combined labor force, but the disparity in per capita consumption remains.  They buy less from us than we buy from them.  The result is inescapable – a trade deficit and loss of jobs for the less densely populated nation.  In effect, a host-parasite relationship is established in which the more densely populated nation feeds on the market of the other nation.  The less densely populated nation pays the price for the other nation’s overpopulation.  It hardly seems fair, does it?


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.


U.S. Trade with Finland & Sweden

April 6, 2009

Those of you who have read Five Short Blasts may remember that, of America’s top twenty per capita trade deficits in manufactured goods, only two defied my theory by being with nations less densely populated than the U.S.  And strangely, both were with neighboring countries – Finland and Sweden.  (See Table 7-2 on page 128.)  In fact, our 2nd worst per capita trade deficit in manufactured goods in 2006 was with Sweden, a nation with a population density of 53 people/square mile, at $860.  Number thirteen on the list was Finland, a nation with a population density of 40 people/square mile, at $301.  (For reference, the U.S. population density is 85 people/square mile.)  Since both nations are less densely populated than the U.S., my theory predicts that we should actually have something close to a balance of trade with each nation in manufactured goods, or even a surplus. 

So, upon updating my data through 2008, I was excited to discover that the trade deficit in manufactured goods with both nations has shrunk, moving more in line with what my theory predicts.  Here’s the charts depicting the balance of trade with each:

trade-with-finland     trade-with-sweden

In the case of Sweden, our trade deficit in manufactured goods has shrunk from $8.48 billion in 2006 to $6.65 billion in 2008.  This drops our per capita trade deficit in manufactured goods with them to $736; not a big move, but a move in the right direction. 

In the case of Finland, our trade deficit in manufactured goods shrank by over half, from $1.71 billion in 2006 to $0.75 billion in 2008, dropping the per capita trade deficit in manufactured goods to $143 which, if other nations stay about the same, would drop Finland completely out of the top twenty per capita trade deficits in manufactured goods. 

Our trade results with these two nations were an anomaly that I couldn’t explain when I wrote Five Short Blasts, other than to say that, when dealing with nations of roughly equal population density, we will naturally have some surpluses and some deficits.  So it’s exciting to me to see that trade results with both of these nations are moving in the right direction, and I wanted to share that with you.

It’s also a good time to reiterate that, because Finland and Sweden are less densely populated than the U.S., I believe in free trade with both nations, regardless of whether or not we have a trade deficit with them.  Free trade in natural resources and free trade between nations of roughly equal population density is indeed very beneficial.  It is only badly overpopulated nations who should have their manufactured goods subjected to the population density-indexed tariff structure that I proposed in Five Short Blasts.