America’s Worst Trade Partners in 2020

April 2, 2021

In my previous post, we examined the list of America’s biggest trade deficits in 2020 and saw that most of them were with nations that are far more densely populated than the U.S. Clearly, population density was a factor, but the list included nations from around the world that were both big, like China and small, like Vitenam and Ireland just to name a couple.

Today, we’ll look at America’s balance of trade from a different perspective. Which nations, man-for-man, do the most damage to America’s economy by exporting to us more than they import from us – effectively feeding off of America’s economy at America’s expense? In other words, in per capita terms, which nations are our worst trade partners?

Here’s the list of America’s Worst Trade Partners in 2020. If you’re new to this blog, there are couple of big surprises on this list:

  1. You probably expected to see China at the head of this list. In fact, they don’t make the list at all. China ranked 22nd in 2020.
  2. At the top of the list you see Ireland and Switzerland, both of whom are more wealthy than the U.S. If low wages drive trade deficits, as we’re led to believe by economists, then how the heck did two of the world’s most wealthy nations make it to the top of this list?

To understand the reason for these surprises, take a look at the population density of these nations. Of these 20 nations, 17 are more densely populated than the U.S., which has a population density of 93 people per square mile. The average population density of these 20 nations is 526 people per square mile, more than five-and-a-half times that of the United States.

Low wages drive trade deficits? Hardly. Now look at the “purchasing power parity” (or PPP, analagous to wages) of the people of these nations. These are not poor nations. Only four of these twenty nations – Mexico, Vietnam, Thailand and Cambodia – have a PPP below $25,000, which is what the U.S. considers a poverty level for a family of four. Conversely, four of these twenty nations – Ireland, Switzerland, Denmark and Austria – are on a par with, or above, the PPP of the United States, which had a PPP of about $57,000 in 2020. The average for these 20 nations is $41,518.

Also, note that our trade deficit with 18 of these twenty nations is actually accelerating, even our deficits with the two nations at the top of the list who are wealthier than us.

In conclusion, there is a very powerful relationship between population density and the balance of trade evident in this list. Conversely, there appears to be no relationship whatsoever to wealth. This is important. Economists claim that trade deficits are driven by low wages, which is no cause for concern, as those wages will rise with time and restore a balance of trade. Thus, free trade works. But what we’ve seen in this post and the previous one is that this claim is simply not true. Free trade with densely populated nations doesn’t work because trade deficits are driven by population density and will never self-correct, no matter how high wages rise.

If trade imbalances are driven by disparities in population density between two trading partners, then we should see the opposite effect at the other end of the spectrum. We should see trade surpluses with more sparsely populated nations. We’ll take a look at that in my next post.

For an understanding of exactly how population density has such an effect on the balance of trade, read my book, Five Short Blasts, or read my series of posts begining with “Five Short Blasts” Theory Explained, Part 1.


A Perfect Example of What Killed American Democracy

January 13, 2021

No sooner did I publish yesterday’s post, in which I blamed the Supreme Court’s “Citizens United” decision in 2010 for the death of American democracy, when a perfect example of that emerged.

Before I get into that, I have a question for you. What do you know about the U.S. Chamber of Commerce and your own local chapter? Is it a branch of the U.S. Commerce Department? Is its purpose to promote commerce in America? The name of the organization would lead you to believe that the answer to both of the latter questions is “yes.”

You’d be dead wrong. The Chamber of Commerce is a French-based organization whose sole mission is the promotion of “free” trade. (Check out this post from 2009 for an explanation of this fatally flawed economic theory and how it has devastated America’s economy.) The U.S. Chamber of Commerce is that French organization’s American-based operation. Your local Chamber of Commerce reports to and funnels funds to the U.S. Chamber of Commerce. Here, it’s worth noting that in 2019, France – a nation whose workers enjoy benefits American workers can only dream of – enjoyed a trade surplus with the U.S. of $19.9 billion, despite being arguably the least productive nation on earth.

The U.S. Chamber of Commerce and its local chapters makes a show of lobbying in favor of American businesses when issues important to them arise like taxes, regulations, minimum wage, etc. However, the effect of all of those issues combined is trivial compared to the one trillion dollars per year of business that is robbed from them through the world’s trade surplus with the U.S. On that issue, I challenge anyone to show me one single instance in which the Chamber has spoken out against the trade deficit and in favor of changes to trade policy aimed at restoring a balance of trade. No Chamber of Commerce organization, not the U.S. Chamber of Commerce or any one of its thousands of local chapters, has ever uttered a peep of protest about the U.S. trade deficit. The Chamber of Commerce masquerades as a pro-business lobby, all the while concealing the fact that it is working against American business on the one issue that dwarfs all others.

Thanks to the “Citizens United” decision by the Supreme Court, this French-based lobbying organization is considered to be an American “person” under the constitution. Its money – all the money collected in the form of membership fees from hundreds of thousands of American businesses that it strong-arms into joining its local chapters – is considered “free speech” which cannot be constrained under the 2nd amendment.

With all of that said, check out this article which appeared on Reuters yesterday. The CEO of the U.S. Chamber of Commerce accuses Trump of undermining U.S. democracy. Scroll to the bottom of the article, and read this:

“… in a nod to Biden’s progressive agenda, he said lawmakers should fund “rapid training programs” to connect the unemployed with jobs in new sectors of the economy.

Donohue also said the Chamber will push for a new bill to boost legal immigration to help businesses deal with a shortage of workers.”

Pushing “training programs” is a classic pro-free trade gimmick used for decades to placate workers who have lost their jobs to off-shoring. And, incredibly, even in the midst of a pandemic when sixteen million Americans are unemployed, the Chamber has the audacity to suggest that we need to continue flooding the U.S. with immigrants “to help businesses deal with a shortage of workers.”

Earlier in the article, the Chamber CEO vows to cut off funding from Republicans who supported Trump. Is it Trump’s rhetoric that concerns him, or is it really the fact that Republicans began supporting Trump’s efforts at levying tariffs in an effort to fix our trade deficit?

This is a perfect example of the demise of our democracy. Our politicians are bought-and-paid-for by global corporations and foreign lobbying organizations. Your only choice is between two candidates who, on the most critical issues, take the exact same position – the position they’re paid to take. This isn’t democracy.


The Driving Force Behind America’s Drift Toward Socialism

December 10, 2020

One clear message that emerged from the election as the Democratic Party suffered significant losses in the House – and even Democrats agree with the conclusion – is that Americans overwhelmingly loathe the notion of socialism taking root here. Though the number of true socialists amongst the Democrats is small, Republicans’ constant labeling of the whole party as such was effective. Americans want nothing to do with socialism.

However, there has been a slow drift toward socialism over the decades as one social safety net program after another has been added. The Covid-19 pandemic has dramatically accelerated the trend with stimulus checks provided to all, unemployment bonus checks that make it signifcantly more lucrative to remain unemployed, eviction moratoriums and others. Socialists are now emboldened to demand more, things like universal minimum incomes provided by government, universal healthcare, college debt forgiveness and free college tuition among many other things.

Ask anyone about the cause of the drift toward socialism and most will blame the Democratic Party, home to a few hard-core socialists like “The Squad” in the House and many more progressives and liberals who don’t quite merit the socialist label. However, most people would be shocked to learn that Republicans and conservatives in general are just as culpable for the drift toward socialism, for both parties alike have fostered a policy that increasingly makes Americans dependent on the government nanny-state. I’m talking about the “free trade” policy that both parties have happily and eagerly embraced to the delight of their corporate benefactors.

America’s embrace of free trade, which began in the wake of World War II, has transformed us from the world’s richest economy and preeminent industrial power into the world’s skid row bum. How? Here’s how it works. Every dollar spent on an imported product is a dollar taken out of the economy. If not offset by a dollar spent on an American-made product by someone in a foreign country, then it’s a dollar lost from our economy forever, leaving us a dollar poorer and with one dollar’s worth of a manufacturing job gone.

The only way to make the economy whole again is for the government to put a dollar back into the economy. The only way it can do that is by selling a bond. To whom? To that foreign country where you spent that dollar on one of their goods. How does the dollar get put back into the economy? Through a government program: funding unemployment, welfare, health care for those who can’t afford it, etc. In essence, every dollar’s worth of our trade deficit is an investment by an American consumer in socialism.

Every dollar of our trade deficit further divides our society into the “have” and “have-not” classes as the erosion of the manufacturing sector of our economy worsens, driving people who once earned high wages and benefits into the unemployment line, where they have no hope of returning to the quality of life they once enjoyed. It’s only natural that this “have not” class of society would turn to socialism to make them whole again.

It doesn’t seem like a big deal until you understand the enormity of the problem. Last week, the Commerce Department released the trade data for the month of October. Our trade deficit for just that month was $63 billion. But that’s not the worst of it. That figure includes a surplus in “services,” much of which is nothing more than paperwork transactions. The real concern is goods – manufactured goods, to be precise – since that’s where the jobs are and that’s where a deficit does real damage to the economy. The deficit in manufactured goods in October was $81.3 billion, just shy of the record set only two months earlier. Annualized, that’s a deficit of $976 billion. And it’s rapidly getting worse. Here’s a chart of the data: https://petemurphy.files.wordpress.com/2020/12/manfd-goods-balance-of-trade.pdf.

Think about that. Almost a trillion dollars per year must be injected back into the economy by the government in the form of socialist programs. The United States has been running an ever-growing trade deficit for forty-four consecutive years, since our last trade surplus in 1976.

If America wants to avoid becoming a socialist country, it’s imperative that Americans wake up to the fact that it’s our enormous trade deficit that’s pushing us fast and hard in that direction. As long as the U.S. pursues “free trade,” the worse matters will get. History has shown that only the use of tariffs can assure that a balance of trade is maintained.


Biden would consult “allies” on trade policy

October 30, 2020

https://www.reuters.com/article/us-usa-election-biden-china-exclusive/exclusive-biden-if-elected-would-consult-allies-on-future-of-u-s-tariffs-on-china-advisers-idUSKBN27E07R

As reported in the above-linked article, Biden would consult with “allies” to use “collective leverage” to “strengthen his hand” in conducting trade policy with China. It seems that Biden has no clear ideas of his own on the matter. And Biden fails to understand that we have no allies when it comes to trade policy. The rest of the world, especially those so badly overpopulated that they’re heavily dependent on exporting to the U.S. to sustain their bloated labor forces, are allies not to the U.S. but to the concept of “free trade” which, thanks to the relationship between population density and per capita consumption, virtually guarantees that they’ll enjoy a surplus of trade with the U.S. It is they, including China, who are exercising “collective leverage” against the U.S.

What does Biden expect that these “allies” will tell him? Does he think that they’ll support the U.S. in its use of tariffs to restore a balance of trade with China? Of course not. They don’t want the U.S. to realize that tariffs are an effective tool for correcting lopsided trade imbalances because they know that they’ll be next. Our “allies” will quickly lecture Biden about the evils of “protectionism” and the benefits of “free trade.” They care nothing about the damage done to the American economy because it works to their benefit.

It would be like a mangy, flea-bitten dog asking for the fleas’ help in dealing with one particularly nasty flea that’s been biting the hell out of him. The fleas will first look at each other in disbelief and then, with a wink, advise the dog that they actually do him a service, protecting him from some other imaginary malady. The big flea high-fives the other laughing fleas. The dog eventually succumbs and dies.

Perhaps he’s not interested in trade at all. Maybe he just likes the optics of appearing to be a “statesman.”

America needs a leader with a clear-eyed vision of how to restore a balance of trade and stop America’s economy from hemorrhaging a trillion dollars a year. Judging by this report, it doesn’t appear that Biden is that guy.


Time to Leave the World Trade Organization

September 16, 2020

https://www.reuters.com/article/us-usa-trade-china-wto/wto-finds-washington-broke-trade-rules-by-putting-tariffs-on-china-ruling-angers-u-s-idUSKBN2662FG

As reported in the above-linked article, the World Trade Organization has announced its finding that the U.S. broke its rules when it imposed tariffs on Chinese imports two years ago.

The timing of this announcement is curious.  Of course the U.S. broke the rules.  Everyone knew it at the time.  Trump didn’t care.  It was the only way to make any progress on halting the explosion in the trade deficit with China.  So why wait until now?  Is it because Trump faces re-election in less than two months, running against a candidate who played a big role in the advancement of the globalism that the WTO enforces?

The WTO is the enforcer of the ill-conceived trade scheme hatched in the wake of World War II to bring the world together by employing the unproven concept of “free” trade.  Decades later, the results are in and “free” trade is now a proven failure.  Instead of lifting all economies of the world and bringing the world together through an inter-dependency, the WTO has destabilized the world by establishing a host-parasite relationship between reasonably-populated nations, like the U.S., and the others – like China, so badly overpopulated that they are totally dependent on manufacturing for export and feeding off of America’s market.  The WTO is directly responsible for building up a totalitarian communist regime bent on dominating the rest of the world.

It’s time to put an end to this.  Trump can do it by simply withdrawing from the WTO, a move that would quickly lead to its collapse.  Let’s return to truly free trade, where every nation is free to set its own rules in its own best self-interest.


Trump’s Efforts on Trade a Spectacular Failure

September 9, 2020

I can’t tell you how disheartening it was to sift through the latest trade data, for the month of July, released by the Commerce Department late last week.  There’s just no getting around the fact that the administration’s efforts to cut the trade deficit and bring manufacturing back to the U.S. have failed.  “Failure” would be the word to describe results that haven’t shown any improvement.  But America’s trade picture has deteriorated so badly that the scope of the failure can only be described as “spectacular.”

In his inauguration address, Trump observed:

…  rusted-out factories scattered like tombstones across the landscape of our nation …

Earlier in the address, regarding situations like that noted above, he proclaimed:

… That all changes – starting right here, and right now …

The July trade data comes 3-1/2 years into his administration – plenty of time to implement changes and to see the effects.  It’s hard to find any silver lining.  Consider:

  1. The trade deficit in manufactured goods in July soared to $80.4 billion, a new record that completely blows away the record set under the Obama administration ($63.3 billion in March, 2015).  Check out this chart:  Manf’d Goods Balance of Trade.
  2. During the 2016 campaign, Trump vowed to quickly tear up the NAFTA deal and replace it with a much better deal.  Most of his term has been wasted negotiating the new “USMCA” trade deal that replaces it.  It finally went into effect on July 1st of this year, but the terms have been known for a long time, so you’d expect that manufacturers would have been busy implementing plans to get in compliance.  The results?  In July, the trade deficit with Mexico soared to $10. 6 billion.  When Trump took office in January, 2017 it was $3.8 billion.  Since then it has nearly tripled.
  3. When Trump took office, the deficit with China was $31.4 billion.  In July of this year it was $31.6 billion.  After Trump took office, the deficit with China continued to grow until, finally fed up with China’s promises to buy more American products, Trump imposed 25% tariffs on half of all Chinese products.  Almost immediately, the deficit with China began to shrink dramatically.  However, all momentum was lost with the signing of the “Phase 1” deal with China, when the U.S. agreed to halt plans to impose tariffs on the remainder of China’s products in exchange for Chinese promises to dramatically increase their purchases of American goods.  The results were predictable; China reneged on the deal.  They haven’t even measured up to the 2017 baseline that was used as a starting point.  Here’s the data, updated through July:  Phase 1 China Trade Deal 2020 YTD.  What has Trump done in response?  Nothing.  He continues to insist it’s a good deal, in much the same way that Obama stuck by his trade deal with South Korea while our deficit with them exploded.
  4. What progress was made in at least stagnating the deficit with China didn’t translate into any benefit to American workers.  Instead, it contributed to the tripling of the debt with Mexico and also ballooned the debt with Vietnam.  When Trump took office, the trade deficit with Vietnam, an economic back-water, was $3.3 billion per month.  In July of this year it was more than doubled to $6.8 billion per month.  Why?  Because no tariffs were applied to anyone other than China.  The tariffs motivated manufacturers to begin moving out of China, but there was no disincentive to simply move to secondary suppliers in Mexico, Vietnam and other places.

Some might say that such conclusions are unfair in the midst of the pandemic.  Not so.  The effect of the pandemic has been to cut economic activity to a depression-like level, and the effect of an economic slow-down has always been to shrink the trade deficit, not grow it.  That makes the enormous deficit in manufactured goods in July even more troubling.

Speaking of the pandemic, at least people are beginning to realize that being dependent on foreign suppliers for critical goods like ventilators and face masks is a threat to national security.  It’d be nice if that realization extended to other products that would just as easily be cut off during war time.  Better yet, wouldn’t it be nice if people realized that an economy that needs to stand on agriculture, construction, manufacturing and services is hollowed out and unstable if one of those legs is gone?

I don’t doubt Trump’s desire to truly “make America great again” by bringing back our manufacturing sector.  But he sees himself as a “deal-maker” and believes he can deal his way out of the trade deficit.  That’s where the problem lies.  For America, at least, there’s no such thing as a good trade deal.  I defy anyone to identify a single trade deal that has ever left America with anything but a growing trade deficit.

And forget about “free trade.”  That centuries-old concept is about as relevant to today’s trade environment as theories about a flat earth and how the sun rotates around it.  Today, trade is war – a war for increasingly scarce jobs in an ever more over-populated world.  Unlike America, the rest of the world understand this.  They know that what they really need is access to America’s market so that they can keep their bloated populations employed manufacturing goods for export.  Americans don’t have a clue.  They think it’s about lower price and more choice.

Had Trump simply applied tariffs everywhere where America was suffering a big trade deficit in manufactured goods, manufacturers would have come running back like refugees fleeing a war.  Instead of improving incrementally, our economy would have exploded.  Manufacturers would have eagerly snapped up any workers who lost their jobs to closures of restaurants, bars, gyms, movie theaters, etc. during the pandemic.  Trump’s re-election would be a foregone conclusion.  Instead, he’s going to be lucky to win.  Forget about the pandemic.  It’s his failure to make progress on truly making America great again that has left him vulnerable.

Don’t interpret this post as an endorsement of Biden.  It’s reported in the news today that Trump has criticized Biden as a “globalist.”  He’s not wrong.  But it’s not just Biden.  Until Trump came along, every politician, Democrat and Republican alike, were and still are globalists.  I’d vote for Biden in a heartbeat if he vowed to use tariffs to restore a balance of trade, but he won’t.  Though the results under Trump have been disappointing, things could and would be much worse under virtually anyone else, at least until more American politicians are willing to engage in the trade war that they don’t even acknowledge today.

 

 

 

 


How Population Density Drives Trade Imbalances

June 15, 2020

Now that an analysis of America’s 2019 trade results has revealed that population density is the biggest factor in driving our trade imbalance – just as we’ve seen in every year previous – it’s time for an explanation of how that happens.  How is it that something that seems so unrelated to the economy and trade can have such a dramatic effect, dwarfing the effect of other parameters that would seem to be more influential – things like wages, currency exchange rates, productivity and so on?

Population density is, by far and away, the single most dominant parameter in the field of economics, but one that goes unrecognized by economists because of their cowardly refusal to give any consideration to the subject.  The reason for that dates back to the mocking of economists by other academics in the wake of the seeming failure of the theories of economist Malthus regarding population growth.

The density of the population in which you live has an enormous impact on your ability to consume products.  That impact varies depending on the product in question.  In the case of food, there’s no impact at all.  Everyone needs to consume a certain amount of calories each day to survive.   At the other end of the spectrum, the impact on the consumption of housing, or dwelling space, is huge.  For example, the average citizen in Japan – a nation ten times more densely populated than the U.S. – lives in a dwelling space that’s less than one third the size of the average American.  When people are packed together so tightly, there’s simply no room for anything else.  So the average Japanese citizen’s consumption of everything used in building, furnishing and maintaining a home is less than one third of the average American’s.  Actually, it’s even worse than that when you realize that a much greater percentage of Japanese families occupy multi-family housing, like apartments.  In those cases, walls and foundations are shared, ceilings become floors for the apartment above, etc.

The effect on every single product you can imagine is to reduce its per capita consumption.  Cars?  There’s no room to drive or park them for most people in Japan.  You’ve all seen news stories of Japanese trains carrying commuters literally packed together so tightly that they can barely breathe.

Boats?  In spite of the fact that Japan is an island nation, their per capita consumption of boats is close to zero.  The same is true for Denmark, a nation consisting of one large peninsula and many islands, but which is also very densely populated.

Lawn care and gardening equipment?  On a per capita basis, lawns and gardens virtually don’t exist in Japan.  Sporting goods?  There’s little room for golf or tennis or anything else that requires much real estate.  Even things like electronics are affected, since such cramped quarters as you find in places like Japan force people to share them.

So you get the idea.  A dense population absolutely strangles per capita consumption.  On the other hand, when someone in Japan (or China, or Germany, or South Korea, or any densely populated nation) goes to work, they are every bit as productive as an American worker.  It takes no more or less labor to manufacture something, like a car, for example, in Japan than it does in America.

People make things and people buy things and that, in a nutshell, is what makes an economy tick.  But what happens if people aren’t able to buy as much as they’re able to make?  Now you have a situation where the supply and demand for labor are out-of-balance.  Less demand for labor translates into higher unemployment.  Higher unemployment means lower wages for everyone, and it necessitates greater government spending to provide a safety net for the unemployed.  It’s a recipe for disaster for any nation’s economy.

However, there’s an escape mechanism for nations that find themselves in this fix.  They can put their excess labor capacity to work making products for export.  Of course, that requires a trading partner who’s willing to share their market.  If that partner has a shortage of labor – perhaps because they are very sparsely populated and lack the labor force needed to manufacture everything they need – then it can be a beneficial situation, one that is likely financed by the sparsely populated nation selling natural resources like food, oil, lumber, minerals, etc. to the densely populated partner.

But what if that trading partner isn’t sparsely populated and has no shortage of labor?  To welcome imports from that densely populated nation will inevitably put its own people out of work and create a big trade deficit.  It’s absolutely inescapable.  The densely populated nation won’t buy products from the less densely populated nation in equal measure because they can’t even consume their own domestic manufacturing capacity, much less take in more from other countries.

Either a densely populated nation sustains its economy by manufacturing for export, or it lapses into abject poverty because of extreme unemployment.  Look around the world and you’ll see that this is true, although I should point out that there are a couple of exceptions.  Many small island nations, though they tend to be densely populated, maintain vibrant economies that are based on tourism.  And some small but densely populated nations have oceans of oil beneath their feet and trade that oil for all the other products its citizens require.  But these are the exceptions.  Any densely populated nation of any size is either dirt poor or is totally dependent on manufacturing for export.   Attempting to trade freely with such nations is economic suicide.  A big trade deficit and a loss of manufacturing jobs is inevitable.

What is the point of trade policy that only serves to erode our economy?  The purpose of trade is to make available products that can’t be obtained domestically.  For a nation like the U.S. – big and rich in resources – there isn’t much we need.  Tropical fruits, out-of-season produce, and a few rare minerals are examples.  But manufactured products?  There are none that we can’t make domestically and more efficiently, especially when you factor in the five billion barrels of oil burned annually by ships bringing in products from half-way around the world.  It makes absolutely no sense.

Tariffs are the only remedy available to maintain a balance of trade.  Trade deals don’t work, because there is no motivation for a nation dependent on manufacturing for export to abide by them.  The reduction in the trade deficit with China is proof that they work.  Those tariffs need to be expanded to include all Chinese imports, not just half of them like we have now.  Beyond that, their implementation needs to be spread to other densely populated nations that prey on the American market to sustain their bloated labor forces – Germany, South Korea, Ireland, Vietnam and other Asian and European nations.

Virtually every problem in America, beyond unemployment and low wages, in which a lack of funding is a factor, can ultimately be traced back to our trade deficit – inadequate funding of schools, neglected infrastructure maintenance and improvements, inner city blight, health care – the list can go on and on.  Ultimately, the federal budget deficit and national debt can be attributed to the federal spending needed to offset the financial drain of the trade deficit.

And still economists keep their heads in the sand and insist that population growth plays no role in economics.


U.S. Balance of Trade in 2019 vs. Population Density

May 1, 2020

So far we’ve looked at the two ends of the spectrum of America’s 2019 balance of trade – our worst trade deficits and our best trade surpluses.  We found that the list of our worst trade deficits is heavily dominated by nations with a high population density.  Conversely, we found the list of trade surpluses is dominated by two groups of nations – low population densities and net oil exporters.  Now let’s look at the whole 2019 trade picture, which includes 165 nations.  (The CIA World Fact Book lists a total of 229 nations in the world.  Not included in my study are tiny island nations and city-states which, combined, account for less than 1% of trade.)  Here’s a chart of America’s balance of trade with all nations that are more densely populated than the U.S. vs. all nations that are less densely populated, from 2005 through 2019:  Balance of Trade Above & Below U.S. Pop Density.

The difference in the results couldn’t be more stark.  With those nations that are less densely populated than the U.S., we enjoyed a small surplus of $111 billion in 2019 – down slightly from $119 billion in 2018 and essentially flat for the past ten years.  With those nations that are more densely populated than the U.S., we suffered an enormous deficit of $941 billion in 2019 – a deficit that has exploded over the past decade, more than doubling from $428 billion in 2009.

There are 114 nations more densely populated than the U.S., and 51 nations that are less densely populated.  So, you might think, maybe the uneven distribution of countries was a factor in skewing the results.  Fine.  Let’s divide the countries evenly – 82 nations that are more densely populated vs. 83 that are less densely populated.  The results are little different.  With the half of nations more densely populated, the U.S. suffers an enormous trade deficit of $842 billion, vs. a trade surplus of $129 billion with the 83 nations that are less densely populated.  By the way, the median population density is 193 people/square mile – about double that of the U.S.

I should point out that, divided around the median population density, the half of nations that are above the median account for 5.6 billion people, while the half of nations below the median population density account for only 1.7 billion people.  One might argue that, to be a fair analysis, there should be an equal number of people on each side, and not an equal number of nations.  OK, let’s look at it that way.  In order to do that, because it has such a large population, China has to be divided, allocating 59% of its population to the more densely populated half, and 41% of its population to the less densely populated half.  The deficit with China will be divided proportionately.  If we do that, the U.S. has a trade deficit of $557 billion with the half of the world’s population that lives in more densely populated conditions vs. a trade surplus of $273 billion with the half of the population living in less densely populated conditions.

But splitting the population evenly, as we did above, results in a huge discrepancy in the land surface area of the world in one half of the analysis vs. the other – 5.2 million square miles vs. only 0.7 million square miles.  If we divide the world evenly in terms of surface area, the U.S. has a trade deficit of $924 billion vs. a trade surplus of $94 billion with the more densely populated half of the world’s surface area vs. the less densely populated half.

No matter how you look at it, population density is consistently the biggest driving force in determining the balance of trade.  So if the U.S. wants to achieve a balance of trade with the rest of the world, it’s only logical to employ a mechanism aimed at population density – a tariff structure, for example, that’s indexed to a nation’s population density.  Applying tariffs on any other basis isn’t fair.  Should a nation be punished because it’s big instead of little?  Developed vs. undeveloped?  “Free trade” is an example of an unfair tariff system – unfair to the U.S.  It applies a tariff of zero to everyone on no basis whatsoever – without any justification – and the results speak for themselves.  The U.S. is being killed with a huge trade imbalance that has destroyed its manufacturing sector.

Who would (or should) be hit hardest by a population density-indexed tariff structure?  We’ll look at that next.

 

 


America’s Worst Trade Deficits in 2019

April 19, 2020

I’ve just finished the long, tedious process of analyzing the international trade data for 2019, which was posted by the Commerce Department in late February this year, instead of the mid-summer release caused by the government shutdown last year.  We’re going to look at this data in a lot of different ways in this and upcoming posts, so let’s begin with the basics.  The biggest problem with international trade is that the U.S. has been running a massive, ever-growing trade deficit for the past forty-five years.  All of the deficit is due to imports – and very weak exports – of manufactured products, and this category of products is where it hurts the most.  A deficit in manufactured products hurts the most because that’s where the most – and the highest-paying jobs – are lost.

So let’s begin this analysis with a list of our worst trade deficits in manufactured goods:  Top 20 Deficits, 2019.  The deficit with these 20 nations is almost $1 trillion!  It’s no great surprise that our deficit with China leads the list, by a wide margin.  And it would be worse by $20 billion if I hadn’t included Hong Kong with China.  (The Commerce Department tracks them separately, but we’re kidding ourselves to think that Hong Kong is an independent city-state.)  What’s new and interesting however is that the deficit with China is actually down substantially – by $73 billion – from 2018.  This is thanks to the Trump administration’s program of imposing tariffs on Chinese imports.  Look at how much the deficit with China has changed over the past ten years.  Though it grew rapidly for the first nine years of this period, it fell enough last year to yield only a 24% growth in the last ten.  That’s the 2nd slowest growth among the twenty nations on this list.

The deficit with Mexico has grown rapidly – 154% over the past ten years – to become our 2nd worst trade deficit.  However, if we are to believe the President, this should begin to change as the new USMCA agreement with Mexico and Canada – which replaces the now-defunct NAFTA agreement – begins to take effect this summer.  We’ll see.

Note that, contrary to the belief that low wages cause trade deficits, this list of our worst trade deficits is actually dominated by wealthy, developed nations, including many European nations.  In fact, if we add up the EU nations on this list, the combined deficit is $187 billion.  (The UK and Switzerland are not in the EU.)  By the way, the growth in the deficit with the U.K. – 3,125% in ten years – isn’t a typo.  When I first wrote Five Short Blasts in 2007, the U.K. was one of a few anomalies where, in spite of the high population density, we actually enjoyed a trade surplus with them.  But that trade surplus evaporated and, in 2010, the U.S. actually had a very small trade deficit with the U.K.  The deficit of $9.6 billion in 2019 is more than thirty times larger than the small deficit in 2010.  It’s growing rapidly.

As we’ve seen every year, it’s not low wages that cause our trade deficit.  So what does cause it?  I just gave you a hint.  Look at the population density of the nations on this list and compare it to the population density of the U.S. – 93 people/square mile.  The average population density of the nations on this list is almost seven times greater.  The combined population density of the nations on this list – the total number of people divided by the total land mass – is more than five times greater.  Only Sweden, near the bottom of the list, is less densely populated.  Nineteen of these twenty nations are more densely populated than the U.S.  Most are more than four times as densely populated.  Now that’s a powerful correlation to our balance of trade!

But why?  Why does something so seemingly unrelated have such a powerful effect on the balance of trade?  It’s because people who live in over-crowded conditions are incapable of using as many products as people who enjoy living in more wide open spaces.  They have no place to store them and no place to use them.  (Think cars.  the average Japanese person doesn’t have a garage and the roads are too crowded to drive anyway.)  Yet, they are every bit as productive.  The inescapable consequence is that, in order to be gainfully employed, they must produce far more than they consume, and there’s ony one thing that can be done with their excess production:  export it.  Unless the nation that those excess products are exported to takes some kind of action to keep those products out, their own citizens are now doomed to be put out of work by the market share they’ve lost.  Trading freely with badly overpopulated nations causes a massive shift of manufacturing jobs to the more densely populated nation.

But I’m getting ahead of myself.  Trade deficits are just one end of the trade spectrum.  What about surpluses?  Will we find that those nations are less densely populated, which the population density theory would predict?  Stay tuned.


No More Trade Deals, No More WTO

February 29, 2020

https://www.reuters.com/article/us-usa-trade/ustr-vows-to-push-for-trade-deals-with-britain-eu-seeks-reforms-at-wto-idUSKCN20M3BN

As reported in the above-linked article, the Trump administration continues to pursue more trade deals, with Britain, the European Union and now Kenya.  With his background in wheeling and dealing on real estate, Trump sees deal-making as the way to dig the U.S. out of the deep trade deficit pit it has fallen into.  Yes, I know, “digging” isn’t the way to escape from a hole.  It only makes the hole deeper.  That’s kind of the point I’m trying to make.  Trade deals are what got us into our trade mess in the first place, including the worst deal of all – the deal with the rest of the world to set up the World Trade Organization to oversee the whole process.

The whole point of a trade deal is to coerce another country into concessions (things they don’t like), using concessions of our own (things we don’t like) as the motivation.  Then what happens?  Being the global “nice guys,” we live up to our promises – the concessions we made – while the other side doesn’t.  We cajole them about their failures to live up to their side of the bargain.  They promise to re-double their efforts.  Months go by.  Still nothing happens.  Months turn into years.  The trade deal that was initially hailed as a “big win for American workers” instead yields a massive, persistent trade deficit and the dismantling of the manufacturing sector of our economy.

Why do we need trade deals?  Just tell us what you have for sale.  We’ll then decide if we want to buy it and how much we’ll buy.  We’ll reciprocate.  Here’s what we have for sale and here’s the price.  Buy it if you want.  But if you don’t buy from us as much as we buy from you, we’ll use tariffs to assure that a balance is maintained.

You want to sell us avocados?  Or coffee?  Fine.  We won’t put any tariff on them because we’re not able to grow them ourselves.  But you want to sell us a car?  We already have companies making and selling cars – more than we know what to do with.  So we’ll put a high tariff on your cars, unless you’re able to buy just as many from us.  That kind of seems pointless though, doesn’t it?

And we certainly don’t need a “World Trade Organization” setting rules to advance their own agenda.  The Trump administration is pushing the WTO to reform and end its practice of protecting developing countries like China at the expense of the U.S., and stubbornly insisting on “free” trade with other developed countries like those of the EU – countries whose gross overpopulation assures a trade deficit for the U.S. – even after decades of proof that a massive, destabilizing trade imbalance is inevitable.  Why bother?  We don’t need the WTO.  What can they do if they don’t like our tariffs?  They can authorize other countries to raise tariffs of their own, which is what they may or may not do anyway, regardless of whether or not the WTO even exists.  So the WTO really serves no purpose whatsoever, other than to suck funding from the American economy to support its endless meetings – meetings whose only purpose is to invent new ways to divide up the American market for the benefit of other countries.

Case in point:  Trump was having great success in cutting our trade deficit with China through the use of tariffs until he signed the “Phase 1” trade deal with them last month – a deal that had essentially been in place for months already, just awaiting the formality of the signing.  As a result, all of the momentum toward restoring a balance of trade with China has been lost.  The trade deficit status quo with China has been restored, albeit at a slightly lower level, and for what?  Chinese promises  – the same promises they’ve reneged on for years.  We’ve once again ceded control of the trade situation to China.

Another example:  the “USMCA” agreement with Mexico and Canada – supposedly an improvement over the NAFTA deal that devastated American manufacturing almost as badly as our trade situation with China.  What’s been the result?  Since Trump was elected, our trade deficit with Mexico continues to spiral out of control, and it’ll be years before anyone can say definitively that the USMCA agreement didn’t work.  (Anything less than a balance of trade with Mexico is a failure.)  The USMCA agreement eliminated the threat of tariffs on Mexico and put Mexico back in the driver’s seat of the trade relationship.

Throughout all of this deal-making for the past three years, the trade deficit declined slightly in 2019, and that decline was thanks to tariffs and not any deals.  The trade deficit remains enormous, leaving the manufacturing sector on life support and leaving us more vulnerable to recession and supply disruptions, something that’s becoming painfully obvious as the coronavirus problem worsens and we discover that we’re dependent on China for our supply of protective clothing and for pharmaceuticals to combat it.

President Trump, please, no more trade deals.  Kiss the WTO goodbye and put the U.S. Trade Representative’s office to work setting an managing tariffs.