More Trade War Hysteria

April 7, 2018

https://www.cnbc.com/2018/04/04/one-of-the-biggest-us-trade-wars-of-the-past-had-a-tragic-consequence–heres-what-happened.html?recirc=taboolainternal

I was hoping to spend some time tallying the U.S.’s global trade results for 2017, but then this popped up and I just can’t let it pass.  Actually, I was wondering when the free trade globalists would dredge up the subject of the Smoot-Hawley Tariff Act of 1930, blaming it for the Great Depression, as they usually do.  But the writer of the above linked article, in an apparent attempt to ratchet up fears of a trade war, goes a step further and blames Smoot-Hawley for World War II!

She begins by creating the impression that Smoot-Hawley was an opening salvo in a trade war in the 1930s.  She either doesn’t have a clue, or is intentionally trying to mislead her readers.  Let’s get some facts straight.  First of all, the use of tariffs was standard trade policy for the United States since its founding.  In fact, until 1913, there was no need for an income tax in the U.S. because all federal revenue was derived from tariffs.  The Smoot Hawley Act was nothing more than a minor tweak of tariff rates that had been in effect since the Fordney-McCumber Act of 1922.  It increased tariffs on average by 2.7%.  It changed the tariff basis from an ad valorem (percentage) basis to a fixed dollar basis which, under normal circumstances, would actually have slowly reduced tariffs as inflation eroded the value of the tariff.  But, of course, the Great Depression resulted in a protracted term of deflation instead of inflation.

Blaming Smoot-Hawley for the Great Depression is bad enough.  Not only was the change in tariff rates minuscule, but it wasn’t enacted until June of 1930, a year-and-a-half after the stock market crash of 1929 which actually precipitated the Great Depression.  And at the height of the Great Depression in 1933 when GDP (gross domestic product) had fallen by 33%, or $33.1 billion from its 1929 level, the total value of imports and exports had declined by only $6.5 billion.  It was actually the Great Depression that caused the drop in trade, and not the other way around, just as the “Great Recession” that began in 2008 resulted in a sharp decline in trade.

To blame Smoot-Hawley or a “trade war” that didn’t even exist for World War II is truly outrageous.  It was actually the aftermath of World War I and the severe war reparations that were imposed on Germany, resulting in soaring inflation and unemployment, that fostered Hitler’s rise to power.  And that just happened to coincide with the growing aggressiveness of imperialist Japan.  Trade had absolutely nothing to do with it.

Sure, the world made a turn toward free trade following the war with the signing of the Global Agreement on Tariffs and Trade in 1947, but it wasn’t because anyone blamed a “trade war” for causing World War II.  It was because economists, eager to try out the concept of free trade, successfully (but disingenuously) blamed tariffs for the Great Depression and made an argument that the interdependence that would come with free trade could preclude any future world wars.

Actually, if one were to be honest, free trade and the enormous global trade imbalances it has fostered is directly responsible for our current trade tensions.  We need to restore balance to global trade through the use of tariffs or quotas before things get any worse.

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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.


A Trade War? Let’s Get It On!

March 25, 2018

I’ve been waiting a long time for this – my whole life, really – and now it seems to be happening.  Trump seems to be finding his footing in making good on his promise to end the “free trade” rape of America’s economy and workers.  In the wake of imposing tariffs on steel and aluminum, this week he also edged closer to slapping tariffs on $60 billion worth of Chinese imports.  And the whole community of globalist trade parasites that has fed on the American economy for decades is freaking out.

It’s been amusing to watch the reaction and threats of retaliation.  First, the EU (European Union) threatened to slap tariffs on American exports of bourbon, Levi’s blue jeans and Harley Davidson motorcycles.  Trump responded, “go ahead, and we’ll put a 25% tariff on imports of European cars.”

Let’s stop right there and take a look at this situation.  In 2017, the EU imported $839 million worth of bourbon whiskey.  Sounds like a lot of booze, right?  And while I can’t separate Harley Davidson motorcycles from other brands and bicycles, I can tell you that the EU imported $802 million worth of motorcycles and bicycles in general from the U.S.  And how many pairs of jeans did they import?  None.  Zilch.  Why?  Because virtually none are made in the U.S.  It’s kind of pathetic, actually, that EU officials can’t even name three American imports without getting one of them wrong.  I’m sure that the folks at Levi’s had  puzzled looks on their faces and, at the same time, officials in Bangladesh or wherever Levi’s are made these days cringed.  By contrast, the U.S. imported $43 billion worth of cars from Europe – half coming from Germany alone.  Upon hearing Trump’s threat to slap tariffs on their car imports, the EU backed off fast from further retaliation threats.

You might ask, couldn’t the EU then respond with tariffs on imports of American cars?  Yeah, but they only imported $8 billion worth of cars in 2017.  The whole idea of “retaliation” is to strike back in a way that hurts at least as much as what’s been done to you.  Therein lies the problem for anyone with a huge trade surplus with the U.S.  It’s impossible to “retaliate” in any meaningful way.  In the above scenario, where the U.S. puts $1.6 billion worth of bourbon and motorcycle exports at risk, the EU stands to lose twenty-five times that much in auto exports.  The U.S. could actually just hand Jim Beam and Harley Davidson $1.6 billion to make up their loss, and still be way, way ahead.

Then there’s China or, as I’ll refer to them from now on, “Red China.”  That’s how they used to be known under Chairman Mao Tse Tung, until the U.S. began making overtures to them in the hope of turning them into a more free and open society.  But, in my opinion, with Xi Jingping’s power grab, making himself China’s communist dictator for life – just like Chairman Mao – China no longer deserves that respect.  From now on, they’re once again “Red China” and “Chairman Xi.”

So, anyway, back to Red China.  Trump is threatening to slap tariffs on $60 billion worth of their exports, and it would probably escalate from there.  Already, Red China has threatened to retaliate with tariffs on soybeans, and then with tariffs on an additional 127 American products.  And the Chicken Littles of globalism are freaking out with dire warnings of the consequences of a trade war.

So, just like we did with the EU above, let’s take a detailed look at this situation.  In 2017, Red China imported $12.4 billion worth of soybeans from the U.S.  The other 127 products total up to $3 billion for a grand total of $15.4 billion worth of retaliation to America’s tariffs on $60 billion worth of Chinese exports.  So, once again we see that Red China is incapable of mounting any kind of real retaliation at all.  With over $500 billion in exports to the U.S., while only importing $130 billion, there’s simply no way for Red China to retaliate in any meaningful way.  If all trade with Red China were halted completely, the U.S. wins by $370 billion.  Hell, we could just hand soybean farmers $12.4 billion and still be ahead by $357.6 billion!

Oh, by the way, the threat of tariffs on American soybeans would hurt the Chinese more than Americans.  Does Chairman Xi think that his people will simply eat less?  Of course not.  He’ll have to get his soybeans somewhere else, like Brazil, and now those countries who imported soybeans from Brazil will turn to the U.S., probably bidding up the cost of soybeans.  No skin off of our noses, Chairman Xi.

Not so fast, the free trade advocates and globalists warn, American consumers will be hurt by higher prices in a trade war.  Oh, really?  Not if you factor quality into the equation and the fact that cheap junk from Red China has to be constantly replaced.  Last year, I replaced the faucet in our bathroom, which had been there for thirty years.  We wanted to replace it with the exact same model, since it’s used in other bathrooms in the house and still goes well with the other decor.  Already  it’s falling apart.  The handles keep coming loose because the threads were cut too sloppy (as is often the case with Chinese products) and the hot water handle squeaks like a rusty gate.  So the cheap Chinese version barely lasts a year while the old, American-made version held up for thirty.

This week, while doing a wood-working project, my lightly-used, Chinese router quit.  I wanted to replace it with a good, American-made router but I found out, sadly, that none are made in the U.S.  Not only that, no power tools of any kind are made in the U.S. anymore.

So, no sooner did I buy a cheap Chinese router, than my printer quit on me, just past its warranty.  New printers have become an almost annual purchase for me.  To summarize, I’m really getting sick of dealing with poor quality Chinese junk, just like virtually every American is.  A boon to U.S. consumers?  Baloney!

Of course, the real reason that the claim of lower costs for American consumers is a lie is because cost is relative to income, and our huge trade deficit and corresponding job losses with Red China have held down and even cut American incomes more than it has reduced costs.

Trump has used “national security” as his rationale for levying tariffs on steel and aluminum.  Why stop there?  Look at clothing.  Virtually none is made in the U.S.  Isn’t it a matter of national security that we might all be running around naked during a war?  Well, we could make our clothes, right?  Nope.  No fabric is made in the U.S. either.

Or how about the example of power tools I talked about above?  It takes tools to make things.  We don’t even have the tools it takes to make tools!  Where would we get them during a war?  Let’s face it.  If a war broke out right now, we’d soon find ourselves fighting it naked with nothing more than clubs.  Maintaining a healthy manufacturing sector – one capable of manufacturing everything that we need – is a matter of national security.

A trade war?  It’s impossible for the U.S. to do anything but win, and win big.  Come on, President Trump, let’s get it started!


Trade Deficit in Manufactured Goods At Record High

December 7, 2017

The trade deficit in manufactured products* rose to a record high of $64.6 billion in October, surpassing the previous record of $63.3 billion set in March of 2015.  Take a look at this chart of our monthly deficit in manufactured goods:  Manf’d Goods Balance of Trade. Exports of manufactured goods haven’t risen since September of 2011 (in spite of Obama’s laughable proclamation in 2010 that we would double exports in five years).  In the meantime, imports have soared by almost $30 billion.  It’s a dubious distinction for President Trump who, during his inaugural address in January, spoke of “…rusted-out factories scattered like tombstones across the landscape of our nation…” and proclaimed that “This American carnage stops right here and right now.”

To be fair, Trump didn’t mean that it would happen on the spot.  His administration has been taking steps to address our trade problem, trying to renegotiate NAFTA (the North American Free Trade Agreement with Mexico and Canada), imposing tariffs on some products and, most recently, blocking China from rising to “market economy” status with the World Trade Organization.  Aside from the work on NAFTA, which may conclude soon with the U.S. walking away from that ill-conceived agreement, the rest amounts to little more than the token steps taken by previous administrations.  The net result is that the plight of the manufacturing sector of our economy grows steadily worse.

Enough is enough.  It’s time to walk away from both NAFTA and the World Trade Organization and begin implementing tariffs.  Any tariffs would be better than our current trade policy, but smart tariffs that address the real cause of our trade deficit – attempting to trade freely with badly overpopulated nations characterized by bloated labor forces and anemic markets – would be much more effective.  As an example, it was reported yesterday that Canada, angered by their treatment in the NAFTA negotiations, has canceled an order for Boeing-made fighter planes.  Why are we treating Canada this way?  Sure, we have a trade deficit with Canada, but it’s due entirely to oil.  In 2016, our biggest trade surplus in manufactured goods, by far, was with Canada – $44 billion, more than double any other country.  Canada is our best trading partner.  Why anger them?  Why not tell Canada that our beef is with Mexico, with whom we had a trade deficit in manufactured goods of almost $68 billion in 2016 – our third worst behind China and Japan – and that they’ll get just as good a deal from the U.S. without NAFTA?  Slap the tariffs on Mexico, not Canada.

We could completely wipe out our trade deficit in manufactured goods by applying tariffs to only ten countries – China, Japan, Mexico, Germany, Ireland, Vietnam, South Korea, Italy, India and Malaysia.  These ten countries, all more densely populated than the U.S. (all but Ireland are many times more densely populated), account for all of our trade deficit in manufactured goods.  While we have defiicts with others, they are much smaller and are offset by surpluses with the rest of the world.  The point is, we don’t have to anger the entire world with tariffs – just ten out of the more than 220 countries in the world.  So let’s be smart about how we do it, but the time has come, Mr. President.  Stop delaying the inevitable.  Do what you know needs to be done.

* The trade deficit in manufactured products is calculated by subtracting services, trade in petroleum products, and trade in foods, feeds and beverages from total trade, as reported by the Bureau of Economic Analysis in its monthly reporting of international trade.


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.

 


Americans Growing Poorer

September 19, 2015

http://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf

The above-linked report – “Income and Poverty in the United States:  2014” – was published by the Census Bureau a couple of days ago.  The news isn’t good.  In spite of the supposed decline in unemployment and all the talk of economic recovery, the median household income fell once again and the poverty rate remained at or near the highest level in fifty years.

There’s tons of data to sift through in the report, so I’ll simply quote a few of the key findings of the report:

“Median household income was $53,657 in 2014, not statistically different in real terms from the 2013 median of $54,462 (Figure 1 and Table 1). This is the third consecutive year that the annual change was not statistically significant, following two consecutive years of annual declines in median household income.”

“Median household income … in 2014 … 6.5 percent lower than the 2007 (the year before the most recent recession) median ($57,357), and 7.2 percent lower than the median household income peak ($57,843) that occurred in 1999.”

“In 2014, the official poverty rate was 14.8 percent. There were 46.7 million people in poverty.”

“The 2014 poverty rate was 2.3 percentage points higher than in 2007, the year before the most recent recession (Figure 4).”

Median household income has declined every year since 2007, and even the median income in 2007 was less than the median income in 1999.  This is the longest period of decline since the Census Bureau began tracking the data in 1967.  From 1967 to 1999, the median household income (for all races) rose from approximately $42,000 to $57,843 – a increase of 38%.  Since 1999, however, it has declined by 7.2%.

This is exactly what the inverse relationship between population density and per capita consumption would predict – that as our population density (including our “effective” population density) rises beyond a critical level, worsening unemployment and poverty is inescapable.

So what was it that happened after 1999 that threw median incomes into what increasingly appears to be a permanent state of decline?  Our population density has been rising by about 1% a year for decades but our “effective” population density – the population density that we take upon ourselves when we combine with another nation through “free” trade – skyrocketed in 2000.  That was the year that the Clinton administration granted China “permanent normal trade relations” satus, opening the door to “free” trade with China.

Look back at Chapter 7 of Five Short Blasts (especially Figure 7-5 on page 130), where we examined what happened to our effective population density as we combined our economy with other nations through “free” trade.  The effect of trading with Ireland – the nation with whom we have the largest per capita trade deficit in the world – is negligible.  They’re so small that it makes no change to our effective (combined) population density.  Add Mexico to the list, and our density rises from 85 people per square mile to 118.  Add Germany and it rises to 132.  But, when China, with one fifth of the world’s population, is added to the mix, our effective population density rockets to 242!  The downward pressure on our labor market and incomes suddenly becomes overwhelming.

As long as we continue to blindly apply “free” trade policy to all nations with no consideration of the effect of population density, the resulting downward spiral in our economy is inescapable.  With each passing year, the data on incomes and poverty in America bears this out.

 

 

 

 

 


America’s Worst Trade Partners in 2013

May 26, 2015

Top 20 Deficits, 2013

In a recent previous post, I reported that the U.S. suffered a record trade deficit in manufactured goods with those half of nations above the median population density, and a healthy surplus with the other half of nations. The relationship between population density and trade imbalance is clear.

To make it even more clear, let’s take a look at the opposite ends of the spectrum of trade imbalances – those nations with whom we have the worst trade deficits in manufactured goods and those nations with whom we enjoy the biggest surpluses. This post will look at the top twenty deficits. In order to factor out the geographic size of nations as a factor, these trade imbalances are expressed in per capita terms – dollars per person.

Above is a link to a spreadsheet showing the top twenty per capita trade deficits in manufactured goods in 2013. The following are some observations about this list:

  • Of these top twenty nations, eighteen are more densely populated than the U.S. Most are much more densely populated. The average population density of the nations on this list is 504 people per square mile. This is almost six times the population density of the U.S.
  • The thing that may surprise people the most is that China, the nation everyone thinks of first when the subject of our trade deficit comes up, barely makes the list of the top 20 deficits, coming in at number 17. In per capita terms, our deficit with other nations including Israel, Taiwan, Japan, South Korea and a number of European nations, is much worse.
  • Low wages are often blamed for our trade deficit in manufactured goods. Manufacturing jobs, it is said, are shipped overseas to take advantage of cheap labor. So I’ve included the “purchasing power parity” (or “PPP”) – essentially the gross domestic product of each nation per person – to see whether this claim holds water. PPP is a measure of the purchasing power of the citizens of each nations, and is a good indication of the average wages paid. As you can see, our worst deficit are with rather wealthy nations. (By comparison, the PPP of the United States in 2013 was $49,000.) The average of PPP of these twenty nations is $35,330. Only two nations are below $10,000: China and Nicaragua. It should be noted that China’s PPP has more than doubled in the last eight years. If “low wages” were the cause of trade deficits, then we should begin to see our deficit with China decline as PPP rises. Instead, our trade deficit with China set a record in 2013. Our trade deficit with Switzerland, the wealthiest nation on this list, also worsened in 2013 to $1,859 per person from $1,680 in 2012, moving Switzerland from 3rd to 2nd place on this list.
  • South Korea moved from 12th place in 2012 to 11th place in 2013 as our trade deficit with them worsened from $426 to $496 per person. Our deficit with South Korea continues to worsen dramatically in the wake of the 2012 trade deal which the Obama administration hailed as a “big win for American workers.”
  • In the most dramatic move on the list, Malaysia went from 13th place in 2012 to 21st place – vanishing from the list – as our trade deficit with them was cut in half in 2013. This allowed Mexico to move up to 13th place in spite of a 20% decline in our deficit.

There are a couple of key take-aways from this list. First is that population density plays the major role in determining trade imbalances. If it did not, one would expect the ratio of more densely populated nations to less densely populated nations to be somewhere around 1:1. Instead, the ratio here is 9:1. Secondly, low wages clearly have absolutely nothing to do with these trade deficits. This list is heavily skewed toward wealthy, high-wage nations like Ireland, Switzerland, Germany, Japan, Israel, Taiwan, Denmark and others.

The problem with attempting to trade freely with these badly overpopulated nations is not that their wages are too low. The problem is that they buy too little from the U.S., thanks to a level of per capita consumption that has been decimated by their extreme population densities. People who live in such crowded conditions simply can’t consume products at the same level as people who live in more reasonably populated conditions like we enjoy in the U.S.