With little more than two months left in 2019, I’ve finally finished compiling and analyzing America’s trade data for 2018. Why the delay? Thanks to the government shutdown early this year, the trade data wasn’t released this year until nearly July – four months later than usual. And tabulating the results for hundreds of 5-digit end use code products for 165 nations is no small feat.
What we’re looking at here are the deficits in manufactured goods as opposed to services and various categories of natural resources. Why? Because manufacturing is where the jobs are. Yes, there are jobs associated with the harvesting and mining of natural resources but, pound for pound, those jobs pale in comparison to the number generated by manufacturing.
And it should be noted that there are more than 165 nations in the world. The CIA World Factbook lists 229. Nearly all of the 64 nations that I left out of this study are tiny island nations with whom, combined, trade represents only a tiny fraction of America’s total. Also, their economies tend to be unique in that they rely heavily on tourism and their manufacturing sectors are virtually non-existent, if for no other reason than a lack of space to accommodate manufacturing facilities.
It should also be noted that I’ve rolled the results for tiny city-states into their larger surrounding nations – states like Hong Kong, Singapore, San Marino, Luxembourg, Liechtenstein, Monaco and others. They too tend to have unique economies, heavily dependent on services like financial services, and mostly devoid of manufacturing for the same reason as small island nations – a lack of space. There is no room for sprawling manufacturing complexes.
So, with that said, let’s begin with a look at America’s biggest trade deficits. Here are the top twenty: Top 20 Deficits, 2018.
It comes as no surprise that China once again has topped the list with a whopping $416 billion deficit – up from $385 billion the year before. It’s more than four times as large as the next biggest deficit – Japan. But Japan is less than one tenth the size of China, making the deficit with Japan nothing to scoff at. Look at our deficit with Ireland. It’s one tenth that of China, but China is 200 times as large as Ireland.
There are many other interesting observations that can be made about this list:
- There’s a lot of variety on this list – nations big and small, rich and poor, Asian, European and Middle Eastern nations. But there’s one thing that all except one have in common – a high population density. The average population density of this list is 629 people per square mile. Compare that to the population density of the U.S. at 92 people per square mile. On average, the nations on this list are seven times more densely populated than the U.S.
- With a few exceptions, these are not poor countries where wages are low. Half of the top ten nations have a “purchasing power parity” (or “PPP,” a measure of wealth that is roughly analogous to wages) near or, in two cases – Ireland and Switzerland, above that of the U.S. ($59,500). Only one nation in the top ten – Vietnam – has a PPP of less than $10,000. So, the conventional wisdom that low wages cause trade deficits isn’t supported by this list.
- Two nations on this list – China and India – represent 40% of the world’s population. On the other hand, there are others that, combined, make up less than 1% of the world’s total. Naturally, if we have a trade deficit with a big nation, it tends to be really big. In order to identify the factors that influence trade, we need to factor sheer size out of the equation.
- On average, the U.S. trade deficit in manufactured goods has risen by 166% with this group of nations over the past ten years. Whatever it is that drives trade deficits has a very potent effect. The fastest growing deficit is with India, rising by 428% in ten years. India is the 2nd poorest nation on the list. Perhaps low wages do play a role here? On the other hand, nearly tied with India (in terms of the rate of growth in the deficit, not the deficit itself, which is actually larger) is Switzerland, the 2nd wealthiest nation on the list – wealthier than the U.S. – debunking the low wage theory.
- It’s often said that America needs to be more productive in order to compete in the global economy. Yet we see nations like France and Italy on this list – nations notorious for long vacations, short work weeks, etc. – not exactly bastions of productivity. So if productivity is an issue, why are we losing out to nations who are much less productive?
- In 2018, the U.S. had a total trade deficit of $816 billion in manufactured goods. Of the 165 nations in this study, the top nine deficits on this list account for more than that entire total. The U.S. actually has a small surplus of trade with the other 156 nations of the world combined.
Trade deficits matter. As noted above, our overall deficit in manufactured goods in 2018 was $816 billion. On a per capita basis, that’s a deficit of $2,500 for every man, woman and child in the U.S., or a deficit of nearly $10,000 for an average household of four. That’s how much poorer you are than if we had a balance of trade.
In my next post, we’ll take a look at the other end of the spectrum – America’s top twenty trade surpluses in manufactured goods. If population density is a factor, then we should see that list comprised of nations with low population densities. And if low wages aren’t a factor, we shouldn’t see anything much different than what we saw on this list presented here – a list peppered with rich and poor nations alike. So stay tuned. You won’t find this in-depth analysis of trade or the factor that actually drives it anywhere else.