U.S. Trade Deficit with Ireland Soars to Another Record in 2011

March 8, 2012

In 2011, the U.S. trade deficit with Ireland soared to $31.6 billion, blowing away last year’s record of $26.6 billion.  The trade deficit with Ireland has grown by 277% since 2001.  Here’s a chart of that growth:

Ireland Trade

By comparison, our trade deficit with Ireland is small potatoes compared to China – about one tenth as large.  However, China is a vastly larger country.  Expressed in per capita terms, our trade deficit with Ireland, at $6,695 per person, the highest in the world, is 30 times worse than our per capita trade deficit with China. 

The point here is not that we need to do something about Ireland, any more than we need to do something about China or any other one nation.  The point is that, although China draws all the fire for our trade deficit and loss of manufacturing jobs, our trade results with China are really no different than our trade results with other densely populated nations – Ireland included.  In nearly every case, our trade deficit with densely populated nations worsened in 2011.  The problem isn’t China, or their low wages or currency manipulation or unfair trade practices.  The problem is U.S. trade policy that attempts to apply free trade in situations where it simply isn’t applicable – where it has absolutely no chance of doing anything other than draining our economy of its jobs and wealth.


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.


Trade Policy with Ireland a Failure on Two Levels

June 2, 2011

http://blogs.reuters.com/great-debate-uk/2011/06/01/is-ireland-the-same-as-greece/

The above linked op-ed piece from Reuters notes that Ireland is on the dole from the IMF and asks whether Ireland will be the next Greece. 

Coincidentally, I’ve been in the process of updating my trade data for 2010, going through the nations alphabetically, and just finished Ireland.  If you’ve read Five Short Blasts or if you’ve followed this blog, then you’re among the few people who understand that our trade deficit in manufactured goods with Ireland, when expressed in per capita terms, is the largest by far – more than 25 times worse than our deficit with China.  What I’ve been finding as I’ve updated my data is that trade in general rebounded a bit in 2010, following a big recession-driven plunge in 2009.  Deficits tended to grow once again while surpluses – primarily with nations less densely populated than the U.S. – also grew.  So I was curious to see what happened with Ireland.  Here’s the chart, updated with 2010 data:

Ireland Trade

Our trade deficit in manufactured goods with Ireland exploded to a new record of  $24.6 billion, shattering the old record of $20.8 billion set in 2008, driven by imports of pharmaceuticals of $22.7 billion.  In per capita terms, that’s $5,930 per Irish citizen, almost 27 times worse than our trade deficit with China.  It accounts for 16% of Ireland’s per capita income. 

By the way, going off an a tangent for a moment, remember when there was a lot of pressure to allow the importation of drugs from Canada as a remedy for high drug costs?  Remember the response?  “We can’t assure the safety of our drugs if we import them from Canada!”  Oh, really?  I wonder how many people realized that most of our drugs are imported anyway, not from Canada but from Ireland?  And, even if we imported them from Canada, most of those drugs would still come from Ireland anyway, imported from Ireland into Canada and then re-exported to the U.S., where they’d have otherwise gone in the first place. 

But let’s get back on topic.  Ireland is a nation almost twice as densely populated as the U.S.  As such, it would qualify for the lowest level of import tariffs under the population density-indexed tariff plan that I proposed in Five Short Blasts, a tariff of 5%.  That alone would generate $1.25 billion in new federal revenue.  Enough to motivate our drug companies to shift their production back to the U.S.?  Probably not. 

So, while our trade policy is a failure because it doesn’t account for the disparity in population density, there’s something else at work here too.  Even I’d be the first to admit that the disparity in population density, relatively small in comparison to other nations like Japan, Germany and China, doesn’t explain our deficit with Ireland.  The bigger factor is the free tax ride Ireland gives to foreign investment, especially the drug companies.  Ireland is subsidizing its pharmaceutical industry – providing them an unfair trade advantage. 

And now we see that they’re paying the price.  Ireland’s broke and is being subsidized by the IMF – in other words, by the American taxpayer.  So, in addition to our foolish trade policy shipping away our pharmaceutical industry, its jobs, and a not-insignificant chunk of our domestic economy, we further erode our own economy by adding to our own debt with the funding of the IMF. 

Free traders would say that we need to compete better with Ireland.  But how?  Give the pharmaceutical industry a tax break?  They already get that from Ireland!  So that’s no incentive.  And what exactly has the tax break gotten for Ireland except a big deficit and bankruptcy?  No, the real answer is to impose tariffs on Irish imports – not just the 5% tariff called for by the disparity in population density but an additional tariff to compensate for the unfair tax advantage offered by Ireland, perhaps raising the total tariff to 20% or more, boosting our increase in revenue to $5 billion. 

Free traders would howl, “but this will ignite a trade war with Ireland and we’ll lose out on all the exports to that country!”  Maybe.  But even if trade with Ireland came to a screeching halt, the loss of our $6 billion in exports to Ireland would be offset by the elimination of $31 billion in imports.  We’d be five times better off! 

Our trade policy is an abysmal failure and there may be no better example than Ireland.  It’s resulted in the loss of a big part of our pharmaceutical industry, the loss of many thousands of high-paying jobs, has left Ireland in no better fiscal position and now requires more from our taxpayers to fund the IMF to support Ireland’s policy of subsidizing foreign investors.  Does any of this make any sense whatsoever? 

 


U.S. Trade with Ireland: 25 Times Worse Than China

March 19, 2009

Now that we’ve finished examing trade in manufactured goods between the U.S. and our largest trading partners, I was curious to see what has happened to trade with Ireland since publishing my book in 2007.  If you’ve read Five Short Blasts, then you know that, in 2006, our per capita trade deficit in manufactured goods with Ireland was by far the worst in the world, 25 times as bad as our per capita deficit in manufactured goods with China.  Recently, I’ve watched news stories of the demise of the “Celtic Tiger.”  If you can believe what you hear, the boom has gone bust in Ireland. 

But there’s certainly no indication of that in our balance of trade.  Here’s a graph depicting that balance, broken into several major categories:

trade-with-ireland

As you can see, our deficit in manufactured goods with Ireland has only grown worse, soaring from $17.9 billion in 2006 to $20.8 billion in 2008.  This translates into a per capita trade deficit in manufactured goods of $5,010 per person in Ireland, boosting their already very high per capita purchasing power parity to $47,800, about the same as Americans.  In spite of the fact that the per capita trade deficit in manufactured goods with China has soared to $206 per person, the growth in the deficit with Ireland has kept pace and remains nearly 25 times worse. 

Because Ireland is almost twice as densely populated as the U.S., my theory correctly predicts that the U.S. would have a trade deficit with Ireland in manufactured goods, but nothing on the order of what we actually have.  Interestingly, nearly all of this deficit is due to imports of pharmaceuticals.  It seems that Ireland is America’s drug manufacturer of choice.  Why?  I can’t say for sure but suspect a combination of factors:  a well-educated work force, a strategic location in the middle of the air and sea routes between North America and Europe, a mild climate and, just perhaps, Ireland’s expertise in brewing beer and distilling whiskey.  After all, the fermentation process used to make some drugs isn’t terribly different than that used in brewing.  In addition, if you were an executive with a drug company and had to travel to some foreign land to check up on your drug factory, what better place to visit than Ireland?  What I can’t figure, though, is what benefit American drug companies derive from manufacturing in Ireland.  Obviously, wages there aren’t much lower than in America.  If anyone can shed light on this, I’d love to hear from you. 

Ireland is a good example of why blaming our trade deficit on Chinese trade tactics is misguided.  When China’s relative size is factored into the equation by translating the trade deficit into per capita terms, it becomes clear that the deficit with China is no worse than our deficit with other densely populated nations, of which Ireland is the most egregious example.  The population density-indexed tariff structure I proposed in Five Short Blasts would impose a rather small tariff of about 5% on Irish imports.  That might be all the motivation needed for American drug makers to repatriate their manufacturing operations, especially as profit margins for drugs are trimmed, making a big difference in our balance of trade with Ireland.