Auto Tariffs on the Table

November 14, 2018

https://www.reuters.com/article/us-usa-trade-autos/white-house-to-consider-commerce-department-auto-tariff-recommendations-officials-idUSKCN1NH2JP

There’s a lot in the above-linked article, reporting on the Trump administration’s consideration of tariffs on imported autos, that I can’t let pass without comment.  In short, the Commerce Department has submitted recommendations to the White House on whether and how to proceed with tariffs on imported autos and parts, based on its determination of whether auto imports pose a national security risk, something allowed under “Section 232” of the World Trade Organization rules.  The administration may hold off on implementation of tariffs, pending progress in talks with Europe and Japan aimed at restoring a balance of trade in autos and parts.

You may ask how auto imports pose a “national security risk.”  Good question.  I don’t know the administration’s rationale for it.  Imported cars themselves are surely not a risk.  It’s not as thought Toyota and VW and Honda and Mercedes and Hyundai and BMW have secretly planted bombs inside the cars.  The cars aren’t a risk.  However, what is definitely a national security risk is the enormous trade deficit in autos and parts.  There is no greater threat to the long-term viability of our economy than a big, sustained trade deficit that drives our budget deficit and national debt ever further out of control.  And we’ve now run a huge trade deficit for forty-three consecutive years.

The only mystery here is why the administration hasn’t acted already.  It’s becoming clear that the remaining globalists in Trump’s cabinet, like Larry Kudlow, Director of Trump’s Economic Council, and John Kelly, Trump’s Chief of Staff, have the upper hand over trade hawks like Trump’s trade advisor, Peter Navarro.  As a result, Trump is being sucked into the kind of endless “trade negotiations” that have paralyzed U.S. trade policy for decades.

But having the Commerce report ready for action would underscore a consistent threat from President Donald Trump – that he would impose tariffs on autos and auto parts unless the EU and Japan make trade concessions including lowering the EU’s 10 percent tariff on imported vehicles and cutting non-tariff barriers.

… Last month, the administration said it would open formal trade talks with the EU and Japan in early 2019 after the 90-day required congressional notification period ends.

Such talks are a complete waste of time.  Lowering barriers in the EU and Japan will make absolutely no difference in the trade deficit.  Europeans and Japanese don’t buy imported American cars because their countries are so crowded that their per capita consumption of vehicles is a fraction of that of Americans.  They don’t buy them because there’s no place to park cars and their roads are so crowded that they can’t make practical use of cars.  The only way to achieve a balance of trade in autos and parts is to keep their imports out.  Tariffs are the most effective method of doing that.

Of course, stories such as this are never complete until the free trade advocates have their chance to scare you with dire predictions.

The Alliance of Automobile Manufacturers, whose members include General Motors Co (GM.N), Volkswagen AG (VOWG_p.DE) and Toyota Motor Corp (7203.T), warned the price of an imported car would increase nearly $6,000, while the price of a U.S.-built car would increase by $2,000.

A study released by a U.S. auto dealer group warned the tariffs could cut U.S. auto sales by 2 million vehicles annually and cost more than 117,000 auto dealer jobs, or about 10 percent of the workforce.

If the price of imports goes up by $6,000 while the price of domestically-manufactured cars goes up by only $2,000, which are you more likely to buy?  The answer is obvious, but the above-mentioned groups only want you to focus on the fact that the cost of all autos will increase.  They want you to think that you won’t be able to afford a car any more.  They hope that you’re too dumb to realize that shifting manufacturing back to the U.S. will create hundreds of thousands of new jobs and will drive a demand for labor that will also drive wages higher – more than enough to offset any price increase.  U.S. auto sales won’t fall by 2 million vehicles annually.  They’ll actually increase as rising wages make cars more affordable.  And regarding the loss of auto dealer jobs (117,000 estimated in the article), you can bet that dealer jobs will be lost at the imports’ dealers if the foreign companies aren’t smart enough to begin building their cars in the U.S., but those folks will quickly find new work at GM, Ford and Chrysler.

Trump is wasting precious time by dithering with these worthless “trade negotiations.”  He needs to implement tariffs now and make them big enough – at least 25% – to have the desired effect, which is driving manufacturing back to the U.S.  Before the next elections in two years, Americans need to see tangible results in the form of a falling trade deficit and rising wages, or the globalists will surely regain the upper hand.

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Low Wages Don’t Cause Trade Deficits!

July 31, 2018

Now that we’ve established (in previous recent posts) that it’s disparities in population density between the U.S. and its trading partners that causes our enormous trade deficit, let’s take a closer look at what role low wages might play.  Judging by the data we saw in the lists of America’s best and worst trade partners, there appeared to be little difference in the “purchasing power parity,”  or “PPP,” between the lists, suggesting that low wages (which track PPP) play no role.

Let’s begin by looking at America’s balance of trade with the twenty poorest nations in the world.  Here’s the list:  20 Poorest Nations.  First of all, you’ll notice that this list is dominated by poor African nations, with a few others like North Korea and Afghanistan thrown in.  The U.S. actually has a small trade surplus of just over a million dollars (an almost perfect balance of trade) with this group.  If low wages cause trade deficits, why doesn’t the U.S. have a huge trade deficit with this group of nations?  In the interest of fairness, I should point out that all foreign aid is booked as exports from the U.S., and the nations on this list are nearly all heavy recipients of U.S. foreign aid.

Let’s move on.  At the other end of the scale we have the twenty richest nations.  Since U.S. PPP is about $50,000, the U.S. would fall somewhere in the middle of this list.  So wages shouldn’t be much of a factor with this group.  Look at the list:  20 Richest Nations.  As you can see, we have a small trade deficit of $9 billion with this group of nations – virtually insignificant when compared to our total trade deficit in manufactured goods of $724 billion.

What we need to do is divide all of the world’s nations in half according to PPP and compare our balance of trade with the poorest half of nations to the richest half.  If we do that, the results are pretty startling.  With the poorest half of nations, the U.S. has a trade deficit in manufactured goods of $60.7 billion.  But with the richest half of nations, the deficit explodes to $663.5 billion!

How can we explain that?  First of all, to be honest, even the richest half of nations is made up almost entirely of nations that are poorer than the U.S.  Only about a dozen nations are richer than the U.S.  So one could argue that the low wage theory still holds.  Not true.  If it did, then it should be the poorest half of nations that we have the biggest trade deficit with, not the opposite.

The real explanation is that there is a relationship between trade and wages, but the cause and effect are quite the opposite of the “low wage theory.”  Low wages don’t cause trade deficits.  Instead, large trade surpluses like China, Germany and Japan have with the U.S., cause higher wages.  Manufacturing for export sops up excess labor supply and drives wages higher.

When the U.S. trades with poor but sparsely populated nations, they become wealthier but soon run out of labor.  Their now-wealthier populace becomes good customers for American products and trade levels off in a state of balance, more or less.

But when the U.S. trades with poor, badly overpopulated nations, wages rise but their overcrowded conditions leave them unable to consume products at anywhere near the rate needed to become customers for imported products.  Their oversupply of labor persists and a trade deficit with such a nation grows steadily worse.

America’s trade imbalance can never be resolved as long as it pursues policies that don’t target the real problem – disparities in population density.


America’s Best Trading Partners in 2017

June 22, 2018

In my last post, we looked at a list of America’s biggest trade surpluses in 2017 and found the list populated primarily with two groups of nations – primarily those with low population densities and those who are net oil exporters.  It also included nations both large and small.  What we’re studying here is the effect of population density on per capita consumption and its effect on trade.  Does a low population density facilitate high per capita consumption (and a high standard of living), making the people who live in less densely populated conditions better trading partners?  The only way to know is to factor the sheer size of nations out of the equation and look at our trade surpluses expressed in per capita terms.  On that basis, here is a list of the top twenty nations whose people import the most American-manufactured products:  Top 20 Per Capita Surpluses, 2017.

Again, the list is dominated by two groups of countries – those with low population densities and net oil exporters.  Twelve of the twenty nations have population densities less than that of the U.S.  Eight are net oil exporters.  (Canada and Norway share both characteristics.)  That leaves only two nations with high population densities – the Netherlands and Belgium.  As I noted in my previous post, both of those tiny nations share the only deep water sea port on the Atlantic coast of Europe, which they use to their advantage as a distribution hub for American imports.

The average population density of these twenty nations is 210 people per square mile (compared to 551 for the nations with whom we have the worst per capita trade deficits).  The population density of these twenty nations taken as a whole – the total population divided by the total land mass – is only 21 people per square mile.  (The average was skewed by tiny oil exporters with high population densities.)  Compare that to 375 people per square mile for our worst trade partners.

Note too that the average purchasing power parity (PPP, roughly analogous to wages) of the nations on the list of our best trade partners is $46,000 – which is actually slightly less than the PPP of our worst trading partners at $50,700 per person.  Clearly, low wages play absolutely no role in driving trade imbalances.  That’s not to say that low wages don’t attract business to locate in such nations.  But when they do, wages quickly rise where there is a low population density and any trade imbalance soon vanishes.  But where there is a high population density, labor is in such gross over-supply that wages rise little and a trade deficit persists.  It’s the high population density that causes a long-term trade deficit, not the low wages.

Now that we’ve examined the two ends of the spectrum of trade imbalances – our twenty worst per capita trade deficits in manufactured goods vs. our twenty best surpluses – we’ve found a very compelling relationship between trade imbalance and population density.  Next we’ll look at all 165 nations included in my study and see if the relationship still holds.


America’s Worst Trading Partners

May 17, 2018

Earlier this month, I posted a list of America’s twenty biggest trade deficits in manufactured goods in 2017, and noted that the list was dominated by nations with very dense populations.  But it also included some very large nations, like China, and some very small ones as well.  It’s only natural that any trade imbalance will be exaggerated by the sheer size of a country.  In order to determine which countries are our best and worst trading partners, it’s only fair to express the trade imbalance in per capita terms.  Which countries, on a man-for-man basis, are the worst and best trading partners for the U.S.?  Will these lists also be affected by population density?

In this post, we’ll take a look at the twenty worst trade partners in manufactured goods for 2017.  Why the emphasis on manufactured goods?  Because that’s where the jobs are, and trade in natural resources (food, oil, minerals, lumber products, etc.) has more to do with nations’ geography than anything else.  With that said, here’s the list:  Top 20 Per Capita Deficits, 2017.

With only two exceptions – Finland and Sweden, every other nation on this list is more densely populated than the U.S.  With one exception – Mexico – the remaining eighteen nations are at least twice as densely populated.  Of the remaining seventeen nations, all but Ireland are at least three times as densely populated.  The average population density on this list is 551 people/square mile – more than five times the U.S. population density.

In most cases, our trade deficits with these nations are rapidly getting worse, nearly doubling in ten years.  It’s also very important to note that the average “purchasing power parity” (or “PPP”), a measure of wealth that’s roughly analogous to wages, is $50,700, compare to the U.S. PPP of $59,000.  In other words, for the most part, these are not poor nations with low wages.  In fact, our two worst per capita deficits are with wealthier nations – Ireland and Switzerland.

Speaking of Ireland, with one of the lower population densities on the list, there’s clearly more at play here than population density.  Ireland is essentially a tax haven for companies – creating an unfair trade situation.

Note that China barely makes this list, ranked at 19th.  Our deficit with China is so huge because it holds one fifth of the entire world’s population.  But it’s a big country and so, in terms of the average population density on this list, its population density is fairly unremarkable.  The density of many others who rank higher on the list is much worse.

The fastest growing deficit is with Finland, the least densely populated nation on the list.  It’s an anomaly I can’t explain, except to note that the import of cars from Finland – a nation where there is little to no auto production – has exploded in the past ten years, while the export of American cars to Finland – once robust – has completely collapsed.  Can it be that Germany is funneling exports through Finland’s seaports?  I don’t know.  It’s worth noting that Germany has actually dropped one position on this list in the past year.

The next fastest growing deficit is with Vietnam, a nation more than eight times as densely populated as the U.S., but also the poorest nation on this list.  It’s possible that low wages are playing a role there.  Low wages do play a role in attracting manufacturing but, as wages rise, the trade imbalance levels off and then disappears in nations with low population densities, as they quickly exhaust their labor supply.  But that doesn’t happen with nations that are very densely populated.  China is a good example.  In spite of its wages rising dramatically, our trade deficit with them has only worsened.

Trinidad and Tobago is another anomaly on this list.  It reappeared on this list after a couple of years of not making the list, in spite of the fact that our deficit with them has declined by 81% over the past ten years.  That’s because in spite of the fact that our deficit with them spiked in 2017, putting them back on the list, it’s still far lower than it was ten years ago.

The take-away from this list is that population density is clearly a factor, while low wages aren’t.  Low per capita consumption, fostered by an extreme population density, turns a nation into one that comes to the trade table with a bloated labor force desperate for work, and with nothing but a stunted market to offer in return.  Trade policy that fails to account for this effect by using tariffs to maintain a balance of trade is doomed to failure and virtually guarantees massive job-killing trade deficits.

Next we’ll look at the other end of the spectrum – our twenty biggest per capita trade surpluses.


Analysis of Trade with Red China

April 2, 2018

I’ve just finished my annual analysis of U.S. trade with virtually every country and have begun compiling the results.  It’s no small task, tallying the results for hundreds of end-use codes for approximately  160 countries.  But before I present those results for the world as a whole, I want to highlight the results of a few key trade partners.  Our biggest deficit is with Red China, so let’s begin there first.

After improving slightly in 2016, our trade deficit in manufactured goods with Red China worsened again to a new record – a deficit of $405 billion.  Here’s the chart of trade with Red China, dating back to 2001:  China balance of trade.  Imports from Red China totaled $505.6 billion, almost all of which – $493.4 billion – was manufactured products.  These imports were offset slightly by U.S. exports to Red China totaling $130.4 billion, of which $88.2 billion was manufactured products.

Here’s a list of the top ten imports from Red China (using the Census Bureau’s 5-digit end-use code descriptions):

  1. Other household goods:  $70.4 billion
  2. Computers:  $45.5 billion
  3. Telecommunications equipment:  $33.5 billion
  4. Computer accessories, peripherals and parts:  $31.6 billion
  5. Toys, shooting and sporting goods, and bicycles:  $26.8 billion
  6. Apparel and household goods – other textiles:  $24.2 billion
  7. Furniture, household items, baskets:  $20.7 billion
  8. Auto parts and accessories:  $14.4 billion
  9. Household and kitchen appliances:  $14.1 billion
  10. Electric apparatus and parts:  $14.1 billion

That’s just the top ten.  Imports from Red China actually comprise 141 different 5-digit end-use codes.

And here are America’s top ten exports to Red China:

  1. Civilian aircraft, engines, equipment, and parts:  $16.3 billion
  2. Soybeans:  $12.4 billion
  3. Passenger cars, new and used:  $10.5 billion
  4. Semiconductors:  $6.1 billion
  5. Industrial machines, other:  $5.4 billion
  6. Crude oil:  $4.4 billion
  7. Plastic materials:  $4.0 billion
  8. Medicinal equipment:  $3.5 billion
  9. Pulpwood and woodpulp:  $3.4 billion
  10. Logs & lumber:  $3.2 billion

The trade deficit in manufactured products with Red China represents a staggering loss to the manufacturing sector of our economy – a loss of approximately eight million manufacturing jobs.  Why is this happening?  Why is a huge nation like Red China – a nation with four times as many people as the U.S. – unable to import from the U.S. as much as we import from them?

Some say that such trade deficits are caused by low wages – that manufacturers move their plants to low wage countries.  Take a look at this chart:  China PPP vs deficit.  This is a chart of Red China’s PPP (purchasing power parity – roughly analogous to wages) vs. the U.S. trade deficit with Red China.  If there is any merit to this claim – that low wages cause trade deficits – then the trade deficit should moderate as wages in Red China rise.  That’s not what we see happening.  Though wages in Red China are more than six times what they were in 2001, instead of shrinking, our trade deficit with them is now almost five times worse.  Clearly, the low wage theory holds no water.

Others say the trade deficit with Red China is due to currency manipulation by Red China, keeping its value low so that its people can’t afford to buy imports, forcing them to buy domestically-made goods.  OK, so let’s take a look at the trade deficit vs. the value of the Chinese yuan against the U.S. dollar:  China Xch rate vs deficit.  The value of the yuan has weakened by 11% in the past two years, and our trade deficit got worse by 5%.  But taking a longer look, since 2001 the yuan has appreciated in value vs. the dollar by 18% but, instead of the trade deficit improving in response, it’s now almost five times worse.  The currency manipulation theory isn’t supported by the data.

Undoubtedly, the trade barriers that China maintains on American imports – barriers that are fully sanctioned by the World Trade Organization – have had some effect.  But as we’ll see when we look at trade with the rest of the world, the effect is pretty minimal and, when plotted on a chart of trade imbalance vs. population density, China falls right along the curve.

The real reason for the huge and worsening trade deficit with Red China is the fact that their severe over-crowding has rendered them incapable of consuming goods at anywhere near the rate of Americans.  It’s the inverse relationship between population density and per capita consumption that I wrote about in Five Short Blasts.  While Americans, on average, live in decent-sized single family homes with yards and drive to work, the Chinese live in tiny apartments and use mass transit or bicycles to commute.  There’s little room for furniture and appliances, no use for lawn and gardening equipment, no garages to park their cars and the roads are too crowded for driving them anyway.

There is no free trade path to restoring a balance of trade in these circumstances.  The only remedy is the use of tariffs to incentivize manufacturers to remain in the U.S. and provide American consumers with domestically-manufactured choices.

 


How’s Trump Doing?

October 3, 2017

With some slack time on a rainy day in the north woods, I thought I’d take a few moments to share some thoughts about Trump and his policies to date, as they relate to the economic problems wrought by worsening overpopulation: falling per capita consumption and the inevitable trade deficits caused by attempting to trade freely with badly overpopulated nations. So here goes:

Immigration:
Still no border wall. Other than that, I’ve been quite pleased with his other actions – the travel ban, the dramatic slowdown in visa processing, going after sanctuary cities, deporting illegal aliens, and so on. I also applaud him for his stance on the “dreamers,” those brought here as young children by their illegal alien parents. It may surprise you to learn that I’m actually in favor of allowing them to stay, even providing them a path to full citizenship. By all accounts, we’re talking about 800,000 people here. But it needs to be a one-time program. And it needs to be part of a bigger immigration reform that includes dramatic cuts in legal immigration – at least 50% (including student visas), and an end to the pyramid scheme of “family preferences” that, within a few generations, would make virtually every person on earth a candidate to become a permanent legal resident in the U.S. Trump is right to kick this issue back to congress and to demand action, but I don’t understand why he’s “selling it” so cheap. By demanding the above reforms, he could put an end to our out-of-control immigration. No senator or congressman would dare vote against it because all anyone would ever remember is that they voted against the “dreamer act” and in favor of deporting the dreamers.

Trade:
Here I have to say that I’m “hugely” disappointed in Trump’s failure to deliver on his promise to raise tariffs and/or border taxes in order to rebalance trade. But perhaps I’m impatient for action on this issue. His administration has taken some tough stances and is in the process of renegotiating NAFTA while also trying to reform the World Trade Organization. Last week it was revealed that the U.S. has been quietly blocking the filling of vacancies on the panel of appeals judges at the WTO and is now trying to assume a veto power if judges aren’t available. Reportedly, Trump told John Kelly, his new chief-of-staff, that he wants someone to bring him some tariffs. And most recently, when Boeing complained of Bombardier “dumping” planes on the U.S. market, the Trump administration promptly levied a 216% tariff on Bombardier planes. So there’s still reason for optimism.

Tax Reform:
Though this is the issue that excites the business community, the media and maybe even average Americans the most, for me it’s a non-issue unless a border tax is included as part of the reform. Dramatic cuts to corporate taxes, combined with some minimal cuts for average taxpayers, will blow a huge hole in the budget, just like it did when Reagan did the same thing back in the ‘80s. Sure, it’ll stimulate economic growth just a little, but no more than the amount of tax reductions that are plowed back into the economy. To expect a trillion dollar tax cut to generate economic growth of $4 trillion (the amount of growth it’d take to make it revenue-neutral) is a hocus-pocus fairy tale. And cutting corporate taxes that much will simply leave corporations with more money to invest in more job-killing manufacturing overseas. But all of that would change if a border tax were part of the package. Then it would truly be revenue-neutral and would fuel an explosion in economic growth. Trump is missing a huge opportunity by not insisting that a border tax be part of the package.

Paris Climate Accord:
Trump was 100% right to pull out of this agreement. Ask anyone and everyone the purpose of that agreement and every single person will tell you that its goal is to stop climate change. And every one of them would be wrong, because they haven’t read the stated mission of the accord, which is to merely slow climate change to a pace that would allow “sustainable development” to continue and, by the way, would essentially “tax” Americans to help fund that development in the rest of the world. “Sustainable development” is the very reason the world now finds itself in this global warming fix – because what world leaders thought was “sustainable” has proven not to be. So if global warming is slowed so that “sustainable development” can continue unabated, then every other problem associated with our exploding population – environmental and otherwise – will worsen, including mass extinction as habitat loss accelerates, more landfills, more trash in the ocean, more underground disposal of various hazardous wastes (including nuclear), and now a new one – the underground disposal of CO2 removed from exhaust streams. Where does it end? It needs to end now, and just maybe mother nature is doing us a favor by using climate change to wake us up. With all of that said, it disturbs me to hear that Trump may consider re-entering a renegotiated climate accord.

Repeal and replace “Obamacare”:
For me, this is another non-issue. The unaffordability of health care is a symptom of a deeper underlying problem, namely that every year the U.S. economy is drained of about $800 billion through the trade deficit, making everyone poorer and more dependent on deficit spending by the federal government to maintain an illusion of prosperity. Fix the trade deficit and the whole health care issue will go away.

So that’s it. Although I never really liked Donald Trump very much, and cringe at a lot of his “tweets” and some of the things he says, overall I’ve been pretty pleased with where the country is headed under his direction. But the trade/tariff/border tax issue is critical. If we don’t see action on reducing the trade deficit in manufactured goods, I fear that all will be lost. Like you told John Kelly, Mr. Trump, “we want tariffs and we want them now!”


America’s Best Trading Partners in 2016

July 12, 2017

In my previous post we found that the list of America’s worst trade partners in 2016 – those with whom the U.S. has the biggest trade deficit in manufactured goods – in terms of both total dollars and in per capita terms – was dominated by nations whose population densities were far above the world median.  Only two of the twenty worst nations had population densities below the world median.

So what about the other end of the spectrum – the nations with whom the U.S. enjoyed trade surpluses in manufactured goods in 2016?  If there is a relationship between population density and trade imbalance, we should see the opposite effect – that the list is dominated by nations with low population densities.  Here’s the list of America’s twenty biggest trade surpluses in manufactured goods in 2016:  Top 20 Surpluses, 2016

It isn’t as clear as you might expect, and here’s why.  The fact that all oil around the globe is priced in U.S. dollars makes oil exporters float to the top of the list, regardless of population density.  Those nations with whom the U.S. has a trade deficit in oil are high-lighted in yellow.  Of these twenty nations, eleven were net exporters of oil to the U.S.  Why does this matter?  Because American dollars, aside from being legal tender for purchasing oil anywhere in the world, can only be used as legal tender in the U.S.  That means that all those “petro-dollars” have to be used to buy something from the U.S. – primarily two things:  U.S. government bonds and products made in the U.S.  While eleven net oil exporters appear on this list, only one appeared on the list of our top twenty worst trade deficits – Mexico.

Still, the population density effect is in play, even among these net oil exporters.  Believe it or not, Canada (not Saudi Arabia or some other Middle Eastern country) is our biggest source of imported oil.  With Canada, our trade surplus in manufactured goods is bigger than our deficit in oil by about $6 billion per year.  With Saudia Arabia, trade in oil and manufactured goods was almost perfectly balanced.  The same with New Zealand.  With Norway, our surplus in manufactured goods exceeded the deficit in oil by over $3 billion.

In addition, there are two very densely populated nations that appear on this list who are not oil exporters – the Netherlands and Belgium.  There’s a reason for this also.  Both are tiny European nations who happen to share the only deep water port on the Atlantic coast of Europe.  They use this to their advantage, buying American exports and then re-selling them to the rest of Europe.  Taken as a whole, the trade deficit with the European Union in 2016 was $138 billion, which would rank it 2nd on the list of our worst trade deficits, just after China.  The population density of the EU is 310 people per square mile – a little less than China.  And, in per capita terms, our trade deficit in manufactured goods with the EU was $274, a little worse than China.

Now let’s look at a list of our top twenty trade surpluses in per capita terms in 2016:  Top 20 Per Capita Surpluses, 2016.  This results in some small nations floating up onto the list:  Brunei (an oil exporter), Iceland, Belize, Guyana (an oil exporter), the Falkland Islands, Suriname, Oman and Equatorial Guinea (the latter two also being net oil exporters).  But in terms of population density, both lists are pretty similar.  The average population density of the nations on both lists are 213 people per square mile and 197, respectively.  Compare that to the lists of nations with whom we have the largest trade deficits where the population densities were 729 (our largest deficits in dollar terms) and 522 (our largest deficits in per capita terms).  But let’s look at those lists another way.  Let’s calculate the overall population density (the total population divided by the total land area) for the nations with whom we had the twenty largest per capita trade deficits vs. the nations with whom we had the twenty largest per capita surpluses.  Those figures are 372 people per square mile vs. 20 people per square mile.

Oh, and by the way, look at the purchasing power parity of both lists.  They’re remarkably the same.  Clearly, wealth (or wages) play no role in determining the balance of trade whatsoever.

The data couldn’t be more clear.  While other factors may come into play in trade, their effects are dwarfed by the role of population density in determining the balance of trade.  Free trade with densely populated nations is almost assured to yield terrible results for the U.S. – a huge trade deficit in manufactured goods, the loss of manufacturing jobs, and the ruination of the manufacturing sector of our economy.  Because of the role of over-crowding in eroding per capita consumption, those nations consume little but are very bit as productive.  So they come to the trade table with a bloated labor force hungry for work, and a wilted market, unable to consume our exports in equal measure.  Free trade with more sparsely populated nations, on the other hand, is likely to yield the opposite result.  Any trade policy that doesn’t use tariffs to maintain a balance of trade with densely populated nations is doomed to failure, as decades of America’s free trade policy has proven.

We’ll look at even more data from 2016 in upcoming posts.  Stay tuned.