America’s Best Trade Partners

April 30, 2021

What’s it take to make the list of America’s 20 best trade partners? “Man-for-man,” (in other words, on a “per capita” basis) buy more from America than you sell to it. That’s it.

In my previous posts, we looked at our biggest trade deficits and biggest trade surpluses in 2020 and found that the population density of our trading partner was, by far, the biggest factor in determining whether our balance of trade would be a surplus or a deficit. On the surplus side, whether or not a country was a net oil exporter was also a factor, since all oil throughout the world is priced in U.S. dollars.

In my last post on the subject, we found that our biggest trade surpluses were with either sparsely populated countries or net oil exporters. But the list included both very large and very tiny countries. So let’s factor size out of the equation and see if population density is still a factor. Let’s look at the list of our biggest per capita trade surpluses in 2020. Here’s the list: America’s best trade partners in 2020.

The population density effect isn’t as clear on this list until you look at the population density of this group of nations as a whole – 22.5 people per square mile. Compare that to the density of the group of nations on the list of our twenty worst trade deficits – 360 people per square mile. Of the twenty nations on this list, thirteen are tiny nations, most of which are oil exporters. Two nations dominate this list – Canada and Australia – huge nations, comparable in size to the United States, with population densities of eleven and nine people per square mile respectively (compared to 93 people per square mile in the U.S.). Together, they account for 31% of our total trade surplus with the nations on this list.

This is a sad list. First of all, it doesn’t take much to make this list. If I were a country and I bought one recliner chair from the U.S., I’d be right at the top of the list. Secondly, our trade surpluses with the nations on this list has fallen by almost 9% over the past ten years. With the two dominant nations on the list – Canada and Australia – our surplus has declined by 33% and 34% respectively. Compare that to the 147% increase in our deficit with the nations on the list of our top 20 worst deficits. Also, consider that Djibouti made it onto this list of our top twenty surpluses solely on the basis of U.S. foreign aid to Djibouti. They didn’t even buy stuff from us. We gave it to them.

The fact is that American manufacturing is dying. 2020 marked the 45th consecutive year of ever-increasing trade deficits. We make less and less with each passing year, are forced to buy more from foreign countries, selling them less, and we export our high-paying jobs to them, all because we’re too stupid to factor the role of population density into our trade policy and apply tariffs to the most densely populated. In his first 100 days in office, President Biden, while proclaiming his desire to help American manufacturing, hasn’t levied a single tariff. He hasn’t lifted a finger to do anything meaningful to help American manufacturing workers.

So now we’ve looked at the two extremes of the trade spectrum – our twenty worst trade deficits and our twenty best trade surpluses. But that’s only 40 nations out of the more than 200 hundred around the world. Will the population density factor still be evident in 2020 when we look at trade with the entire world? We’ll see in one of my next posts.


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.


America’s Worst Trade Deficits in 2020

March 29, 2021

Many people – perhaps most – have little understanding of the economic impact of the balance of foreign trade. The best way I can explain it is to use your own checking account as an example. If more money is drawn out of your account than the income that goes into it, then you’re steadily getting poorer and, if kept up long enough, you’ll eventually be broke. Until you reach that point, you create an illusion of prosperity by buying more than you can afford, but it’s just that – an illusion. Your day of reckoning – of financial ruin – is fast approaching.

The United States, just like every other nation, has a national account that’s very much like your checking account. Influxes of money, like income taxes, other federal taxes, tariffs on imports and the money collected from foreign entities for exported goods make us richer. Conversely, outflows are bad – like money spent by the federal government (for defense, domestic programs, etc.) and money spent on importing goods. Those make us poorer.

Therefore, our balance of trade with the rest of the world makes us either richer or poorer, depending on whether it’s a surplus or a deficit. And we’re not just talking about red numbers on some obscure balance sheet deep within the Department of Treasury. A trade deficit hits you directly in the wallet. For every $50,000 increase in the trade deficit, another American’s job is lost. If it wasn’t your job, you’re still hit in the wallet when an ever-growing number of unemployed compete for your job and put downward pressure on your wages. Do the math. Since our last balance of trade in 1975, the deficit in manufactured goods has grown by $1 trillion. Divided by $50,000, that’s a loss of 20 million high-paying manufacturing jobs. The downward pressure on wages has been enormous.

With all that said, let’s take a look at how we did in 2020. Each year I think to myself that America’s trade picture couldn’t get worse, but each year it does. The year 2020 was no different. If anything, our downward spiral accelerated. Our deficit in manufactured goods came in at $911 billion, blowing past the “old” record of $831 billion set only one year earler. Which countries were our worst trading partners? Here’s the list: America’s 20 worst trade deficits in 2020.

First of all, look at the total deficit for these twenty countries. It was $1.001 trillion. That’s more than America’s trade deficit with the entire world. In fact, our entire trade deficit is due to our deficit with only the top twelve nations on this list. Think about that. Take away those twelve nations, and the U.S. enjoys a balance of trade with the other 216 nations of the world.

Now look more closely at the list. It’s no surprise to see China at the top. They’ve been there for at least the last fifteen years. What is a surprise is that the deficit with China fell precipitously in 2020, from a record high of $416 billion in 2018. Why? Because of the 25% tariffs that the Trump administration imposed on half of all Chinese imports. It’s proof that tariffs work.

Unfortunately, those tariffs on Chinese imports also explain, at least in part, the explosive growth in the deficit with other nations, most notably Vietnam. Companies scrambled to move their manufacturing operations out of China to avoid the tariffs. Trump should have applied the tariffs to these other countries as well, leaving companies no alternative but to bring their manufacturing back to America.

Note that most of the nations on this list are actually quite wealthy, high-wage nations, on a par with the U.S. (Ireland and Switzerland are even wealthier.) This casts doubt on economists’ claim that low wages are the driving force behind trade deficits. So if low wages don’t drive trade imbalances, what does? The list includes nations both very large and very small, and nations from Europe, Asia and Central America. Is there something that these nations have in common – something that should be factored into our trade policy to return us to a balance of trade?

Indeed there is. Look at the population density of the nations on this list and note that all but one (Sweden) are more densely populated than the United States, which has a population density of 94 people per square mile. Most are far more densely populated. The average population density of the nations on this list is six times greater than the U.S. There clearly seems to be a relationship between population density and balance of trade. But why? What is it that makes people who live in more crowded conditions poor trade partners for the United States?

We need to look at this more deeply. We need to factor out other variables, like the sheer size of nations, which puts China at the top of this list with a deficit three times bigger than the next nation on the list – Mexico – which is only one tenth the size of China in terms of population. In my next post, we’ll sort the nations of the world by population density and see how their balance of trade with the U.S. stacks up.


Trump vs. Biden on Immigration

July 22, 2020

https://www.reuters.com/article/us-usa-election-immigration-factbox/factbox-trump-and-biden-take-sharply-different-paths-on-immigration-idUSKCN24L122

The above-linked article is a comparison of Biden’s positions on immigration and Trump’s position and record on the same issue.  The article has a pro-Biden bias, casting his positions as having compassion for immigrants, while casting Trump’s positions as being more heartless and cruel.  Putting aside that bias, however, the comparison is relatively accurate.

Before going further, for the benefit of those new to this web site, my purpose is to bring attention to an economic consequence of population growth that has escaped economists because of their refusal to even consider the subject.  Simply put, beyond some optimum population density, further population growth begins to erode per capita consumption and, with it, employment.  While the macro economy continues to grow, it doesn’t grow at the same pace as the population.  The result is a bigger pie, but smaller slices for everyone.  Incrementally worsening poverty is the inescapable result.

With that said, let’s now talk about immigration.  Many claims are made about the supposed benefits of immigration and why it should continue.  It’s often said that immigrants are the engine of our economy, that they account for 25% of all new business start-ups, for example.  Just in the last few days, I heard it said that 19% of all long-haul truck drivers in America are immigrants.  Immigrants are doctors, engineers, scientists, professors, and so on.  At the other end of the scale, immigrants pick our crops, clean our hotel rooms, and do all of the other jobs that Americans seem loathe to do.

Regarding that last point, there’s some element of truth.  Few Americans work those jobs, but is it because they don’t like to work hard, or is it because the pay is too low?  I’d argue that many American workers would eagerly leave minimum wage jobs to do those other jobs if they paid more.  The wages are low because of the unlimited supply of immigrants who see those wages as a huge step up from what they can aspire to in their own countries.

As for those other workers – the entrepreneurs, the professional people, the long-haul truckers and skilled tradesmen, it’s true that a significant percentage are immigrants, but that’s only because a significant percentage of the population is immigrants.  They’re no more likely to fill those roles than native-born Americans.  Immigrants don’t possess any unique skills or powers to boost the economy.  They’re just people, and they want the same thing that all people want – to make a living and provide for their families.

Another claim often made is that America is enriched by the diversity that immigration provides.  Diversity, it is said, is a source of strength for our economy.  America is enriched by people with different backgrounds and different perspectives.

It can’t be argued that it isn’t interesting to learn about different cultures.  But the claim that diversity is a source of economic strength?  Baloney.  That’s a myth, invented and perpetuated by those who stand to benefit from never-ending population growth.  Who are they?  Corporations.  More people equate to more total sales and a bigger bottom line, while all of the negative consequences of population growth be damned.  Don’t believe me?  Go to the CIA World Fact Book web site and bring up a list of countries ranked by GDP per capita.  You’ll find the top of the list dominated by countries practically devoid of diversity.  Ranking high on the list is Ireland, a nation with virtually no diversity but, in terms of trade balance per capita, kicks America’s ass in trade far worse than any other country.  Diversity has nothing to do with economic prowess.

In the final analysis, the ONLY effect of immigration is to grow the population.  Growing the population makes sense only if you believe that we need more people – bigger and more crowded cities, more traffic, more demand on resources, more carbon emitters,  more trash in the landfills, and so on.  Worst of all, if you believe in the premise of this web site – that a growing population will doom the U.S. to worsening poverty by eroding per capita consumption – further population growth is tantamount to slow-motion economic suicide.

Joe Biden is an advocate for more immigration and, thus, more rapid population growth.  That position isn’t surprising and it’s not something unique to Democrats.  Virtually every Republican takes the same stance, though they tend to pay more lip service to opposing illegal immigration.  Both parties are in agreement on immigration.  Why?  Because that’s the stance that their corporate benefactors pay them to take.

Only very recently have some environmentalists begun to awaken to the fact that they’ve been hoodwinked by the faux-environmentalists who would have you believe that the planet can be saved from the vast array of negative consequences of worsening over-population through technological gimmicks like cutting carbon emissions, paving the way for more “sustainable development,” a corporate euphemism for more population growth.  In light of this awakening, policies that promote population growth may soon seem out-of-step with the reality of the challenges that confront this planet.

Trump is unique in being opposed to both legal and illegal immigration alike.  If we can believe him, his motivation is his belief that immigrants hold down wages and take jobs from American workers.  Is there an element of racism?  He denies it.

I wish Trump were a more likable person – more eloquent, more compassionate, less hot-tempered, a better role model.  Would I vote for Biden over Trump if Biden took a hard line on immigration like Trump?  You bet, especially if he also favored restoring a balance of trade through the use of tariffs, as Trump does.  If there were no differences in their positions on these two critical issues, I’d vote for Biden in a heartbeat.  But that’s not the case.

 

 


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.


Trade Deficits Not Caused by Low Wages

May 19, 2020

In my previous posts, we’ve seen that trade imbalances are caused by disparities in population density, and that low wages don’t appear to be a factor at all.  To prove the point, let’s now look at America’s trade with the 20 poorest nations on earth and contrast that with it’s trade with the 20 wealthiest nations.  Surely, if low wages cause trade imbalances, we’ll have big trade deficits with the poorest nations where wages are the lowest.  Here’s the list:  trade with 20 poorest nations, 2019.

As you can see, if anything, the U.S. tends to have a very tiny surplus of trade with such nations, not a deficit.  The reason for the surplus is foreign aid.  All aid is booked as exports.  The fact is that the U.S. essentially engages in no trade whatsoever with these poor nations.

Now look at U.S. trade with the 20 wealthiest nations:  trade with 20 richest nations, 2019.  Now we do see some trade deficits – some big ones – with Ireland, Switzerland, Denmark, Taiwan, Sweden, Germany and Austria, in that order.  Ireland and Switzerland – the two nations on this list with whom the U.S. has the biggest trade deficits per capita – are actually wealthier than the U.S.  The others aren’t far behind.

How can this be?  If companies move manufacturing offshore in search of the lowest cost of labor, why do we have virtually no trade at all with the poorest nations, and have massive trade deficits with some of the richest?  Look again at the list of the wealthiest nations.  The average population density of those nations with whom we have deficits is 565 people/square mile – six times more densely populated than the U.S.  The rest of the list is a mish-mash of oil exporters, low population density countries, and a couple – the Netherlands and Belgium – that, as we previously established, are anomalies because of how imports and exports are booked for those countries.

If anything, these two lists prove that there is a relationship between wages and trade imbalance, but the cause and effect is exactly the opposite of what you’ve been told.  Low wages don’t cause trade deficits.  Trade deficits cause high wages.  It only makes sense.  Manufacturing creates a high demand for labor which drives wages up.  Any nation whose economy has a strong manufacturing sector is going to be a wealthy nation.  It may start out as a poor nation, but quickly grows in wealth as its manufacturing sector grows.

Trade imbalances are determined by whether or not a nation’s manufacturing output is absorbed by its domestic economy, or whether it is dependent on growing its manufacturing sector beyond that point in order to gainfully employ its labor force.  We’ll more fully explore what causes that situation in an upcoming post.

 


America’s Worst Trade Partners in 2019

May 11, 2020

In a previous post, we looked at a list of America’s biggest trade deficits and China was at the top.  But China is a very big country with one fifth of the world’s population – more than four times the population of the U.S.  Sheer size alone accounts for much of that deficit.  But which countries, man-for-man (or person for person, if you prefer) do the most damage to the U.S. economy by siphoning away manufacturing jobs through a big trade imbalance?  To determine that, we need a list of our worst trade deficits in per capita terms.  So here is a list of our twenty worst per capita trade deficits in 2019:  Top 20 Per Capita Deficits, 2019.

Little Ireland is at the very top of list, with a $9,615 per capita surplus in manufactured goods with the U.S. that is nearly three times the size of the next worst on the list – Switzerland.  If we assume that an average manufacturing job pays $50,000 per year, and that two thirds of the cost to manufacture something is labor, then the math tells us that for every eight citizens of Ireland an American citizen has lost his/her job.  Thankfully, there are only 5.2 million people in Ireland, so the damage done to the American economy’s manufacturing sector by Ireland is limited to “only” 650,000 jobs.  But think of that.  America has lost 650,000 manufacturing jobs to tiny Ireland.  No wonder Ireland is the wealthiest nation on the list – significantly more wealthy than the U.S. in terms of purchasing power parity (or “PPP”).

The list is noteworthy for other reasons.

  1.  This list is dominated by wealthy countries.  The average PPP of the nations on this list was almost $38,000 in 2018.  The average of the top ten on this list is almost $47,000 – on a par with the U.S.  It’s the same phenomenon we saw on the list of our biggest deficits in absolute dollar terms.  Clearly, low wages play no role at all in driving our trade deficit.
  2. Exactly half of the nations on this list are members of the European Union.  Another, Switzerland, is a European country, though not a member of the EU.
  3. On average, America’s per capita trade deficit with these twenty nations has grown by 148% over the past ten years, led by Vietnam and Slovakia.  Only one has declined – Israel.  (All of that decline has happened in the past two years.)
  4. Noteworthy for its absence from the list is China.  China has been on the list every year since I began publishing this list in 2010, though near the bottom of the list.  But this year they’re gone, falling to number 25.  Why?  Because of the effect that Trump’s tariffs on China have had on reducing the trade deficit with them.

The most noteworthy takeaway from this list, however, is this:  with only three exceptions, the nations on this list are very densely populated.  The average population density of these twenty nations is 524 people/square mile – more than 5-1/2 times as densely populated as the United States.  Regardless of whether we look at the balance of trade in absolute dollar terms or in per capita terms – no matter how we look at it – population density pops out as the overriding factor in driving trade imbalances.

In the case of Ireland, it must be recognized that there is another factor.  Ireland is a tax haven for companies.  They get a free ride in Ireland.  It’s a grossly unfair trade practice designed to siphon companies away from the U.S.  It’s unbelievable that the U.S. continues to turn a blind eye to this shake-down.  Ireland is growing rich at America’s expense.

Before we explore exactly why population density is such a huge factor, we’ll take a look at the other end of the spectrum – our best trade partners in 2019 – the nations who, man-for-man, are the best customers for American-made products.  That’ll be the subject of the next post.  Stay tuned.


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.


Emerging Lessons from The Covid-19 Pandemic

March 31, 2020

As the Covid-19 pandemic has played out, lessons have begun to emerge about our society which, in blissful ignorance over the past seven decades, we have evolved in the interests of growth and efficiency in ways that are now proving to be dangerous – dangerous to our health, our economy and even civilization as we know it.

Globalism and Global Supply Chains:

Nothing became more readily apparent as the virus took hold than our inability to produce even the most basic medical supplies – masks, face shields, gowns, medicines and ventilators.  Why couldn’t we just crank up the capacity at our factories?  Because we don’t have any.  Like everything else, we’ve made ourselves totally dependent on foreign sources for these items.  Why couldn’t those foreign sources crank up their factories and just send us what we needed?  Because they were in the same boat and needed them themselves.  The whole world quickly found itself in the same boat.  “Globalism” has provided the perfect mechanism for spreading local outbreaks across the world almost overnight and has rendered us nearly incapable of fighting them.

At the beginning of the outbreak in the U.S., we were critically short of N95 masks, a shortage that, while being addressed, threatens to persist.  So just make more, right?  Some companies are tooling up to do just that.  But that’s the problem.  It takes time to “tool up.”  We haven’t been making any such masks in the U.S., so there’s no factory where we can just add more shifts or crank up the output.  The manufacturing has to be tooled up from scratch.

How hard can it be to make simple masks?  Start with the fabric.  No fabric of any kind is made in the U.S. any more.  It has to be engineered to screen out a minimum particle size.  Now it has to be thermoformed into the shape of a mask.  That takes special molding tooling.  To make that tooling requires sophisticated machining equipment.  We have that equipment, but almost all of it is foreign-sourced.  So what happens when that equipment breaks down?  Multiply that level of complexity a thousand-fold in order to produce ventilators which also aren’t made in this country (at least they weren’t until Ford, GE and GM began building factories recently to do it).

The same goes for test kits and pharmaceuticals, all of which until now have been foreign-sourced.

President Trump recently vented his frustration with this situation in one of his daily White House briefings.  He vowed that while we can engage in trade with everyone, we can never again let ourselves be dependent on anyone.  Others have made the same observation.  Complex global supply chains that depend on pulling together materials from all over the world in order to keep society functioning is a recipe for a disaster.

It’s interesting how quickly those who, in the past have mocked others as “protectionists” and “isolationists,” have resorted to exactly those measures to stem the spread of this pandemic.  Now, isolating ourselves is our only hope for saving hundreds of thousands of people and, while doing so, we’re put at risk by the globalism that they championed.

No Spare Capacity:

Global competition has fueled a relentless drive for efficiency, just-in-time delivery supply chains and cutting costs to the bone.  That means squeezing every ounce from every capacity available, whether it’s labor capacity, factory capacity, and even the capacity of our health care system.  Everything has been functioning with virtually no capacity to spare.  Even in the best of times, the intensive care units and emergency rooms at our hospitals function at near-capacity.  Most of you have visited hospitals before all this started.  How many empty beds did you see as you walked down the halls?  How many times did you pass a patient on a gurney in the hallway?

How many times have you gone to a store – any kind of store – and found that you were fortunate enough to get one of the few remaining items you’re looking for that are left on the shelf?  Maybe there are none, and you’re told that more are arriving tomorrow.  It’s because inventory management systems have cut to the bone the amount of inventory in the warehouse.  We’ve even learned that the stockpiles of critical items maintained by FEMA and the CDC, while sufficient for smaller local or regional disasters, are woefully short of what would be needed for any kind of major disaster.  (And isn’t it interesting how our definition of “major disaster” has just changed?)

That’s all great for minimizing costs, but now we can see just how risky that can be.  People are paying for that kind of efficiency with their lives.  There is a role for government to play in assuring that a certain minimum amount of spare capacity exists throughout our supply chains – supply chains that are not dependent on other nations – that can be readily tapped in the event of national disasters like pandemics, wars, etc.

The Risks of Dense Populations:

Consider where this virus originated and where it’s hit the hardest.  It originated in a country with one fifth of the world’s population, a country so densely populated that it’s people, at least in some quarters, rely on live animal markets as a source of food.  China is four times as densely populated as the U.S.  Pause and think about that.  Imagine if the U.S. had four times as many people.  Imagine New York city with four times as many people.  Or Chicago.  Or any other city you can think of.  Imagine our rural areas with four times as many people.  They’d no longer be so rural.

Where has the virus hit hardest?  Italy is almost twice as densely populated as China.  So too is Germany and the U.K.  Most of Europe is as densely populated as China.  Major cities in the U.S. and around the world are hundreds of times more densely populated.

Even in the best of times, living in a densely populated area is a little risky.  With a sky-high cost of living (especially housing), and with many (perhaps most?) people living paycheck-to-paycheck, you’re at constant risk of finding yourself homeless.  The supply of basic necessities relies on complicated supply chains that are vulnerable to disruptions.  In the worst of times – and what we’re enduring right now, while bad, is probably not even close to being “worst” – living in such densely populated conditions is downright dangerous.  Diseases can spread like wildfire.  Natural disasters or wars could cut off supply lines.

What’s the solution?  Live in a less densely-populated society.  How is that possible?  Modern civilization requires both urban and rural areas.  Cities are needed to pull together labor forces to manufacture goods and provide certain services, while rural areas are needed for farming, forestry, recreation, etc.

The way to achieve this is with fewer, smaller cities and more rural, wide-open space.  Consider countries like Canada and Australia – each with the same size as the U.S. but with one tenth or less population density.  Though each is dealing with coronavirus outbreaks, they’re no where near the scale of what the U.S. is facing.  Why?  Because they were already more isolated to start with.

On the other hand, think about India – a place so densely populated that it’s almost impossible for them to practice any kind of social distancing.  Will they pay the price, or will the fact that India is a hot climate where the coronavirus, like the flu, can’t survive to any great extent spare them?  No one knows.  Only time will tell.

Then there’s cruise ships.  Before any of this happened, we were already hearing constant stories of norovirus outbreaks that sickened passengers, cut cruises short and necessitated thorough cleaning of the ships.  Now we’ve seen that, given a deadlier virus, those ships are death traps.  And each is just a small-scale example of what can happen in a densely-packed society.

Secure Borders:

Together with the advocates of free trade and globalism, the open border advocates have also gone silent.  Our failure to quickly shut down international travel exacerbated the spread of the virus in the U.S.  How much worse could it have been had we not been able to shut down the borders at all?  How much worse could it have gotten had we not already taken steps to secure our southern border?  Now we can see the value in maintaining secure borders, and the need to further tighten down on illegal immigration.

Beyond these, there are many, many other lessons to be learned about preparedness for major disasters.  One lesson that will only become clear as our economy begins to recover is that we’re going to pay for decades for the folly of allowing our economy to be siphoned away to drive growth in the rest of the world.  Our dependence on deficit spending to offset the drain of the trade deficit had already become dangerous as our national debt swelled to an unsustainable level.  We were already bailing as fast as we could to keep our leaky boat afloat.  Now, the $2 trillion stimulus package, together with the $4 trillion in additional debt that the Federal Reserve is issuing, will blow the transom off the boat.  It will prove impossible to keep the economy afloat while maintaining a trade deficit.  It’s critical that we get serious about restoring a balance of trade, both to reinvigorate our manufacturing base and to stop the hemorrhaging of our national debt.

Economists have long boasted that “mankind is clever enough to overcome all obstacles to further growth.”  At the same time, survivalists have built bomb shelters, amassed stockpiles of food, ammunition, batteries and other gear, and have practiced survival skills.  Suddenly, the latter group looks a little less wacky and the economists seem a bit humbled.  Mankind is not clever enough to overcome all obstacles to growth because, in a finite world, it’s impossible for so many reasons that they can’t even be listed.  Try as we might to keep growing the population, nature will find a way to restore balance in ways that we can’t even imagine, and likely with consequences too horrible to contemplate.

We’d better learn these lessons, because next time it could be much worse.  Though this virus is very contagious and much deadlier than the flu, it’s not as deadly as it could be.  In 1918, the Spanish flu killed approximately 50 million people at a time when the world’s population was just 3 billion.  In 2003, the SARS virus killed 10% of the people it infected.  Luckily, SARS was only contagious when it when symptoms became obvious, making it easy to identify and isolate those infected, which limited the number of cases to just over 8,000 world wide.  Then there’s ebola, a virus that kills half of everyone it infects.  Imagine if a virus emerged that was that lethal and was just as contagious as the novel coronavirus.  It could wipe out three billion people or more and threaten the very survival of mankind.  It might be a hundred years from now.  It might be tomorrow.  But fail to learn these lessons from this virus, and that’s what’s going to happen.