America’s Biggest Trade Surpluses in Manufactured Goods in 2017

June 9, 2018

In previous posts we examined lists of America’s biggest trade deficits, both in terms of sheer size and on a per capita basis, and found that both lists were dominated by nations with very high population densities.  If population density is a factor in driving trade imbalances, then we should see the same but opposite effect at the other end of the spectrum.  If we look at America’s biggest trade surpluses in manufactured goods, we should find the list dominated by nations with low population densities.  Here’s the list:  Top 20 Surpluses, 2017.

On this list we find that there are actually two factors at play.  First of all, the list is dominated by nations with lower population densities.  Eleven of these twenty nations are less densely populated than the U.S.  (On the list of our biggest deficits, only two nations were less densely populated.)  Only six nations on the list are significantly more densely populated than the U.S.  The average population density of the nations on this list is 209 people per square mile.  Compare that to the average for our biggest deficits – 734 people per square mile.  And if we calculated the population density of this group of twenty nations taken together – the total population divided by the total land mass – we find a population density of only 34 people per square mile, compared to a population density of 509 people per square mile on the list of the biggest deficits.

Still, how do we explain the presence on this list of some nations with some very high population densities?  Of those six nations that are significantly more densely populated than the U.S., three – United Arab Emirates, Kuwait and Qatar – are net oil exporters.  As such, it’s almost automatic that we will have a trade surplus in manufactured goods with such nations, regardless of their population density.  Why?  Because oil is priced in American dollars which can only be used to purchase things from America.  Even if the U.S. itself buys little or no oil from such countries, the countries who do must still pay in American dollars.  Strange, I know, but that’s how it is.  The end result is that oil exporters buy American products, either for their own consumption or for re-export to other nations.

That leaves three nations – the Netherlands, Belgium and Ecuador – unexplained.  The Netherlands and Belgium are tiny, adjoining nations who together enjoy the only deep water sea port on the Atlantic coast of Europe.  They use this to their advantage, making themselves into major points of entry for imports from America and for their distribution to the rest of Europe.  So their presence on the list is more of a geographic anomaly than anything else.

At number one on the list, Canada is both very sparsely populated while also being a huge oil exporter.  In fact, they are America’s biggest source of imported oil.  This is why the surplus with Canada is more than three times the size of our next largest surplus.  The U.S. has no better trade partner than Canada – hands down.  While I give Trump high marks for taking on the trade issue, I wish he’d find a way to exempt Canada from tariffs.  Canada has a legitimate beef regarding these tariffs.  Canada is not the problem.

By the way, does it come as a surprise to see Russia on the list?  It’s less surprising when you look at their population density.

Also, take a look at the Purchasing Power Parity (PPP, roughly analogous to wages) of the nations on this list.  The average PPP is just under $40,000 per capita.  The average of the nations on the list of our biggest deficits was $35,000 – a difference of only 15%.  The difference in population density between these two lists is 1400%.  Which do you think is more likely to be the real driver of trade imbalances – wages or population density?

As was the case with our list of the biggest trade deficits, the list of our biggest trade surpluses is also populated with very large and very tiny nations.  In order to factor sheer size out of the picture, let’s next take a look at our biggest trade surpluses expressed in per capita terms.  Stay tuned for the next post.

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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.


Red China Runnin’ Scared

April 18, 2018

https://www.reuters.com/article/us-usa-trade-china-eu-exclusive/exclusive-china-seeks-trade-firewall-with-u-s-allies-in-rush-of-ambassador-meetings-sources-idUSKBN1HO1Y0

It all began with Trump’s tariffs on steel and aluminum.  Red China responded with tariffs on about $3 billion of American exports.  Trump upped the ante with a proposal for tariffs on $50 billion in Chinese imports.  Red China responded in kind, including tariffs on American soybeans, and they promptly began buying their soybeans from Brazil.  No dummies, the Brazilians.  They raised their prices.  And the EU, now unable to buy from Brazil, placed big orders for American soybeans.  No skin off the noses of American soybean farmers.

Trump then responded with a proposal for tariffs on another $100 billion of imports from Red China, whose tit-for-tat strategy was now exhausted since they import so little from the U.S.  Instead, they threatened severe retaliation in some form that remains unspecified.  But their rhetoric was threatening.  Not Islamist “rivers of blood running through your cities” threatening, but scary enough to those who don’t really understand international trade.

Now it’s looking a whole lot like a bluff.  As reported in the above-linked article, the Chinese are now running scared, trying to drum up support for “free trade” (their version of it) with the EU (European Union).

Some of the western diplomats involved in the meetings with Fu Ziying, who is also a vice-commerce minister, have viewed the approaches as a sign of how anxious Beijing is getting about the expanding conflict with Washington, the sources said.

The rush of meetings last Thursday and Friday with ambassadors from France, Germany, the United Kingdom, Spain, Italy, and the European Union, may be a signal that China is trying to build a firewall against Trump’s aggressive trade measures, the severity of which some foreign diplomats said Beijing had miscalculated.

“China is showing confidence, but internally they appear quite concerned. They have apparently underestimated Trump’s resolve on trade,” the diplomat said, adding that Beijing is nervous about China’s major trading partners siding with Washington.

It’s not likely they’re getting much sympathy from the EU.  In 2016, the EU had a $175 billion trade deficit with Red China.  If anything, the EU is probably realizing that America’s new get tough policy has Red China running scared and, just maybe, they ought to try a little of that tariff medicine themselves.


First Evidence of Chinese Impotence in Trade War

April 9, 2018

https://www.reuters.com/article/us-usa-trade-china-soybeans/as-u-s-and-china-trade-tariff-barbs-others-scoop-up-u-s-soybeans-idUSKBN1HF0FQ

A key component of Red China’s response to America’s initial threat to impose tariffs on $50 billion worth of Chinese goods was to impose its own tariffs on one of America’s biggest exports – soybeans.  Their goal was to stir up angst among American farmers in the hope that they would apply pressure on Trump to back off.  In my post titled “A Trade War?  Let’s Get it On!”, I predicted that their strategy was doomed to failure:

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

Now comes the first evidence that this exact scenario has already begun to play out.  In the above-linked article, Reuters reports that America has suddenly begun getting huge orders for soybeans from the EU, who now finds the price of American soybeans more attractive than the rising prices in Brazil.

“Escalating tensions between the United States and China have triggered a flurry of U.S. soybean purchases by European buyers … helped to underpin benchmark Chicago Board of Trade soybean prices after U.S. President Donald Trump threatened to slap tariffs on an additional $100 billion of Chinese goods.

The USDA said 458,000 tonnes of U.S. soybeans were sold to undisclosed destinations, which traders and grains analysts said included EU soybean processors such as the Netherlands and Germany.

If the entire volume is confirmed to be going to the European Union, it would be the largest one-off sale to the bloc in more than 15 years, according to USDA data. The USDA could not immediately be reached for comment.

“We’re seeing a realignment of trade,” largely because the politics is driving up Brazilian soybean prices, said Jack Scoville, analyst with the Price Futures Group.”

I’ve said it before and I’ll say it again over and over.  There is absolutely nothing to fear from America’s efforts to restore a balance of trade with Red China.  Since we are the ones with the huge trade deficit and they are the ones with a huge trade surplus, it’s impossible for America to lose, and impossible for Red China to win.  They are absolutely impotent in this fight.  China’s goods become too expensive?  No problem!  They’re not the only game in town.  We’ll buy them from someone else.  Better yet, we’ll begin making them ourselves.  China provides us absolutely nothing that we can’t make ourselves more efficiently, using cleaner, more environmentally sound processes, and more ethically in terms of worker rights.  And, truth be told, we can make them cheaper.  The logistics involved in shipping things halfway around the world isn’t cheap, you know.  (Did you know that container ships that move goods all over the world, goods which could just as easily be made locally, consume five billion barrels of oil per year?)

And China buys nothing from us that can’t be sold to other customers around the world.

They’ll stop buying our debt, or sell off what they have?  Go ahead.  U.S treasuries are priced in dollars.  Whoever they sell them to has to pay for them with dollars.  So now they’re stuck with dollars which have probably dropped in value – the very situation that necessitated them buying the bonds in the first place.  And, just as we’re seeing with soybeans, there’ll be other investors eager to snap them up.  Heck, if American households switched just a small part of their savings into U.S. bonds, that demand alone would sop up every single bond that China owns.  I won’t take credit for this quote, but I can’t remember where I read it recently, that Red China’s threat to dump its U.S. treasury holdings is like a man holding a gun to his head and saying, “I have a hostage.”

There is nothing to fear here.  America is going to come out a big winner.  It’s a slam dunk.

 


More Trade War Hysteria

April 7, 2018

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

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

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

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

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

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

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


Red China Fires Back, but Now Low on Ammo

April 4, 2018

https://www.reuters.com/article/us-usa-trade-china/china-retaliates-slaps-duties-on-u-s-soybeans-planes-markets-skid-idUSKCN1HB0G6

As reported in the above-linked article, Red China has now matched Trump dollar-for-dollar with tariffs on American exports in the escalating “trade war.”  But now it finds itself critically low on “ammo.”  If Trump responds with tariffs on another $50 billion of Chinese imports, Red China will be able to match those tariffs again.  But then they’re done.  Trump could continue to slap tariffs on $50 billion of Chinese imports eight more times and Red China would be unable to respond because there would be no more American exports to attack.  That’s how bad the trade imbalance is and why Red China has such a losing hand.

In spite of Wall Street getting its panties in a wad over this situation, there’s really nothing to fear.  So Chinese goods become more expensive.  So what?  Americans then have a choice.  Spend more money to get them or use their money for something else.  For example, suppose Apple iPhone X’s go up in price from $1,000 to $1,250.  Maybe it’ll be just the catalyst Americans have needed to ponder whether all the money they spend on these gadgets is money well-spent.  Given the high cost of the phones and the contracts for data plans, and given that social media has now been exposed as a scheme for mining away your privacy, maybe the money would be better spent on other things, like homes and cars, for example.  The point is that less money spent on Chinese imports is money now available for spending on other things.  The impact on the U.S. economy will be a positive one – not a negative.

What Trump needs to do is take this trade war to the next level.  He needs to apply tariffs across the board to every Chinese import.  Beyond that, he needs to take on our other big trade deficits with the likes of the European Union, Japan, Mexico and a few others.  Any country that has a sustained trade surplus with the U.S. needs to be in his cross-hairs but, at the same time, he needs to lower barriers for our good trade partners like Canada, Australia, most all of South America, and others.  This isn’t a war against trade.  It’s a war for balanced trade – a war from which we should never have withdrawn.


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.