United States the “World’s Breadbasket” No More

March 11, 2021

There was a time when the United States was known as the “World’s Breadbasket.” It’s “amber waves of grain” and “fruited plains” – noted in the first verse of “America the Beautiful” – supplied food wherever it was needed anywhere in the world. Even the Soviet Union turned to the U.S. for grain when its own harvests fell short of its needs.

Now, it seems that the “… pilgrim feet, whose stern, impassioned stress a thoroughfare for freedom beat across the wilderness” – from the 2nd verse of the same song, written originally in 1893 when the U.S. population was 65 million people – have grown the “alabaster cities” of the fourth verse to the point where we are the “World’s Breadbasket” no more. With a population of five times larger than when that song was written, we can’t even feed our own people any more.

At least that’s what our trade data tells us. Look at this chart. The category of foods, feeds and beverages – agricultural products – was once a bright spot in America’s ever-darkening trade picture. We always had a surplus for export to feed the world’s hungry, but no more. Our balance of trade in agriculture products has steadily eroded to the point where we’ve now run a deficit for the fourth year in a row. It improved a little in 2020 but, as you can see, it’s on a downward trajectory.

I have always steered clear of the subject of overpopulation in terms of resource shortages. Thomas Malthus hypothesized in 1798 that the world’s population would outstrip its ability to produce food. As decades wore on and the food supply grew even faster than the population, the other sciences mocked economists and proclaimed that mankind is clever enough to overcome all obstacles to further population growth. That has certainly proven true so far and may be true to a point, but any thinking person knows that there will eventually come a tipping point. In fact, it was only by ignoring the possibility of resource shortages and by pondering what else might happen as the population continues to grow that I was able to discover the inverse relationship between population density and per capita consumption – and its ramifications for worsening unemployment and poverty.

Nevertheless, I can’t help taking note of this trade data for agricultural products. Mind you, I’m no expert in the subject. One could argue that there are many other factors involved. Federal agriculture policy such as price supports, policies that encourage farmers to allow fields to lie fallow, etc. may all be playing a part here. Whether or not that explains the deficit in agriculture, I can’t say.

However, the data doesn’t lie. For the past four years, America is growing increasingly dependent on imports to feed its ever-growing population. That should be cause for concern for everyone. It’s bad enough that America is dependent on imports for virtually all things manufactured. That makes us weak and vulnerable. Being dependent on others for our food supply is far worse. Having enough to eat is a matter of total food production divided by the total population. Both factors need to be considered if we’re going to rectify this situation. It isn’t enough to simply consider how to boost production. (Do we really want more genetically-modified crops, more pesticides in our produce and more hormones in our meat?) It’s time to consider whether the number of “pilgrim feet” and whether the size of our “alabaster cities” has begun to overwhelm our “fruited plains.”

Immigrants, take note. Bring some grain and fruit with you, because we’re all out.


Biden “inherits” record trade deficit. Will he do anything about it?

February 8, 2021

The trade data released by the Commerce Department last week marked another sad milestone in America’s economic decline. The December balance of trade in manufactured goods set another new record -$87.3 billion – beating the previous record set only one month earlier. That’s an annualized deficit of $1.05 trillion and represents a loss of approximately fourteen million high-paying manufacturing jobs.

2020, the final year of Trump’s presidency, was by far the worst on record in terms of the trade deficit. In the title of this post, the word “inherits” is in quotation marks because while he now takes over that deficit from Trump, the truth is that Biden has played a key role in creating and exacerbating the deficit his entire adult life as a champion of globalist policies. He joined the U.S. senate in 1973. In 1975, America sadly experienced its final trade surplus, and has run an ever-growing deficit for the past forty-four years. He didn’t just “inherit” this problem. He played a key role in creating it, and it’s impossible to over-estimate the devastation done to our economy and to working Americans.

What will he do about it? Not a damn thing. His corporate benefactors, seeing more potential for profit growth in overseas markets than in the mature U.S. economy, have been paying him for decades to facilitate the transfer of America’s wealth and the export of American manufacturing jobs. He pays lip service to revitalizing American manufacturing, but that’s all it is.

Impeach Trump for inciting the Capitol building riot? Perhaps Biden should be impeached for his lifetime of work fomenting the unrest in this country that created the fertile ground for Trump’s rhetoric to take root.


Is the United States the stupidest nation on earth?

January 9, 2021

In light of the trade data released by the Commerce Department on Thursday, it’s difficult to draw any other conclusion. In November the trade deficit worsened to a new record of $64.5 billion. Actually, the situation is much worse than that. Strip away the surplus in services, which are little more than paperwork transactions, and you’re left with trade in manufactured goods, where real jobs are won and lost. Look at this chart. I would say that it couldn’t get any worse if it weren’t for the fact that with each passing month, it does. The deficit in manufactured goods hovered at the record level of $82.5 billion set only two months ago. That’s an annualized deficit of one trillion dollars.

Think about this. We’re paying the rest of the world a trillion dollars per year, putting their citizens to work making all the things we could just as easily make ourselves while, at the same time, we have tens of millions of people out of work. In fact, we’re paying trillions of dollars per year to pay our own people not to work. And we keep doing everything we can – as fast as we can – to make the situation worse. Ten years ago, in the wake of our most recent economic disaster, part of the auto industry bail-out was to allow Fiat to scoop up the Chrysler corporation, giving yet another foreign brand (the worst on earth, in terms of quality) an entry into the U.S. market, making the challenge for American cars that much worse. Building on that mistake, last month, FCA (Fiat-Chrysler of America) joined forces with PSA (the French automaker Peugot) forming a new company called “Stellantis,” giving Peugot access to the American market and, in all likelihood, finally killing the Chrysler brand.

Now we’ve elected as president a man who has spent his entire adult life championing policies that have exacerbated this decades-long downward spiral of our trade picture and, consequently, our entire economy. What little progress has been made under Trump he has vowed to rapidly undo.

If this situation doesn’t make the United States the stupidest nation on earth, I don’t know what would. And we wonder why this nation has become so divided and how there could be those among us so angry and frustrated that they’d be willing to riot and attack the capitol building. Trump was accused of lying to the American people about the election being stolen. I’ve consistently voted for candidates over these many years who have promised to do something about our trade deficit, and every one of them lied to us. Trump is accused of having blood on his hands for his role in fomenting the capitol building riot. For his part, Biden should accept blame for his role in formulating policies over the decades that have stoked the anger we saw unleashed on Thursday.

I remain angry and deeply disappointed with Trump for allowing his style and ego to get in the way of the bigger mission of Making America Great Again. The American people can forgive gaffes and rookie mistakes (being a rookie to the political scene), but they just couldn’t take any more of the daily barrage of personal insults that had nothing to do with the mission he was elected to do. It’s just sad to see it end this way.

It’s hard to see any hope of things improving for the United States. It angers me and makes me sick to say that. Since writing Five Short Blasts years ago, I’ve tried to keep this forum apolitical and focus instead on trying to explain the unseen economic consequences of population growth, including the danger of trying to engage in free trade with badly overpopulated nations. Maybe that’s been a mistake. So I’ll now say this: for decades Americans have been getting economically slaughtered like a flock of chickens. It’s hard to see any hope of things improving when you elect the fox to run the henhouse.


The Driving Force Behind America’s Drift Toward Socialism

December 10, 2020

One clear message that emerged from the election as the Democratic Party suffered significant losses in the House – and even Democrats agree with the conclusion – is that Americans overwhelmingly loathe the notion of socialism taking root here. Though the number of true socialists amongst the Democrats is small, Republicans’ constant labeling of the whole party as such was effective. Americans want nothing to do with socialism.

However, there has been a slow drift toward socialism over the decades as one social safety net program after another has been added. The Covid-19 pandemic has dramatically accelerated the trend with stimulus checks provided to all, unemployment bonus checks that make it signifcantly more lucrative to remain unemployed, eviction moratoriums and others. Socialists are now emboldened to demand more, things like universal minimum incomes provided by government, universal healthcare, college debt forgiveness and free college tuition among many other things.

Ask anyone about the cause of the drift toward socialism and most will blame the Democratic Party, home to a few hard-core socialists like “The Squad” in the House and many more progressives and liberals who don’t quite merit the socialist label. However, most people would be shocked to learn that Republicans and conservatives in general are just as culpable for the drift toward socialism, for both parties alike have fostered a policy that increasingly makes Americans dependent on the government nanny-state. I’m talking about the “free trade” policy that both parties have happily and eagerly embraced to the delight of their corporate benefactors.

America’s embrace of free trade, which began in the wake of World War II, has transformed us from the world’s richest economy and preeminent industrial power into the world’s skid row bum. How? Here’s how it works. Every dollar spent on an imported product is a dollar taken out of the economy. If not offset by a dollar spent on an American-made product by someone in a foreign country, then it’s a dollar lost from our economy forever, leaving us a dollar poorer and with one dollar’s worth of a manufacturing job gone.

The only way to make the economy whole again is for the government to put a dollar back into the economy. The only way it can do that is by selling a bond. To whom? To that foreign country where you spent that dollar on one of their goods. How does the dollar get put back into the economy? Through a government program: funding unemployment, welfare, health care for those who can’t afford it, etc. In essence, every dollar’s worth of our trade deficit is an investment by an American consumer in socialism.

Every dollar of our trade deficit further divides our society into the “have” and “have-not” classes as the erosion of the manufacturing sector of our economy worsens, driving people who once earned high wages and benefits into the unemployment line, where they have no hope of returning to the quality of life they once enjoyed. It’s only natural that this “have not” class of society would turn to socialism to make them whole again.

It doesn’t seem like a big deal until you understand the enormity of the problem. Last week, the Commerce Department released the trade data for the month of October. Our trade deficit for just that month was $63 billion. But that’s not the worst of it. That figure includes a surplus in “services,” much of which is nothing more than paperwork transactions. The real concern is goods – manufactured goods, to be precise – since that’s where the jobs are and that’s where a deficit does real damage to the economy. The deficit in manufactured goods in October was $81.3 billion, just shy of the record set only two months earlier. Annualized, that’s a deficit of $976 billion. And it’s rapidly getting worse. Here’s a chart of the data: https://petemurphy.files.wordpress.com/2020/12/manfd-goods-balance-of-trade.pdf.

Think about that. Almost a trillion dollars per year must be injected back into the economy by the government in the form of socialist programs. The United States has been running an ever-growing trade deficit for forty-four consecutive years, since our last trade surplus in 1976.

If America wants to avoid becoming a socialist country, it’s imperative that Americans wake up to the fact that it’s our enormous trade deficit that’s pushing us fast and hard in that direction. As long as the U.S. pursues “free trade,” the worse matters will get. History has shown that only the use of tariffs can assure that a balance of trade is maintained.


Time has come to terminate “Phase 1” China trade deal and move forward with tariffs

November 14, 2020

At the time that he signed the “Phase 1” deal with China in January, I said that Trump was making a huge mistake.

Let’s back up to Trump’s inauguration three years earlier. Trump was elected to “Make America Great Again” and a huge part of that program was to bring down America’s trade deficit and bring our manufacturing jobs back home again. In his auguration speech, Trump noted the abandoned, decaying factories scattered like tombstones across the American landscape and said “it all stops right here and right now!”

To that end, Trump got off to a slow start. Proud of his deal-making ability that he demonstrated in the business world, he took the same approach toward trade. He spent two years negotiating a replacement for the North American Free Trade Agreement. The USMCA (United States, Mexico, Canada Agreement) that has replaced it only went into effect this past July. Though analysts predict it will be a net win for the United States, boosting manufacturing, the trade deficit with Mexico has tripled in the meantime and we’ve yet to see any change in business dealings with that country.

At the same time, China launched a charm offensive with Trump and it worked. Trump fell for their promises to boost imports from the U.S. When he realized he’d been snookered, Trump finally did what he should have done in the first place, slapping tariffs on some Chinese goods. He later boosted those tariffs to 25% and levied them against half of all Chinese products. Then, to get China to make a trade agreement with the U.S., the “Phase 1” deal, he threatened to levy the same tariffs against the remainder of all Chinese products.

Predictably, China agreed to make significant progress toward buying more American goods and, to his credit (and unlike deals made by previous administrations), he included specific goals and deadlines. However, just as predictably, China has made no effort whatsoever to comply. They’d already gotten what they wanted. No more tariffs, and they counted on Trump being no different than any president who preceded him – there’d be no follow-through or enforcement. So far, they were right.

Making America Great Again came to a screeching halt – at least the trade reform portion of it which, of course, is the biggest and most important part. It was a huge mistake. I warned at the time that Trump was risking vital support by stalling his agenda.

Trade results for the month of September were released by the Commerce Department on November 4th. Nine months into the year, China has come up way short once again. Here’s the data: https://petemurphy.files.wordpress.com/2020/11/phase-1-china-trade-deal-2020-ytd.pdf. China’s purchase of manufactured goods is up slightly, but still less than the 2017 baseline and 30% short of the goal for 2020. Their purchases of energy products are 65% short of the goal. Their purchases of agricultural products is 52% below the goal, and their purchase of total goods is 38% short of the 2020 goal.

The deal’s goals were divided into four categories of goods. Nine months have passed. That’s 36 opportunities that China has had to demonstrate a good faith effort to meet the goals. Their score? Nine months into the deal, they are 0 for 36. They are only 8 for 36 in terms of meeting the 2017 baseline. No coach of any team would keep his/her job with that kind of record. It’s time to fire this deal.

Trusting China to meet their commitments was a big mistake that stalled Trump’s trade agenda and likely cost him the badly needed votes in the election. However, it’s not too late. Trump could put the trade agenda back on track toward making America great once again by declaring China’s performance a failure, terminating the deal and imposing the tariffs that should have gone into effect a year ago. Leave the deal in place and Biden will pretend that it doesn’t even exist. Terminate the deal and Biden will face a dilemma: cave in to China and drop the tariffs and prove to all American workers that he cares nothing about their plight, or leave the tariffs in place, scoring a big win for Trump’s legacy.

This is a last chance for Trump to demonstrate his determination to “Make America Great Again.”


Time to Leave the World Trade Organization

September 16, 2020

https://www.reuters.com/article/us-usa-trade-china-wto/wto-finds-washington-broke-trade-rules-by-putting-tariffs-on-china-ruling-angers-u-s-idUSKBN2662FG

As reported in the above-linked article, the World Trade Organization has announced its finding that the U.S. broke its rules when it imposed tariffs on Chinese imports two years ago.

The timing of this announcement is curious.  Of course the U.S. broke the rules.  Everyone knew it at the time.  Trump didn’t care.  It was the only way to make any progress on halting the explosion in the trade deficit with China.  So why wait until now?  Is it because Trump faces re-election in less than two months, running against a candidate who played a big role in the advancement of the globalism that the WTO enforces?

The WTO is the enforcer of the ill-conceived trade scheme hatched in the wake of World War II to bring the world together by employing the unproven concept of “free” trade.  Decades later, the results are in and “free” trade is now a proven failure.  Instead of lifting all economies of the world and bringing the world together through an inter-dependency, the WTO has destabilized the world by establishing a host-parasite relationship between reasonably-populated nations, like the U.S., and the others – like China, so badly overpopulated that they are totally dependent on manufacturing for export and feeding off of America’s market.  The WTO is directly responsible for building up a totalitarian communist regime bent on dominating the rest of the world.

It’s time to put an end to this.  Trump can do it by simply withdrawing from the WTO, a move that would quickly lead to its collapse.  Let’s return to truly free trade, where every nation is free to set its own rules in its own best self-interest.


Trump’s Efforts on Trade a Spectacular Failure

September 9, 2020

I can’t tell you how disheartening it was to sift through the latest trade data, for the month of July, released by the Commerce Department late last week.  There’s just no getting around the fact that the administration’s efforts to cut the trade deficit and bring manufacturing back to the U.S. have failed.  “Failure” would be the word to describe results that haven’t shown any improvement.  But America’s trade picture has deteriorated so badly that the scope of the failure can only be described as “spectacular.”

In his inauguration address, Trump observed:

…  rusted-out factories scattered like tombstones across the landscape of our nation …

Earlier in the address, regarding situations like that noted above, he proclaimed:

… That all changes – starting right here, and right now …

The July trade data comes 3-1/2 years into his administration – plenty of time to implement changes and to see the effects.  It’s hard to find any silver lining.  Consider:

  1. The trade deficit in manufactured goods in July soared to $80.4 billion, a new record that completely blows away the record set under the Obama administration ($63.3 billion in March, 2015).  Check out this chart:  Manf’d Goods Balance of Trade.
  2. During the 2016 campaign, Trump vowed to quickly tear up the NAFTA deal and replace it with a much better deal.  Most of his term has been wasted negotiating the new “USMCA” trade deal that replaces it.  It finally went into effect on July 1st of this year, but the terms have been known for a long time, so you’d expect that manufacturers would have been busy implementing plans to get in compliance.  The results?  In July, the trade deficit with Mexico soared to $10. 6 billion.  When Trump took office in January, 2017 it was $3.8 billion.  Since then it has nearly tripled.
  3. When Trump took office, the deficit with China was $31.4 billion.  In July of this year it was $31.6 billion.  After Trump took office, the deficit with China continued to grow until, finally fed up with China’s promises to buy more American products, Trump imposed 25% tariffs on half of all Chinese products.  Almost immediately, the deficit with China began to shrink dramatically.  However, all momentum was lost with the signing of the “Phase 1” deal with China, when the U.S. agreed to halt plans to impose tariffs on the remainder of China’s products in exchange for Chinese promises to dramatically increase their purchases of American goods.  The results were predictable; China reneged on the deal.  They haven’t even measured up to the 2017 baseline that was used as a starting point.  Here’s the data, updated through July:  Phase 1 China Trade Deal 2020 YTD.  What has Trump done in response?  Nothing.  He continues to insist it’s a good deal, in much the same way that Obama stuck by his trade deal with South Korea while our deficit with them exploded.
  4. What progress was made in at least stagnating the deficit with China didn’t translate into any benefit to American workers.  Instead, it contributed to the tripling of the debt with Mexico and also ballooned the debt with Vietnam.  When Trump took office, the trade deficit with Vietnam, an economic back-water, was $3.3 billion per month.  In July of this year it was more than doubled to $6.8 billion per month.  Why?  Because no tariffs were applied to anyone other than China.  The tariffs motivated manufacturers to begin moving out of China, but there was no disincentive to simply move to secondary suppliers in Mexico, Vietnam and other places.

Some might say that such conclusions are unfair in the midst of the pandemic.  Not so.  The effect of the pandemic has been to cut economic activity to a depression-like level, and the effect of an economic slow-down has always been to shrink the trade deficit, not grow it.  That makes the enormous deficit in manufactured goods in July even more troubling.

Speaking of the pandemic, at least people are beginning to realize that being dependent on foreign suppliers for critical goods like ventilators and face masks is a threat to national security.  It’d be nice if that realization extended to other products that would just as easily be cut off during war time.  Better yet, wouldn’t it be nice if people realized that an economy that needs to stand on agriculture, construction, manufacturing and services is hollowed out and unstable if one of those legs is gone?

I don’t doubt Trump’s desire to truly “make America great again” by bringing back our manufacturing sector.  But he sees himself as a “deal-maker” and believes he can deal his way out of the trade deficit.  That’s where the problem lies.  For America, at least, there’s no such thing as a good trade deal.  I defy anyone to identify a single trade deal that has ever left America with anything but a growing trade deficit.

And forget about “free trade.”  That centuries-old concept is about as relevant to today’s trade environment as theories about a flat earth and how the sun rotates around it.  Today, trade is war – a war for increasingly scarce jobs in an ever more over-populated world.  Unlike America, the rest of the world understand this.  They know that what they really need is access to America’s market so that they can keep their bloated populations employed manufacturing goods for export.  Americans don’t have a clue.  They think it’s about lower price and more choice.

Had Trump simply applied tariffs everywhere where America was suffering a big trade deficit in manufactured goods, manufacturers would have come running back like refugees fleeing a war.  Instead of improving incrementally, our economy would have exploded.  Manufacturers would have eagerly snapped up any workers who lost their jobs to closures of restaurants, bars, gyms, movie theaters, etc. during the pandemic.  Trump’s re-election would be a foregone conclusion.  Instead, he’s going to be lucky to win.  Forget about the pandemic.  It’s his failure to make progress on truly making America great again that has left him vulnerable.

Don’t interpret this post as an endorsement of Biden.  It’s reported in the news today that Trump has criticized Biden as a “globalist.”  He’s not wrong.  But it’s not just Biden.  Until Trump came along, every politician, Democrat and Republican alike, were and still are globalists.  I’d vote for Biden in a heartbeat if he vowed to use tariffs to restore a balance of trade, but he won’t.  Though the results under Trump have been disappointing, things could and would be much worse under virtually anyone else, at least until more American politicians are willing to engage in the trade war that they don’t even acknowledge today.

 

 

 

 


Token Bump in Exports to China in May Falls Far Short of “Phase 1 Trade Deal” Goals

July 4, 2020

Trade data released by the Commerce Department on Thursday for the month of May reveals that China bumped up its imports from the U.S. slightly, but still fell far short of the goals of the “Phase 1 Trade Deal” signed with the U.S. in January.  Here’s the data (source:  USA Trade Online):  Phase 1 China Trade Deal 2020 YTD.

This deal sets goals for Chinese imports of American goods for four different categories of products:  manufactured products, energy products, agriculture products, and total products, using 2017 Chinese imports of these products as the baseline for increases.  Through May, we’re now five months into this deal.  That’s 20 opportunities to meet the monthly goal for each category of product.  So far, China has not met one single goal.  In fact, in May, for the first time, China exceeded the 2017 baseline for one category of product.  They imported $1.249 billion in energy products vs. the 2017 baseline of $0.758 billion, but still fell short of the goal for May of $1.943 billion.

Year-to-date, China is behind its commitments by the following amounts:

  • manufactured products – 25.7% below goal
  • energy products – 69.6% below goal
  • agriculture products – 60.6% below goal
  • total goods – 35.9% below goal

This is pathetic.  At this point, one can only conclude that, rather than trying to live up to the deal and boost its purchases of American goods, China is actually making a concerted effort to reduce its purchases.

In October of 2018, the monthly trade deficit with China hit a record of $43 billion.  In May of this year, that deficit was down to $27 billion.  But the “Phase 1 Trade Deal” gets no credit for that decrease.  In December of 2019 – the last month before the deal was signed, the deficit with China was $24.8 billion.  All of the drop in the trade deficit with China is thanks to the 25% tariffs that are in effect for half of all Chinese imports.  The “Phase 1 Trade Deal” has had absolutely no impact on further reducing that deficit.

A huge part of the “Make America Great Again” promise was to reduce the trade deficit and bring manufacturing jobs back home.  There has been virtually no progress.  In May, the deficit in manufactured goods fell just $1 billion shy of the record deficit of $75.8 billion set in December, 2018.  Trump has squandered his term with making fruitless deals.  The deficit with Mexico is worse than ever, hitting a record in March.  The progress made in reducing the deficit with China (through the implementation of tariffs) was offset by increases in other countries, most notably Vietnam and Mexico, and that progress ground to a halt with the signing of the “Phase 1 Trade Deal.”  There’s been absolutely zero progress in reducing the deficit with the EU.  To date, there hasn’t even been an attempt.

Trump needs to kill the “Phase 1” deal now and extend the tariffs across the board to all Chinese products to demonstrate that he’s still committed to the “MAGA” promise if he’s to have any hope of being re-elected.  Far too much time has been wasted, but it’s not too late.


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.


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.