I’ve finished my analysis of trade in manufactured goods for 2015 and the news isn’t good. The effect of attempting to trade freely with nations that are much more densely populated than our own intensified yet again in 2015, dragging our deficit with those nations to a new record.
Check out this chart: Deficits Above & Below Median Pop Density. First, some explanation of the data is in order. I studied our trade data for 166 nations and separated out those product codes that represent manufactured products. Subtracting imports from exports, I was able to determine the balance of trade in manufactured goods for each. I then sorted the data by the population density of each nation and divided these 166 nations evenly into two groups: those 83 nations with a population density greater than the median (which, in 2015, was 184 people per square mile) and those 83 nations with a population density below the median. I then totaled our balance of trade for each group.
As you can see, in 2015, our balance of trade in manufactured goods with the less densely populated half of nations was once again a surplus, but a smaller surplus of $74 billion. This is down from $132 billion in 2014 and is less than half of the record high of $153 billion in 2011.
Conversely, our balance of trade in manufactured goods with the more densely populated half of nations was a huge deficit, plunging to a new record deficit of $722 billion, beating last year’s record by $53 billion.
Some observations about these two groups of nations are in order. Though these nations are divided evenly around the median population density, the division is quite uneven with respect to population and land surface area. The more densely populated nations represent almost 77% of the world’s population (not including the U.S.), but only about 24% of the world’s land mass (again, not including the U.S.).
Think about that. With the people living in 76% of the world’s land mass, the U.S. enjoyed a surplus of trade of $74 billion in manufactured products. But with the rest of the world – an area less than a third in size – the U.S. was clobbered with a $722 billion deficit! Population density is the determining factor. Not wages or wealth. Wealthy nations were just as likely to appear among the deficit nations as among the surplus nations. Not currency valuations. Virtually ever currency in the world weakened against the dollar in 2015. Population density is the key factor that drove these trade imbalances.
Some may point to the increase in the trade deficit as proof that currency values and manipulation are driving the imbalance. But the data from previous years has shown that no such relationship exists. A much more likely explanation is that American exports are declining and imports are rising because as more and more manufacturers lose ground to foreign competition, there are fewer and fewer products available for export or for purchase by domestic consumers. Like a horde of mosquitoes, the overpopulated nations of the world are literally sucking the life out of American manufacturing and, with it, the American economy in general.
So what’s to be done? “Give free trade enough time to work,” free trade advocates say, “and these imbalances will even themselves out.” Wrong. Free trade policy has had decades to work, beginning with the signing of the Global Agreement on Tariffs and Trade (GATT) in 1947 and the result has been that the trade deficit with densely populated nations just gets worse and worse. This happens because free trade theory doesn’t account for the inverse relationship between population density and per capita consumption.
The only remedy that would restore a balance of trade is the same trade policy that the U.S. employed until 1947 to maintain such a balance – tariffs. The use of tariffs to compensate the U.S. for nations’ inability to provide us access to equivalent markets – markets that have been emaciated by overcrowding – would restore a balance of trade and breathe life back into the American economy.