Effect of Population Density on Trade Sets Record in 2013

May 4, 2015

Each year I vow to publish this analysis in a more timely manner and, it seems, that each year it gets tougher to do.  But this is a massive undertaking, so I hope you’ll cut me some slack.

First, a little about my methodology is in order.  For each nation, I tallied the imports from and exports to that nation for hundreds of end-use-code product categories.  For example, here’s a link to the web site that tallies the imports from China:  http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html.  That’s just the imports.  There’s another page for exports to China.  Those are then combined, and the end use codes that represent manufactured products are identified and tallied.  Population data is taken from the CIA World Fact Book web site, and is up-to-date through 2013.  So, with all of that said, I think you can understand the difficulty involved in compiling this data for 166 countries.*

This chart, updated through 2013, shows the U.S. balance of trade in manufactured products with the half of nations above the median population density, and the other half of nations below the median population density: Deficits Above & Below Median Pop Density.  In 2013, with the half of nations below the median population density (182 people per square mile), the U.S. enjoyed a surplus of trade in manufactured products of $147 billion.  (It should be noted that the U.S. population density is approximately 87 people per square mile.)  In stark contrast, the U.S. suffered a trade deficit in manufactured goods with the half of nations above the median population density of $634 billion – a record.  And the disparity between the two figures – $781 billion – is also a record.  The same number of nations.  A huge contrast in results.  And, the longer the U.S. continues to pursue free trade policy that ignores the role of population density, the worse the disparity becomes.

It’s also interesting to note that the half of nations above the median population density occupy only 25% of the earth’s land mass.  This means that the U.S. has a surplus of trade in manufactured goods of $147 billion with 75% of the earth’s land mass (outside the U.S.).  With the remaining 25% – the densely populated 25% – the U.S. has a trade deficit of $634 billion.

This data is undeniable proof of a powerful relationship between population density and trade in manufactured products, a relationship first revealed in Five Short Blasts.  Without some mechanism (like tariffs) to counter the effect of population density, it’s a near certainty that trade with very densely populated nations will yield a large trade deficit and result in the loss of many manufacturing jobs.

In upcoming posts I’ll dig deeper into the 2013 data for more evidence of the role of population density in trade, and to examine whether the other popular scapegoats – low wages and currency exchange rates – play any role at all.

In the meantime, I’ll also begin compiling the 2014 data!

___________________________________________________

* Small island nations are excluded from the study, since they enjoy unique economies, usually based on tourism.  Also excluded are tiny city-states.


Per Capita GDP Falls in 1st Quarter

April 29, 2015

The Bureau of Economic Analysis announced this morning that GDP (gross domestic product) grew at an annual rate of only 0.2% in the first quarter of this year, at the bottom end of the range of analysts’ expectations.

However, while the “pie” grew by 0.2%, the number of people crowded around the table, grew at an annual rate of 0.8%, thanks entirely to immigration.  As a result, per capita GDP – everyone’s share of the pie – fell at an annual rate of 0.6% – a recessionary figure.  Here’s a chart of real per capita GDP since 2000:  Real Per Capita GDP.  Since the onset of the “Great Recession” in the 4th quarter of 2007, GDP has risen by only 2.7%.  That’s an annual growth rate of only 0.4% – virtually no growth at all.

And here’s something else I find interesting.  Check this chart of the percent change in GDP since 2005:  Change in Real Per Capita GDP.  Notice that, since the recovery from the recession began in 2009, the frequency of negative quarters is increasing.  From the 3rd quarter of 2009 until the first quarter of 2011, six quarters passed before we had a negative quarter.  Then another six quarters passed before a 2nd negative quarter.  But, after that, there were only four quarters between negative quarters.  Most recently, there were only three quarters of positive growth before another negative quarter.

This recovery, fed by stimulus spending and $4.5 trillion in “quantitative easing” by the Federal Reserve – both of which have dried up – has run out of gas.  The economy is teetering on the brink of another recession.  It’s no surprise.  Nothing has been done to remedy the conditions that precipitated the last recession – our huge trade deficit and out-of-control immigration-fueled population growth.  In fact, it was falling exports that led the decline in per capita GDP in the first quarter.  Remember Obama’s pledge to double exports by 2015?  Never happened.  Not even close.

Contrary to the talk that you hear about a recovery that’s gathering momentum, or a slowdown that is only transitory, this economy is sick and is in serious trouble.  Its capacity for serving as a “host” to prop up the economies of badly overpopulated nations is practically depleted.  It’s now totally dependent on deficit spending and money-printing.  And equity markets have transitioned from vehicles for investing in the economy into a scheme for sopping up money from central banks.  Investors are playing a dangerous game of chicken with central banks when bad economic news is welcomed in the hopes of raising the odds of more money-printing.  Never have we entered a recession with interest rates already at zero and with a balance sheet that already has the Federal Reserve feeling queasy.  The ability of these economic gimmicks to mask the effects of overpopulation and a host-parasite trade regime has nearly run its course.  Watch out!


America’s Top 15 Trading Partners in 2013

February 20, 2015

Here’s a chart showing America’s top 15 trade partners (in terms of the percentage of total imports and exports) in 2013:  Top 15 Trading Partners in 2013.  First, some general observations are in order.

  • There are 229 nations on earth.  These fifteen nations alone account for nearly three quarters of all U.S. trade.
  • These fifteen nations represent approximately one half of the world’s population.
  • Those not well-versed in U.S. trade data are probably surprised to see Canada at the top of the list.  It’s not such a surprise when you learn that Canada is America’s largest supplier of oil and gas.  Canada’s share of U.S. trade rose in 2013 to 16.4% from 16.1% in 2012.
  • Second on the list is China – not such a surprise.  China’s share of U.S. trade also rose in 2013 to 14.6% from 14% in 2012.
  • Third is Mexico, with their share of U.S. trade rising to 13.2% from 12.9% a year earlier.
  • These three nations – Canada, China and Mexico – account for about 44.2% of all U.S. trade.
  • Japan, fourth on the list, saw its share of U.S. trade slip from 5.7% to 5.3% in 2013.
  • South Korea leapfrogged ahead of the United Kingdom on the list, rising to sixth place while the U.K. slipped to seventh.
  • France rose from 10th place in 2012 to eighth place in 2013, while Brazil and Saudi Arabia each slipped a notch.
  • Venezuela, 14th on the list in 2012, fell off the list in 2013 and was replaced by Switzerland.

The above list is based on total imports and exports of all goods and services.  But what really matters is manufactured products, since jobs are concentrated in that category.  Exports add jobs to an economy, and imports take them away.  A trade deficit in manufactured products represents a net loss of jobs.  So let’s turn our focus to that category of trade.  I should note here that, from this point on, trade imbalances will be expressed in per capita terms in order to factor out of the equation the sheer size of nations.  If the U.S. has a deficit of $1 billion with a nation of one million people and a deficit of $100 billion with a nation of 100 million people, it would be wrong to conclude that the people of the latter nation are a bigger drag on our balance of trade, since the people of both nations export $1,000 more to the U.S. than they import from us.

Of these fifteen nations, twelve are more densely populated than the U.S. and three are less densely populated.  With the three less densely populated nations, the U.S. enjoys a surplus of trade in manufactured products with all three – Canada ($1,988 per person), Brazil ($112 per person) and Saudi Arabia ($595 per person).

On the other hand, of the twelve nations more densely populated than the U.S., we suffer a trade deficit in manufactured goods with all but one of them – The Netherlands.  The Netherlands has an unusual economy.  As the only nation in Europe with a seaport on the Atlantic coast, it’s economy is heavily focused on trade, buying from the U.S. and then re-selling to other nations.  This is the reason that the U.S. enjoys a healthy surplus with The Netherlands.  Of the remaining eleven nations more densely populated than the U.S., our per capita trade deficits with them rank as follows:

  1. Switzerland:  -$1,859
  2. Germany:  -$822
  3. Taiwan:  -$706
  4. Japan:  -$696
  5. S. Korea:  -$496
  6. Mexico:  -$335
  7. Italy:  -$319
  8. China:  -$259
  9. France:  -$208
  10. U.K.:  -$30
  11. India:  -$11

Surprised?  If you’ve read Five Short Blasts, then you’re not surprised at all.  You understand how population density (and almost nothing else) drives trade imbalances.  When expressed in per capita terms, our enormous trade deficit with China (enormous because of its sheer size and population) seems rather mundane.  Others are much worse because they are much more densely populated than China.  In fact, if we plot our per capita trade deficit in manufactured goods versus population density, we find that the data follows a line that describes a logarithmic decay in our balance of trade as population density rises:  Per Capita Balance of Trade vs. Pop Density.

As you can see, trade with nations less densely populated than the U.S. (about 86 people per square mile) will almost surely be beneficial to the U.S. and produce a trade surplus.  Trade with more densely populated nations will result in a trade deficit and a drag on the U.S. economy.  The U.S. began trading freely with the other nations on this list long before we began trading freely with China in 2000.  For those who understand the role of population density in driving trade imbalances, it would have been easy to predict the results – a huge trade deficit.  In fact, the results of our trade policy with China fall very neatly along that line.

Some argue that trade deficits are caused by low wages in places like China.  Look again at the above list.  Low wages?  Not in Switzerland.  And not in most of the other nations on that list.  In fact, wages in China have risen dramatically and our deficit with them has only gotten worse.  To better understand the real relationship between wages and trade, take a look at this chart that plots PPP (purchasing power parity, analogous to average wages) vs. our balance of trade with our top fifteen trade partners:  Per Capita Balance of Trade vs. PPP.  The truth is that when trading with very poor nations (where wages are very low), we experience neither a large trade deficit or surplus.  As you can see, the relationship between trade imbalance and the wealth of nations forms an almost perfect “V”.  On the right side of the chart (which represents trade surpluses), the per capita surpluses grow larger as the wealth of our trading partner increases.  On the left side of the chart (representing trade deficits), the deficits with wealthy nations are larger than those with poor nations.

When you think about it, this makes sense.  Those nations on the right side (the surplus side) of the chart are less densely populated nations.  Their citizens are capable of consuming products and they are resource-rich, enabling them to produce products and have a self-sufficient economy.  Because they are wealthy, they are able to import products from America.  The right side of the chart, however, is populated with very densely populated nations where their citizens have insufficient space to consume at a high level, and they are resource-poor.  They are heavily dependent on manufacturing for export to sustain viable economies.  Poor people can’t buy and import products.  That’s why there are no big trade deficits (in per capita terms) with poor nations.  Once manufacturing is introduced into their economies, however, wages begin to rise and they are then able to begin importing some products.  That’s why the trade deficits are larger with wealthier nations – because our trade deficit has made them wealthier.  It should be noted, however, that the trade deficit we have with them is never reversed.  Regardless of how wealthy they become through manufacturing for export, it is still impossible for them to consume at a high level.

China is a good case in point.  Trade with China started at a low level.  Once it started, wages in China began to grow and they have the fastest-growing economy in the world.  But, as wages have risen in China, our trade deficit with them has actually accelerated instead of moderating, as the low-wage theory would predict.  It has accelerated because the Chinese are incapable of consuming at a high enough level to restore a balance of trade.  Contrast this with a poor, sparsely-populated country.  If manufacturing is introduced there, we will have a trade deficit with them for a brief period of time, but wages will quickly rise as their labor supply is quickly exhausted, and their wealth will quickly enable them to begin importing American goods.  A balance of trade is soon restored.

All of this illustrates just how foolish it is to apply free trade policy equally to both sparsely-populated and densely-populated countries and expect the same results.  Free trade with badly overpopulated nations is a sure-fire loser, guaranteed to produce large trade deficits and to devastate the manufacturing sector of the economy.  It has nothing to do with low wages; nor does it have anything to do with currency valuations, which I’ll cover in an upcoming post.  Our enormous trade deficit is driven almost entirely by attempting to apply free trade policy to nations that are severely overpopulated.

 


“The shadow of crisis has passed.” Or has it?

January 21, 2015

Last night, at the beginning of what can best be described as a victory lap, President Obama began his State of the Union message by declaring that “…the shadow of crisis has passed …”  The crisis he spoke of included lots of things, but foremost was the economy which, at the time he inherited it, was indeed in a full-blown crisis.  Perhaps two decent quarters of GDP (gross domestic product) growth are enough for him to declare “mission accomplished,” but has the crisis passed or has it merely been swept under the rug?

Three sentences later, he asked, “Will we accept an economy where only a few of us do spectacularly well?”  Yeah, that pretty accurately sums up the state of the economy.  But that’s not stuff worthy of a victory lap, so he then went on to make some claims that merit closer scrutiny.

  • “We believed we could reverse the tide of outsourcing, and draw new jobs to our shores. And over the past five years, our businesses have created more than 11 million new jobs.”  The implication here is that we did, in fact reverse the tide of outsourcing and bring eleven million jobs home.  If only it were so.  The fact is that, while the economy has grown by 15% in real (inflation-adjusted) terms in the last five years, the trade deficit in manufactured goods has widened by 72%.  The only explanation for that is that the “tide of outsourcing” has actually gotten worse.  That’s no surprise when you look at Obama’s record on trade, especially the terrible deal he signed with South Korea.  And “eleven million new jobs?”  According to the household survey, the employment level has grown by only 9 million.  And, during those five years, the population has grown by 11.4 million.  In other words, almost all of the growth in the employment level is due purely to population growth, and not a matter of putting people back to work.  In fact, during those five years, of the 18.3 million Americans who were out of work in January, 2010, only 3.2 million have been put back to work.
  • “More Americans finish college than ever before.”  That’s because we have more Americans than ever before.
  • “… we’ve seen the fastest economic growth in over a decade … a stock market that has doubled and health care inflation at its lowest rate in 50 years.”  We have had two good quarter of GDP growth, preceded by a really bad quarter at the beginning of 2014, but the president didn’t mention that.  The best in the past decade?  That’s not saying much when you look at the past decade.  The stock market has doubled thanks to the Federal Reserve pumping $4 trillion into the bond market, crowding investors out of that market, leaving the stock market as the only place to invest.  And health care inflation is at its lowest rate in 50 years because overall inflation is also down that much.  Relative to everthing else, especially stagnant wages, the inflation in health care is still pretty bad.
  • “Wages are finally starting to rise again. We know that more small-business owners plan to raise their employees’ pay than at any time since 2007.”  Wages are rising – barely – until expressed in real (inflation-adjusted) terms. In those terms, they’re stagnant.  And planning to raise wages isn’t the same thing as actually raising them.
  • “We set up worker protections, Social Security, Medicare, Medicaid to protect ourselves from the harshest adversity. We gave our citizens schools and colleges, infrastructure and the Internet, tools they needed to go as far as their efforts and their dreams will take them.  That’s what middle-class economics is: the idea that this country does best when everyone gets their fair shot, everyone does their fair share, everyone plays by the same set of rules.”  True, we did all that.  Then we signed the Global Agreement on Tariffs and Trade, initiating a trade regime that completely undermined all of the aforementioned programs, deprived American workers of their “fair shot” and gave away millions and millions of our best jobs.  Is that “middle-class economics?”
  • “Of course, nothing helps families make ends meet like higher wages. That’s why this Congress still needs to pass a law that makes sure a woman is paid the same as a man for doing the same work.”  While I agree that women should be paid the same as men, this would do nothing to raise wages.  No company is going to raise its overall cost of labor.  If forced to equalize the pay between men and women, companies will simply lower the wages for men.  The only thing that can drive wages higher is a higher demand for labor, like we’d have if we really did turn the tide on outsourcing.
  • “… to make sure folks keep earning higher wages down the road, we have to do more to help Americans upgrade their skills.”  Here we go again.  Job training as a solution to unemployment.  No one ever takes note of the fact that we lost our manufacturing jobs to people who were uneducated and practically devoid of job skills.
  • “…  we still live in a country where too many bright, striving Americans are priced out of the education they need.”  That’s because far too many of the seats in our college classrooms are filled with foreign students.
  • “… 21st century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages.”  We don’t sell more American products overseas because so many countries are so badly overpopulated that they can’t even consume their own productive capacity.  Yes, we export more than ever, but not much more.  In the meantime, imports have exploded, draining our economy of those manufacturing jobs that the president admits pay more.  In the past five years, manufactured exports have grown by $27 billion per month.  But imports have grown by $47 billion – all thanks the president taking the chicken’s way out on trade and deluding himself into thinking that exports can be grown by just wishing it so.
  • “I’m asking both parties to give me trade promotion authority to protect American workers with strong new trade deals from Asia to Europe that aren’t just free but are also fair.”  Following this assertion, the president admitted that trade deals have gone badly for American workers.  And now he wants to double down on that trade policy.  (Mr. President, if it doesn’t make any sense to continue the same policy with Cuba that has been a proven failure for 50 years, why does it make sense to continue pursuing trade deals that have been proven a failure for just as long?)  There is no “free” trade.  There is no “fair” trade.  There is only trade, and trade with overpopulated nations is a sure-fire loser.  But bend over America.  Here comes more of it!
  • “… 95 percent of the world’s customers live outside our borders. We can’t close ourselves off from those opportunities.”  This is the very heart of our trade problem – the pursuit of more customers – customers capable of producing more than they consume.  That’s good for companies who couldn’t care less where their products are manufactured, as long as they sell more products.  But it’s an absolute disaster for American workers and the American economy.
  • “More than half of manufacturing executives have said they’re actively looking to bring jobs back from China.”  We’ve heard this for years, but how many of them actually do it?  Very, very few.
  • “I want Americans to win the race for the kinds of discoveries that unleash new jobs: converting sunlight into liquid fuel; creating revolutionary prosthetics, so that a veteran who gave his arms for his country can play catch with his kids again.”  We do win those races, but every time we do, the manufacturing of those new products very quickly ends up in some badly overpopulated country.

No, the crisis hasn’t passed.  Nothing has been done to fix the problems that caused it in the first place – our trade deficit and our use of population growth as a crutch for economic growth.  In fact, these issues have gotten worse.  The crisis has been swept under the rug and will slither back out sooner than most people – especially the president – think.


October Rise in Manufactured Exports Hints at What’s Possible with a Change in Trade Policy

December 6, 2014

http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

Exports of U.S. manufactured goods rose by $3.5 billion in November to a record level of $115.4 billion.  Unfortunately, imports of manufactured goods offset much of that increase, rising $1.8 billion.  That, coupled with a $1.4 billion decline in petroleum exports, left the trade deficit for November nearly flat at $43.4 billion.  That’s worse than expectations and will drag on 4th quarter GDP.

Still, it’s interesting that this report came on the same day as the announcement that the economy added 321,000 jobs in November, including 28,000 jobs in manufacturing – the first decent increase in many months.  This is just a tiny taste of what would happen to our economy if we got our trade policy right and restored a balance of trade.  If a $3.5 billion boost in manufactured exports has this kind of effect, imagine the impact that a $50 billion improvement would have (the amount it’d take to restore a balance of trade in manufactured goods).

Unfortunately, this November number is clearly just a tiny upward blip in the steep downward trend in manufacturing in the U.S.  Look at this chart of our balance of trade in manufactured goods and tell me that November is evidence of some sort of rebound:  Manf’d Goods Balance of Trade.

By the way, the November increase in manufactured exports still leaves us $50.4 billion short of Obama’ goal to double exports by January of ’15.  In other words, if the president had actually taken any action on trade policy to make it happen, our economy would now be enjoying the kind of explosive rebound that I suggested above that you could only imagine.

 


Trade Deficit in Manufactured Goods Soars to New Record in September

November 4, 2014

http://www.bea.gov/newsreleases/international/trade/2014/pdf/trad0914.pdf

As announced by the Bureau of Economic Analysis this morning, the overall trade deficit rose by $3.0 billion to $43.0 billion in September, driven entirely by a steep rise in the deficit in manufactured goods – which rose by $3.9 billion to $52.1 billion – a new record.  (Check the chart:  Manf’d Goods Balance of Trade.)

The expansion of the deficit in manufactured goods was driven mostly by a sharp decline in exports.  September exports of manufactured goods fell to $111.9 billion.  That’s only $0.2 billion higher than in March, 2012.  Over that same time frame, manufactured exports needed to rise by $48 billion to keep pace with President Obama’s promise (made in January, 2010) to double exports within five years.  Here’s the chart:  Manf’d exports vs. goal.

In September our trade deficit with China soared to $35.6 billion, completely obliterating the previous record of $30.9 billion set only two months earlier.  Imports from China rose by $5.1 billion in September while exports to China fell by $0.3 billion.

The entire trade deficit in September is due to only four countries:  China ($35.6 billion), Germany ($6.1 billion), Japan ($5.3 billion) and Mexico ($4.8 billion).  All four nations are more densely populated than the U.S.  China’s population density is four times that of the U.S.  Germany’s is eight times.  Japan’s is ten times.  Mexico is only about twice that of the U.S.  Take away these four countries and the U.S. actually had a surplus of trade with the rest of the world.

Expressed in per capita terms (which factors out the sheer size of nations), the trade deficit with Germany was the worst of these four nations at approximately $100 per German citizen.  Mexico and Japan were nearly tied at about $43 and $41 respectively.  China was last at $29.   It’s important to note that Germany and Japan are both high wage nations, disproving the theory that trade deficits are caused by low wages.

Today, Americans went to the polls in a sour mood.  They’re unhappy with falling incomes and trumped-up employment reports.  They’re fed up with a president who’s more concerned with illegal aliens than he is with the plight of American workers.  And they’re sick of inaction on trade policy that’s has been a proven loser for decades, stripping them of their ability to make a decent living.  They’re right to be angry.  Since President Obama made his promise to double exports, our trade deficit in manfactured goods has nearly doubled while exports have barely budged.  There’s been no follow-through and there was never a plan.  Just a proclamation and crossed fingers.

Voters are in a “throw-the-bums-out” frame of mind.  If the president had been on the ballot, he’d surely have been the first “bum” to go.


Your vote counts, but does it matter?

November 3, 2014

Tomorrow we’ll all go to the polls to cast our ballots, or at least we should.  Every vote counts.

And it’s true.  We’ve all heard stories of elections and ballot issues decided by a handful of votes, especially on the local level where a total of only hundreds or a few thousand votes may be cast.  Your vote may be the deciding factor in determining which candidate takes office.

But does that really matter?  With each passing election cycle, polls show that more and more voters say that America is “on the wrong track.”  Indeed it is, and that’s exactly the problem – we’ve been on a road to nowhere for decades.  We took a turn down that road in the wake of World War II with our embrace of  free trade as a way to head off such wars in the future.  Add to that our dedication to using population growth to stoke economic growth.  On those two issues – free trade and population growth (driven by immigration), there is absolutely no difference between the Republican and Democratic parties.  Both parties promise to keep us heading down that road.  So does it really matter if you veer left or right on the road to nowhere?  Of course not.

Oh, it may sound like there’s differences.  The Democratic candidate may say that he or she is against unfair trade practices.  The problem is that “fairness” isn’t the problem when trading with badly overpopulated nations.  Fair or not, the results will be the same – a huge trade deficit and loss of jobs, driven by the disparity in population density.*  Fairness, currency manipulation, cheap labor, lax environmental rules – none of these things matter.  Trade imbalances are determined by disparities in population density.  Period.

In the case of immigration, the Republican candidate may rail against illegal immigration and demand more border enforcement, but also supports higher quotas for legal immigration.  The Democratic candidate will tend to oppose those higher quotas, but will sympathize with illegal immigrants in search of a better life.  In the final analysis, does it really matter whether or not that person who just took your job has a green card in his wallet?  Our rate of population growth has remained on exactly the same trajectory for decades, regardless of which party held power.  The net result is the same – a labor force that grows faster than it can be absorbed by the economy, driving down incomes.*

Both parties favor reducing the budget deficit.  Neither party will.  Republicans may cut taxes and Democrats may boost spending, but neither will make any difference in your financial security and the budget deficit won’t change, since it’s a function of the trade deficit.*

By all means, go to the polls tomorrow and vote.  Your vote will determine whether some hare-brained ballot initiative is passed and whether some crook wins some local election.  But don’t expect any change for the better at the national level.  With either party, you’ll get exactly the same thing.  We’ll continue veering left and right down the road to nowhere.

The only thing that will change for the better is that we’ll get a respite from political ads for a little while.

———————————————

* If you’re new to this site and don’t understand the inverse relationship between population density and per capita consumption and how it drives trade imbalances and unemployment, or how the budget deficit is a function of our trade deficit, I encourage you to read more on this site or to pick up a copy of Five ShortBlasts, available through this web site or from Amazon.


Follow

Get every new post delivered to your Inbox.

Join 53 other followers