America’s Best Trade Partners

April 9, 2021

In my last couple of posts, we’ve seen that, once again, in 2020, America’s worst trade deficits, in both absolute and in per capita terms, were with very densely populated countries. There seemed to be a clear link between population density and balance of trade. If there is such a link, then we should find the opposite effect at the other end of the spectrum. We should find that our biggest trade surpluses are with more sparsely populated countries.

Here’s the data – America’s biggest trade surpluses in manufactured goods in 2020. At first glance, the population density effect doesn’t seem as clear on this list. Half of these nations are less densely populated than the U.S. Among the other half, some are actually far more densely populated. There’s something else going on here. Note that I’ve highlighted in yellow six nations that are net oil exporters. This is important because the U.S. is virtually assured of having a trade surplus in manufactured goods with oil exporters, even if the U.S. itself imports very little oil from those nations. Why? Because all oil, worldwide, is priced in U.S. dollars. When an oil exporter like Saudi Arabia, for example, sells a barrel of oil, they’re paid in U.S. dollars. The only other place where U.S. dollars can be spent is in the United States. So Saudi Arabia then has no choice but to use those dollars to purchase American goods.

There are three very densely populated nations on the list – The Netherlands, Belgium and Guatemala – that can’t be explained away as oil exporters. The first two – The Netherlands and Belgium – are tiny adjoining nations who take advantage of their geographic advantage as the only seaport on Europe’s Atlantic coast to be ports of entry for U.S. goods for much of Europe.

Strip away the above effects of the oil trade and the role of The Netherlands and Belgium as ports of entry, and the effect of population density becomes clear once again. The average population density of this list is 265 people / square mile – high, but less than half that of the nations that comprise our twenty worst deficits. Also, the average is grossly exaggerated by the presence of very tiny nations on the list. The population density of this group of twenty nations, as a composite, is only 46 people / square mile. Compare that to the composite density of the twenty nations with whom we have our worst trade deficits – 499 people / square mile, more than ten times greater.

How about economists’ claim that it’s low wages that drive trade imbalances? That theory is debunked by this list of our trade surpluses, just as it was by the list of our trade deficits. The average purchasing power parity (or “PPP”) on this list is actually about $5,000 lower the average of the nations with whom we have our worst deficits – not a big difference, but it’s actually the opposite of what the low wage theory would predict. Whether our trade partners are rich or poor has absolutely no impact on our balance of trade.

Finally, there’s data in this list that should be cause for alarm. Over the past ten years, our average surplus with these nations has shrunk by 34% while our average deficit with the twenty nations who make up our worst deficits has grown by 113%. Our manufacturing sector has been so canibalized by the densely populated nations of the world that there is increasingly little left for others to buy from us. The manufacturing sector of our economy is on the brink of collapse. This may be the greatest existential threat that our country faces. We got a taste of it during the Covid pandemic when we found ourselves at the mercy of foreign suppliers for virtually everything, including the simplest of things like face masks and gowns and more complex items like respirators. How long could we sustain ourselves in a crisis like a war when our foreign suppliers could simply cut off our supplies of virtually every manufactured product? Even as I write this our auto plants are idled by a shortage of imported semiconductors.

As we did on the deficit end of the spectrum, we’ll next look at a list of the twenty nations who, in per capita terms (man-for-man) are our best trading partners.


America’s Best Trading Partners in 2019

May 15, 2020

We saw in my previous post that the list of America’s twenty worst trading partners in 2019, in terms of per capita trade deficit in manufactured goods, was dominated by very densely populated countries.  Only three of the twenty were less densely populated than the U.S.  Now we’ll look at the other end of the spectrum.  Man-for-man (or person-for-person), which countries buy the most American-made products?  Here they are:  Top 20 Per Capita Surpluses, 2019.

While the average population density of our worst trading partners is 524 people/square mile, the average population density of our best trading partners is 208 people/square mile.  The list includes some very large and very small countries.  The combined population density, the total population of these countries divided by their total land mass, is only 20 people/square mile.  The list also include seven net oil exporters.  As discussed in an earlier post, it’s almost automatic that the U.S. has a trade surplus with oil exporters because all oil world-wide is priced in U.S. dollars.  It leaves those countries with no choice but to buy American products in order to use those dollars.  America’s biggest source of imported oil is Canada, so that factors into their position high up on this list, but the bigger factor is their very low population density – only eleven people/square mile.

Once again, The Netherlands and Belgium appear on this list in spite of their very high population density, but that’s an anomaly caused by their position as the only port on the Atlantic-side of Europe and how exports from and imports into that port are booked.

The average increase in our trade surplus with these nations over the past ten years is only 36%.  That barely keeps pace with the rate of inflation, meaning that our trade surpluses have been stagnant, while the trade deficits with our worst trading partners has risen by 148% over the same time period.

The average purchasing power parity (or “PPP”) of the nations on this list is $43,900.  Take away tiny Oman, the wealthiest nation on earth (and one of the smallest), and the average drops to $39,600 – almost exactly the same as the average for our twenty worst trade partners.  Clearly, how rich or poor a nation is (or how high or low their workers’ wages) has no bearing on the balance of trade.  Whether we have a trade surplus or trade deficit with any given nation is determined almost solely by population density (and also whether a nation is an oil exporter).  To drive home that point, in my next post we’ll look at our balance of trade with the poorest, lowest-wage nations vs. the wealthiest, highest-wage nations.  The results are an eye-opener.