America’s Worst Trading “Partners”

November 7, 2019

In one of my most recent posts, we examined a list of America’s worst trade deficits.  China was at the top of the list.  No surprise.  China is a very large country with one fifth of the world’s population.  It only makes sense that our biggest trade deficit would be with one of the world’s biggest countries.  But anybody can make a list of our biggest deficits with little effort.  My purpose is to ferret out the root cause of America’s massive trade deficit.  Is it really low wages that attracts companies to shift production offshore, like economists say, or is there something else at work?  For decades the U.S. has focused its efforts to address our trade imbalance on things like intellectual property, working conditions and environmental standards.  Yet our deficit continues to explode.  Are we working on the right things?  Are we missing something?

I pointed out that the list of our biggest deficits did have one factor in common.  Nineteen of the twenty nations on that list had a high population density – very high in most cases.  If population density is a factor in driving trade imbalances, then it stands to reason that a list of our worst deficits in per capita terms, factoring the sheer size of nations out of the equation, would be dominated by nations with a high population density.  Such a list would essentially constitute a list of our worst trading partners, on a “man-for-man” basis.  Will that list be dominated by people earning low wages, as economists would suggest, or will it be dominated by people living in highly congested, densely populated conditions?  Let’s take a look.  Here’s the list:  Top 20 Per Capita Deficits, 2018.

Observations about this list:

  1. Seventeen of these twenty nations are more densely populated than the U.S.  The average population density is 540 people per square mile, which is 5-1/2 times more densely populated than the U.S.  The aggregate population density – the total population of the countries on this list divided by the total land surface area – is 377 people per square mile – almost four times the population density of the U.S.
  2. Three nations less densely populated than the U.S. are on the list:  Finland, Sweden and Estonia.  Estonia is new to the list and is likely a one-year fluke.  The U.S. had a trade surplus with Estonia until 2010.  Since then, the deficit with Estonia has swung up and down dramatically.  Sixty percent of our imports of manufactured goods from Estonia are telecommunications equipment.  Finland’s economy is heavily dependent on exports, which make up one third of its gross domestic product (GDP).  As is the case with our deficit with all European nations, imports of autos account for a big share of the trade deficit – 27% in the case of Finland.  Sweden is even more heavily dependent on exports, which account for 44% of its GDP.  To put those figures in perspective, the U.S. derives less than 8% of its GDP from exports.
  3. The average “purchasing power parity,” or “PPP,” is just over $39,000 per capita per year vs. U.S. PPP of $59,000.  While that figure seems to lend a little support to the “low wage” theory about trade imbalances, it’s a fairly weak correlation.  It’s especially weak when you see that the top two nations on the list – Ireland and Switzerland – are actually more wealthy than the U.S.  The average PPP of the top ten nations on the list is $47,190.  Only Vietnam has a PPP below $10,000.  China and Mexico are the only other two nations on the list with a PPP less than $20,000.
  4. Our per capita deficit with Ireland – not the highest population density on the list but still more than twice as densely populated as the U.S. – leads the list with a huge per capita surplus with the U.S. of almost $8,600, which accounts for nearly 12% of its PPP.  But population density alone doesn’t explain Ireland’s position at the top of this list.  Ireland is a tax haven for corporations, a situation that the U.S. government has inexplicably done nothing to address.
  5. China, at the top of the list of our trade deficits, barely makes this list at all, coming in at no. 20.  Given that the tariffs imposed on Chinese imports this year have begun to shrink our deficit with China, it’s likely that it won’t make the list at all for 2019.  But, make no mistake, although expressed in per capita terms the deficit with China is unremarkable, when multiplied by its population – one fifth of the entire world – the result is an enormous trade deficit for the U.S.
  6. The deficit with this group of nations has nearly tripled over the past ten years (when Estonia is factored out of the calculation due to its flip-flop from surplus to deficit).  Whatever the factor that drives trade imbalances – and from the data we’ve looked at so far it certainly appears to be population density – it has a very powerful effect.

The real take-away from this list is that population density appears to be a powerful factor in driving trade imbalances, while low wages appear to have little or no influence.  But that’s just one end of the spectrum – our trade deficits.  We’ll next take a look at our trade surpluses to see what effect population density may have at that end of the spectrum.  If high population densities cause trade deficits, we should see the list of our top per capita trade surpluses dominated by nations with low population density.  Stay tuned.


America’s Biggest Trade Surpluses in 2018

October 23, 2019

In my previous post, we examined the list of America’s biggest trade deficits.  Of the top 20 trade deficits, all but one were with nations more (usually much more) densely populated than the U.S.  It appears that population density may be a factor in driving these deficits.  But what will we find at the other end of the spectrum?  Will a list of our top 20 trade surpluses be dominated by more sparsely populated countries?  Well, let’s see.  Here’s the list:  Top 20 Surpluses, 2018.

We do see more sparsely populated nations on the list, but we also see a half dozen very densely populated nations.  At first glance, there doesn’t appear to be much correlation with population density.  But let’s take a closer look at those densely populated nations.  Do they all have something in common?  Indeed they do.  Most of them, but not all, are net oil exporters.  Canada, United Arab Emirates (UAE), Saudi Arabia, Qatar, Kuwait, Norway and Nigeria are all net oil exporters.  Why is that significant?  Because all oil is priced and sold in U.S. dollars.  And, ultimately, there is only one place where those U.S. dollars can be spent as legal tender – in the United States itself.  So those oil exporters use their “petro dollars” to buy products from the U.S.

Consider an example.  If China buys oil from Saudi Arabia, they have to pay for it with U.S. dollars.  No problem for China.  They’re rolling in dollars that Americans spent on their exported manufactured goods.  So now Saudi Arabia has a bunch of dollars.  They have no choice but to use it to buy American goods or American investments, like U.S. bonds.  But their economy is built around oil.  They don’t manufacture anything else to speak of.  So they have dollars to spend on manufactured goods and the only place they can spend those dollars is in the U.S.  Thus, the U.S. has a trade surplus in manufactured goods with Saudi Arabia and, for the same reason, with virtually every nation that is a net oil exporter.

That leaves two other very densely populated nations on the list that are thus far unexplained – Belgium and The Netherlands.  They’re 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.

Now, back to the subject of population density.  With all of the above said, the list of our top 20 trade surpluses is still dominated by eleven nations that are less densely populated than the U.S., and three more that are only slightly more densely populated.  The average population density of these twenty nations is 239 people per square mile, compared to the average population density of 629 for the nations that represent our biggest trade deficits.  The combined population density of all twenty nations on the surplus list (total population divided by total land surface area) is  43 people per square mile, compared to 502 for the deficit list.  It certainly appears that population density is a real factor in driving trade imbalances.

A few more observations about this list of our biggest trade surpluses is in order:

  1. 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.
  2. Are you surprised to see Russia on the list?  It’s less surprising when you look at their population density.
  3. 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 almost 1200%.  Which do you think is more likely to be the real driver of trade imbalances – wages or population density?

When it comes to the sheer size of trade imbalances, of course our deficit with China is bigger than our deficit with other, much smaller nations.  And of course our trade surplus with Canada is much larger than, say, our surplus with New Zealand.  Does that mean that Canada should enjoy more favorable trade terms than New Zealand, or that China should be punished with harsher trade terms than, say, Japan or Germany?  Hardly seems fair.  Trade policy should be formulated to address the factor that actually drives trade imbalances, regardless of the size of the nation in question.  That factor is population density.  In order to factor sheer size out of the equation, let’s now look at our trade deficits and surpluses in per capita terms, starting with our biggest per capita trade deficits.  The results are fascinating.  Stay tuned.


America’s Worst Trade Deficits in 2018

October 22, 2019

With little more than two months left in 2019, I’ve finally finished compiling and analyzing America’s trade data for 2018.  Why the delay?  Thanks to the government shutdown early this year, the trade data wasn’t released this year until nearly July – four months later than usual.  And tabulating the results for hundreds of 5-digit end use code products for 165 nations is no small feat.

What we’re looking at here are the deficits in manufactured goods as opposed to services and various categories of natural resources.  Why?  Because manufacturing is where the jobs are.  Yes, there are jobs associated with the harvesting and mining of natural resources but, pound for pound, those jobs pale in comparison to the number generated by manufacturing.

And it should be noted that there are more than 165 nations in the world.  The CIA World Factbook lists 229.  Nearly all of the 64 nations that I left out of this study are tiny island nations with whom, combined, trade represents only a tiny fraction of America’s total.  Also, their economies tend to be unique in that they rely heavily on tourism and their manufacturing sectors are virtually non-existent, if for no other reason than a lack of space to accommodate manufacturing facilities.

It should also be noted that I’ve rolled the results for tiny city-states into their larger surrounding nations – states like Hong Kong, Singapore, San Marino, Luxembourg, Liechtenstein, Monaco and others.  They too tend to have unique economies, heavily dependent on services like financial services, and mostly devoid of manufacturing for the same reason as small island nations – a lack of space.  There is no room for sprawling manufacturing complexes.

So, with that said, let’s begin with a look at America’s biggest trade deficits.  Here are the top twenty:  Top 20 Deficits, 2018.

It comes as no surprise that China once again has topped the list with a whopping $416 billion deficit – up from $385 billion the year before.  It’s more than four times as large as the next biggest deficit – Japan.  But Japan is less than one tenth the size of China, making the deficit with Japan nothing to scoff at.  Look at our deficit with Ireland.  It’s one tenth that of China, but China is 200 times as large as Ireland.

There are many other interesting observations that can be made about this list:

  1. There’s a lot of variety on this list – nations big and small, rich and poor, Asian, European and Middle Eastern nations.  But there’s one thing that all except one have in common – a high population density.  The average population density of this list is 629 people per square mile.  Compare that to the population density of the U.S. at 92 people per square mile.  On average, the nations on this list are seven times more densely populated than the U.S.
  2. With a few exceptions, these are not poor countries where wages are low.  Half of the top ten nations have a “purchasing power parity” (or “PPP,” a measure of wealth that is roughly analogous to wages) near or, in two cases – Ireland and Switzerland, above that of the U.S. ($59,500).  Only one nation in the top ten – Vietnam – has a PPP of less than $10,000.  So, the conventional wisdom that low wages cause trade deficits isn’t supported by this list.
  3. Two nations on this list – China and India – represent 40% of the world’s population.  On the other hand, there are others that, combined, make up less than 1% of the world’s total.  Naturally, if we have a trade deficit with a big nation, it tends to be really big.  In order to identify the factors that influence trade, we need to factor sheer size out of the equation.
  4. On average, the U.S. trade deficit in manufactured goods has risen by 166% with this group of nations over the past ten years.  Whatever it is that drives trade deficits has a very potent effect.  The fastest growing deficit is with India, rising by 428% in ten years.  India is the 2nd poorest nation on the list.  Perhaps low wages do play a role here?  On the other hand, nearly tied with India (in terms of the rate of growth in the deficit, not the deficit itself, which is actually larger) is Switzerland, the 2nd wealthiest nation on the list – wealthier than the U.S. – debunking the low wage theory.
  5. It’s often said that America needs to be more productive in order to compete in the global economy.  Yet we see nations like France and Italy on this list – nations notorious for long vacations, short work weeks, etc. – not exactly bastions of productivity.  So if productivity is an issue, why are we losing out to nations who are much less productive?
  6. In 2018, the U.S. had a total trade deficit of $816 billion in manufactured goods.  Of the 165 nations in this study, the top nine deficits on this list account for more than that entire total.  The U.S. actually has a small surplus of trade with the other 156 nations of the world combined.

Trade deficits matter.  As noted above, our overall deficit in manufactured goods in 2018 was $816 billion.  On a per capita basis, that’s a deficit of $2,500 for every man, woman and child in the U.S., or a deficit of nearly $10,000 for an average household of four.  That’s how much poorer you are than if we had a balance of trade.

In my next post, we’ll take a look at the other end of the spectrum – America’s top twenty trade surpluses in manufactured goods.  If population density is a factor, then we should see that list comprised of nations with low population densities.  And if low wages aren’t a factor, we shouldn’t see anything much different than what we saw on this list presented here – a list peppered with rich and poor nations alike.  So stay tuned.  You won’t find this in-depth analysis of trade or the factor that actually drives it anywhere else.


August Trade Data – More Evidence that Tariffs Work

October 7, 2019

You won’t find it in the headline number, but the August trade data that was released on Friday provides more evidence that tariffs work to reduce trade imbalances.

The overall trade deficit in August remained in the same tight range where it’s been for over a year, at $54.9 billion.  Imports remained locked in the same range where they’ve been for a year, while exports remained at the same level where they’ve been for two years.  The deficit in manufactured goods, which came in at $73.8 billion, may be showing signs of finally leveling off, although it’s too early to draw that conclusion.  (Here’s a chart of that all-important trade category:  Manf’d Goods Balance of Trade.)

What’s significant is what’s happening in trade with China.  Through August, the trade deficit with China is on track to finish at about the same level as 2014 – $345 billion – after soaring to $420 billion in 2018.  It will likely end the year even lower as companies ramp up efforts to shift manufacturing to tariff-free suppliers.

The August trade data also illustrates that all of the talk of the tariffs hurting farmers is a bunch of baloney.  Through August, total farm exports are off from the previous year by less than 1%.  Exports of soybeans, which gets so much attention, are actually up in 2019 to $17.3 billion from $15.3 billion during the same period in 2018.

Unfortunately, the exodus of companies from China to find other tariff-free manufacturers hasn’t yet led to a boost in manufacturing in the U.S.  The trade deficit with other suppliers like Mexico, Vietnam, South Korea and others is actually getting worse as companies turn to them, their alternate, back-up manufacturers, to provide the capacity that’s been pulled out of China.  That won’t change until Trump begins extending his tariff policy to those countries as well.  Tariffs on all auto imports would be especially helpful.   As I said last month – what’s he waiting for?


Evidence Mounting that Trump Tariffs are Working

September 9, 2019

The July trade data released on Friday by the Commerce Department provides evidence that the tariffs implemented by the Trump administration on Chinese imports are working.  The purpose of the tariffs, of course, is to shift manufacturing away from China and back to the U.S. to bolster the U.S. economy and manufacturing employment and break America’s dependence on massive budget deficits to counteract the damage done by trade deficits.

You won’t find much evidence of it in the headline number – the overall trade deficit – which shrunk marginally in July to $54 billion, a figure actually slightly worse than a year ago – $53.4 billion in July, 2018.  You have to look deeper at what’s happening with manufactured goods – not just “goods” in general, which the Commerce Department tracks and which includes trade in resources like oil and and farm products that have little impact on job creation.  The trade deficit in manufactured goods has been deteriorating rapidly for many years, interrupted only by the “Great Recession” in 2008/2009.  From January, 2010 to December of 2018, the deficit in manufactured goods nearly tripled, from $28.6 billion to $76.5 billion.  However, in the past twelve months, the deficit in manufactured goods has risen by only $0.3 billion – an actual decline when adjusted for inflation – and has actually fallen by $6.4 billion since the record of $76.5 billion set in December.

The impact on trade with China has been dramatic.  Through 2018, the deficit with China had been rising at a rate of about 10% per year, from $56.9 billion in 1998 to $419.5 billion in 2018.  In 2019, however, the deficit has fallen by 12% and the rate of decline is accelerating, though it ticked up slightly in July, likely the result of importers stockpiling goods in anticipation of the next round of tariffs.

The effect on manufacturing employment in the U.S. has been much less dramatic, though there has been some effect.  Manufacturing employment gains have been slow in 2019 after a strong 2018, but that may be about to change.  The Labor Department reported on Friday that, while the average work week in the U.S. rose a tenth of an hour to 34.4 hours, the manufacturing work week rose by 0.2 hours to 40.6 hours.  That bodes well for an overdue jump in manufacturing employment as employers look to cut overtime costs.  Also, although the headline number of Friday’s employment report – 130,000 jobs added in August (according the establishment survey portion of the report) – was below expectations for a gain of about 158,000 – what went unreported was that employment in the U.S. (as measured by the household survey portion of the report) rose by nearly 600,000!

And there’s this:  https://www.reuters.com/article/us-usa-economy-women/tight-u-s-labor-market-shrinks-gender-and-race-gaps-to-record-lows-idUSKCN1VR2JC.  In August, the gap in the labor force participation rate between men and women fell to an all-time record low and black unemployment also fell to an all-time record low.

Still, job gains in manufacturing at this point could be and should be much better.  What’s holding it back is Trump’s failure to expand his tariff policy beyond China, enabling companies to shift production from China to secondary suppliers in other countries – especially Mexico – where the trade deficit has jumped 24%.  Mexican workers have been the biggest beneficiaries of the tariffs on China, not Americans.

Trump can’t really claim that he’s “Made American Great Again” until manufacturing jobs come back to the U.S. in a much bigger way.  That can’t happen until he applies tariffs beyond China to include Mexico and imported autos from Europe, Japan and South Korea.  The results with China prove that they work.  Why is he holding back?


“Embrace change,” corporate America!

September 3, 2019

I was there, working in manufacturing in the 1980s, when a cold wind swept across America.  I was there when our corporations, until then led by manufacturing and the engineers who rose up through its ranks, kicked manufacturing to the curb and replaced their leadership with marketing people, skilled in the art of B.S., and bean counters, focused on nothing but cutting costs.  I was there when the United Nations and the World Trade Organization embarked on their campaign of raising poor nations out of poverty through the systematic plundering of jobs from the U.S. – as many jobs as possible without tipping the balance of power in favor of bad actors who might threaten this new concept of “globalism” and the “New World Order” – the new regime of parasites dedicated to keeping its U.S. host alive just enough to keep the blood flowing.

I was there when they began scaling back manufacturing operations, laying off good workers and closing plants.  “Embrace change,” we were told constantly by business managers with an air of condescension, as though they were addressing fools too dumb to recognize good things and good opportunities when they see it.  We had made careers of embracing change – change for the better – changes that automated our factories, boosted production, cut emissions, improved quality and grew profits.  Now we were being insulted by con men whose only goal was the next promotion, which required laying off more people than the next guy.

I was there at a big division-wide meeting – one of those meetings whose purpose was ostensibly to gather input, but it was clear from the start that input was the last thing they wanted.  What they wanted was “buy in” for the new direction of the company.  In other words, you’d better accept what’s coming enthusiastically, with a big smile on your face, if you know what’s good for you.  The leader, the division manager, asked, “what are we going to need to succeed?”  I raised my hand and replied – perhaps naively or perhaps in a thinly-veiled attempt to stand up for what I and many others present had built our careers around.  “We’ll need excellence in manufacturing.”  I was stunned by his arrogant, dismissive reply.  “Why?  We don’t need that.  We can buy that!”  I thought to myself, “you dumbass, you can buy it if you want, but you still need it, and now you’re at the mercy of your supplier.”  But it would have been a pointless example of falling on your own sword to come right out and say it.  “Embrace change.”  Here it comes.

Our final days before closing the doors were spent writing operating procedures, documenting every detail of our operations, and then training workers brought over from foreign subsidiaries.  We were forced to facilitate the widespread technology transfer that played a critical role in ruining the American economy.

It’s decades later and the tables have turned.  As it always does, the pendulum swung too far.  The globalist corporations over-played their hand, planting the seeds of political change.  Americans are sick of working for minimum wages and being the world’s chumps.  America itself can no longer fund massive trade deficits.  The wind has shifted and now blows cold on globalist dreams of reaping big profits from a China transformed into western-style consumers and from plundering the American market with cheap products.  Those dreams never had a chance.  China will never be more than a sweat-shop labor pool with their gross over-population dooming any hope of a western-style, consumer-driven economy.

In the meantime, a lot of weeds sprouted in the devastated American economic landscape.  By “weeds,” I mean business models that bring so little value to the table that they are dependent on virtual slave labor wages.  Cheap junk of poor quality has perpetuated a throw-away mindset among consumers.  Cheap clothing made of thin, flimsy fabric.  Tools that break after one use.  Auto parts and appliances that break as soon as the warranty expires.  An economy dependent on consumers burning through their severance packages.  A retail economy that employed laid-off workers manning check-out lines until everyone had burned through their savings.  An economy totally dependent on consumers buying stuff that they had no hand in producing.  All the while the economy grew.  It didn’t matter if the growth was flowers or weeds, as long as the color was green – money pouring into corporate coffers.

In the wake of Trump’s tariffs on China, retailers are having a hissy-fit when their suppliers ask for a price increase to cover the cost of the tariffs.  Products with high perceived value needn’t fear.  They’ll always find a way to be marketed successfully even if their prices do rise a few percent.  Those with low value will bite the dust.  Good riddance.  And retailers who turn their backs on good products just because the supplier needs to raise prices to make a profit – whether to cover the cost of the tariffs or, better yet, to begin manufacturing domestically – will lose out to retailers who understand their value, and they too will fail and vanish.  Again, good riddance.  It’s not like there’s a shortage of retailers.

So, corporate America, the shoe’s now on the other foot.  EMBRACE CHANGE!  Think of the possibilities and opportunities – the opportunity to cut your shipping costs dramatically, to be in charge of your manufacturing again instead of being at the mercy of Chinese companies, to boost sales to American consumers with more buying power thanks to rising wages.  EMBRACE CHANGE!!  Maybe you can mitigate some of the increased cost by cutting fat at the top layers of your organizations – those con men who grew fat and rich by ruining the lives of the people who actually did the work.  EMBRACE CHANGE!!!  Maybe you’ll survive.  If not, good riddance and adios.  Don’t let the screen door hit you on the way out.  Your workers will be fine.  The winning companies will snap them right up.


Trump Tariff Policy and the Risk of Recession

August 21, 2019

Early this month, Trump announced that a 10% tariff would go into effect on September 1st on all remaining imports from China.  (Half of Chinese imports were already subject to a 25% tariff.)  Stock markets plunged amid warnings of a global slowdown, inflation and the possibility of recession in the U.S.  Investors rushed to buy safe-haven bonds, sending the yield on 10-year bonds below that of 2-year bonds, producing the dreaded “yield curve inversion,” which has often been a harbinger of a looming recession.  So the warnings of recession intensified.  Every weaker-than-expected economic report blames the “trade war” and Trump’s tariffs, while every stronger-than-expected economic report – most notably a strong labor market and good GDP growth (the exact opposite of recession) is shrugged off as happening in spite of the tariffs and trade war.  The globalist media is desperately stoking fear of a recession in the hope of creating a self-fulfilling prophecy.

Is there actually a risk of recession related to Trump’s tariff policy?  You bet there is.  But the relationship is exactly the opposite of what economists and the media would have you believe.  Trump’s “slow turkey” approach to the use of tariffs – imposing them only on China – so far hasn’t yielded anything in terms of reducing the trade deficit and bringing manufacturing jobs back to the U.S.  Don’t get me wrong.  The tariffs on China are definitely working – reducing the trade imbalance with China by nearly 25% this year.  But companies aren’t convinced that this is anything other than a blip in U.S. trade policy or that it could extend beyond China.  So, instead of bringing jobs back to the U.S., it has shifted them to other overpopulated nations hungry for work.  It appears that countries like Mexico and Vietnam have been the big beneficiaries so far, where our trade deficit with each has grown by approximately 25%.

Our overall trade deficit hasn’t budged.  In  June (the most recent month for which data is available), our deficit in manufactured goods was $73.1 billion – the 2nd worst figure ever recorded and only $3.6 billion below the record set in December of ’18.

Trump appears to be walking a fine line, taking the “slow turkey” approach to tariffs to avoid roiling markets but, at the same time, not realizing any of the benefit of bringing back manufacturing jobs, leaving the economy dependent on deficit spending to counteract the drag of the trade deficit, making it susceptible to a recession.  It’s a huge gamble.  A recession will doom any hope of a 2nd term and, with it, any hope of sustaining this badly-needed turn in trade policy.