Trade Deficit Falls In March
Kurt Brouwer May 10th, 2008
U.S. Trade Deficit Narrows Unexpectedly (International Herald Tribune, May 9, 2008)
The U.S. trade deficit narrowed more than expected in March on a record plunge in the value of imports, even as average oil prices surged to a new record, the Commerce Department reported Friday.
The trade gap shrank to $58.2 billion in March, down 5.7 percent from a revised estimate of $61.7 billion in February. Wall Street analysts had expected the March gap to narrow to $61.3 billion.
A $6.1 billion drop in the value of imports to $206.7 billion was the biggest on record. It was also the biggest percentage drop since December 2001, only months after the attacks on the United States and when the U.S. economy was in a downturn.
In a sign that the current U.S. economic slowdown is taking a toll on consumer and business demand, major import categories like autos and auto parts, industrial supplies and materials, consumer goods and capital goods all showed declines in March…
I snorted a bit when I read the title where it says the ‘trade deficit narrows unexpectedly.’ Given how weak the dollar is (see Defending The Dollar), the only thing that could reasonably be viewed as unexpected would be for the trade deficit to widen.
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The March trade figure is of no statistical significance whatsoever. The trade deficit has been locked in a range of about $56-64 billion for many, many months. It’ll be back up next month.
The falling dollar is having no impact on the trade deficit because the value of the dollar has nothing to do with the root cause of the deficit - the gross disparity in population density and, consequently, per capita consumption between the U.S. and so many of our grossly overpopulated trading “partners.”
At this point, I should introduce myself. I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” To make a long story short, my theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.
This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.
One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!
Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. In fact, our largest per capita trade deficit in manufactured goods is with Ireland, a nation twice as densely populated as the U.S. Our per capita deficit with Ireland is twenty-five times worse than China’s. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one sixth of the world’s population.
If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com.)
Please forgive me for the somewhat “spammish” nature of the previous paragraph, but I don’t know how else to inject this new perspective into the debate about trade without drawing attention to the book that explains the theory.
Pete Murphy
Author, Five Short Blasts
That’s certainly a unique theory Pete.
Theory is not only unique - is doesn’t make sense.
It is based on a statistical accident. Data sets are full of such accidents. Overcrowding is a relative thing. Hiigh population density in U.S. cities is associated with older cities - the century in which the city grew rapidly. Those high population density cities that specialize in banking, finance and trade are rich. They are not overcrowded. They benefit from high population density.
National population density is heavily influences by the amount of land that is non-fertile. That has no influence on trade.