Bilateral trade deficits and other nonsense

Paul Krugman (sort of) tweeted about the hoopla over the US trade deficit with Germany. Krugman points out that bilateral trade balance is irrelevant in a global economy because the global economy is a complex organism and individual relationships have to be considered in the bigger context. All true if you believe in the global economy – and the vast majority of American consumers do based on their shopping behavior. Then Krugman digs down into the nuts and bolts of the US trade relationship with Germany.

As Krugman points out, the trade relationship with any EU country is complicated, since goods arriving at any port within the EU could be destined for any national market within the union. Krugman speculates that the large US trade surpluses with Netherlands and Belgium represent goods ultimately consumed throughout the EU, including Germany.

With this thought in mind, I took the US Census balance of trade data, computed the 2016 bilateral net exports from the US (exports from the US minus imports to the US) for each EU country, and divided that by the 2016 population of each country. Here’s what I got

percapitdeficit

The thinking here is that if some countries act as ports for US trade with the whole EU, those countries should have disproportionately large trade deficits or surpluses with the US. For example, the overall US trade deficit with the EU is \$287 per person living in the EU. For Germany, it’s \$789 per person in Germany. Belgium and Netherlands have US trade surpluses of \$1348 and \$1427, respectively, per person in each of those countries. Luxembourg chips in another \$1648 per person, but the half-million people of Luxembourg are not going to turn around the US export economy any time soon.

These numbers support Krugman’s idea that Belgium and Netherlands are importers for the whole EU. And the US’s huge per capita trade deficit with Ireland probably reflects that Ireland is an exporter for the whole EU. The population of Ireland is a little less than one percent of the EU, however, so the size of that number is not as dramatic as it seems.

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