There are a couple important principles in international economics:
1. National boundaries are not necessarily meaningful when evaluating the influence of a particular regional economy. The GDP of Czechoslovakia did not suddenly change when the country split in two–nor did the impact of its economy on the rest of the world.
2. When a country’s economy impacts the US, it usually doesn’t matter whether the impact is “natural” or “artificial.” For instance, suppose we had been gladly importing Ecuadorean bananas for decades, naively thinking that any country named after the equator must be warm. Then we found out that the weather in Ecuador was actually quite cool (due to high altitude), and that bananas could only be grown there because the government was heavily subsidizing production in greenhouses. Of course most red-blooded Americans would be outraged by this discovery, as it would indicate that we were a bunch of patsies who had been victimized by the Ecuadorean “dumping” of subsidized goods. A few economists might argue, however, that if cheap bananas are good for the US, it doesn’t really matter why they are cheap.
With these concepts in mind, I decided to investigate where these so-called international “imbalances” are actually located. Keep in mind that I don’t think imbalances are of any importance. But others clearly do—so at least we ought to be aware of the stylized facts being discussed. I used data from the back page of The Economist, and divided the world up into key regions:
- Nordic region: Population 125 m. CA surplus = $397.3 b. (Of which Germany is nearly 2/3 the population, but less than 1/2 the surplus.)
- China: Population 1350 m. CA surplus =$289.1 b.
- Japan: Population 127 m. CA surplus = $180.9 b.
- Five dragons: Population 110 m. CA surplus = $153.3 b.
- Russia: Population 145 m. CA surplus = $84.2 b.
- Club Med: Population 255 m. CA deficit = $266.3 b.
- Anglo bloc: Population 420 m. CA deficit = $556.0 b. (Of which the US is roughly 3/4s of both categories.)
[The Nordic bloc includes Norway, Sweden, Denmark, Holland, Germany and Switzerland. Perhaps "Protestant" might be a better term. Club Med includes France, Spain, Italy, Greece and Turkey. The five dragons are Korea, Taiwan, Malaysia, Singapore and HK. The Anglo bloc includes the US, Canada, Britain and Australia. The Economist did not list small countries like Ireland and New Zealand. CA is 'current account.']
So if CA surpluses are to be viewed as a problem, then there is no one more villainous that the Norwegians and the Swiss. Both countries have CA surpluses of roughly $10,000 per capita. That’s about $40,000 for the average family of four in each country. There are lots of countries where average incomes aren’t even that high. China has a surplus of about $215/person. The average Norwegian and Swiss worker is nearly 50 times as destructive of US jobs as the average Chinese worker. All those xenophobic campaign commercials should be depicting blue-eyed blonds making skis and cuckoo clocks. That’s where our jobs are going!
I know what you are thinking; “The Nordic countries play by the rules; they don’t have their governments buy lots of foreign financial assets in order to run up massive CA surpluses.” Ever heard of Norway’s Sovereign Wealth Fund? Note that the 5 little Nordic countries combine for a $220 billion surplus, with a combined population smaller than South Korea.
Do any of these “imbalances” actually hurt the US? Of course not, the Fed determines our NGDP. But I thought it would be interesting to identify the villains, in case you do think it is a problem. BTW, the other countries on The Economist list tend to have much smaller imbalances. These are the big ones.
PS. I used the CA balance. Some might argue that it is the trade balance that really matters, as it correlates with jobs. The CA includes income from investments. If so, China shrinks to a $182.9 b. surplus and Germany rises to $208.2 b. while Russia soars to $151.6 b. China is just another big country in trade balance terms.