55% of Imports are Inputs, Not Finished Goods

From today's Detroit News, "Manufacturing Thrives Despite Myth of Decline," by Dan Ikenson of The Cato Institute:

"While misguided (or disingenuous) politicians rail against the rising trade deficit, they fail to comprehend (or acknowledge) that U.S. producers are America's largest importers. In 2006, 55% percent of all U.S. goods imports were industrial products and components, the kinds of purchases made not by consumers, but by producers.

That statistic supports the strong correlation between manufactured imports and U.S. manufacturing output, which has been observed for decades. Imports and output rise and fall in tandem. Thus, policymakers who seek to restrain imports are effectively advocating a manufacturing recession. If their mercantilist worldview prevails, and imports decline, reports of idled factory equipment will not be far behind."

MP: Using data from the Bureau of Economic Analysis data, the chart above shows import data by "End-use Category," and confirms that 55% of imports to the U.S. ($504 billion) were either "Industrial Supplies and Materials" ($299 billion) like iron, steel, rubber, aluminum, tin, lumber, newsprint, chemicals, etc. or "Capital Goods, Except Automotive" ($205 billion) like industrial machinery, engines, tools, instruments, etc. The other 45% ($411 billion) of imports were consumer goods and food.

In other words, U.S. companies spend about $100 billion more on imported inputs ($504 billion) than consumers spend on final goods ($411 billion). This distinction is important because, when most people think about imports, we think about finished, retail consumer goods like Toyotas from Japan, toys or big screen TVs from China, etc., and don't realize that the majority of imports are inputs, raw materials and capital equipment for U.S. firms. Raising trade barriers with protectionist tariffs would create significant harm for U.S. companies and their employees by artificially raising the price of their inputs, putting them at a competitive disadvantage in an increasingly competitive global economy.

Bottom Line: Tariffs on imports are essentially punitive taxes on the inputs of U.S. producers, and if you tax something you'll get less of it, including fewer jobs for Americans working at U.S. companies buying inputs from abroad.