Wednesday, August 10, 2011

U.S. Consumers Spend < 2% on "Made in China"

A new paper from the San Francisco Fed "The U.S. Content of 'Made in China'" has been getting a lot of blog attention, see Matt Yglesias, Doug Henwood and Tim Fernholz (HTs to Steve Bartin and Jonah Goldberg).  One of the main points of the article is:

"Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%."

Expressed in dollar amounts, that means that of the $276 billion spent by consumers in 2010 on goods "Made in China" (or 2.7% of total consumer spending of $10,245 billion), only about $123 billion (0r 1.2% of consumer spending) reflects the contribution of Chinese content, and the other $153 billion (or 1.5% of consumer spending) actually goes to American companies and workers for value added in the U.S. from transportation, distribution, marketing, wholesale and retail activities.  

For those goods "Made in the USA" with parts imported from China, the contribution of the Chinese content represents only 0.7% of total consumer spending.  

Bottom Line: 

1. The total share of U.S. consumer spending on: a) "Made in China" imports (1.2%, see chart) plus b) the value of Chinese inputs used to produce goods labelled "Made in the USA" (0.7%, see chart) together represents less than 2% (1.9%) of personal consumption expenditures (or $194.65 billion out of $10,245 billion).   
2. The SF Fed concludes that because the "share of consumer spending attributable to imports from China is less than 2%, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States."

3. Doug Henwood adds that "it’s also an antidote to the widespread belief that the U.S. is hollowed out and all the action is in China."


At 8/10/2011 10:17 PM, Blogger David J said...

Too bad facts have no importance to our politicians.

At 8/11/2011 3:33 AM, Blogger PeakTrader said...

China's top economic priority is keeping the masses employed regardless of the costs.

The centrally planned state-owned communist system created massive structural inefficiencies.

At 8/11/2011 6:24 AM, Blogger Don said...

The US central bank has never needed any help to create inflation, even if it doesn't show up in prices right away.

Regards, Don

At 8/11/2011 10:12 AM, Blogger Rufus II said...

Interesting. I'm, actually, quite surprised.

At 8/11/2011 10:34 AM, Blogger Junkyard_hawg1985 said...

I'm struggling a bit with the data. According to the Census Bureau, imports from China were $364 Billion in 2010. The retail sales prices of these items would be higher than the $364B (i.e. representing $700B in retail sales). If we are importing $364B in goods from China, I'm not sure how we end up with a $153B of China maid goods. Is there a re-export component I'm missing? I do recognize that much of the $364B in imports is overstated prices to avoid the U.S. corporate income tax rate, but more than double seems unrealistic to me.

At 8/11/2011 10:39 AM, Blogger Buddy R Pacifico said...

Looking at Table 1, supplied by the SF Fed, Durables account for 10% of consumer spending. In the manufacturing of Durables, 12% of share is spent on Made in China. So, the inflation imported from China is not "headline" inflation of food and energy, but Durables will reflect some inflation of Chinese origin.

At 8/11/2011 10:50 AM, Blogger Mark J. Perry said...

The SF Fed study is only looking at Personal Consumption Expenditures ($10,245 billion in 2010). There would also be spending by government and businesses on goods "Made in China."

At 8/11/2011 3:10 PM, Blogger OBloodyHell said...

>>> the widespread belief that the U.S. is hollowed out and all the action is in China."

As I have noted on a number of previous occasions:
The USA is no longer a Manufacturing/Industrial Economy, any more than it is an Agricultural Economy.

It has moved on from those to, to become the world's first, and so far, only, Intellectual Property & Services Economy.

There is no future substantial wealth to be gained for the USA from the manufacturing sector. As with Agriculture, the margins are too thin and the nature of the business should be to mechanize (roboticize) the ever-living f*** out of it, to reduce the number of actual people involved in such activities as far as possible. We should aim to match the 2-4% Ag employment with 2-4% Industrial employment.

For the time being, some element of that employment may be better served helping other nations bootstrap themselves into an Industrial economy for their own benefit, wealth, and stability (rich people are less likely to seek revolt or attempt to steal wealth from other nations via military action).

Such trading partners, along with the geopolitical stability they engender, are to our benefit as well.

If anyone wants to see what the Factory of the Future ought to look like, I recommend the movie "Minority Report", which has an example factory in action, as part of a brief plot segment in the middle of the movie.

The rest of us, outside that 4-8%, should be diving into the IP and Services Economy at full steam, working to find ways to create IP and offer services in unique and efficient ways. That is where the future wealth lies.

At 8/14/2011 12:40 PM, Blogger James said...

The value added from “transportation, distribution, marketing, wholesale and retail activities” would be the same if the goods were produced here. Is this study saying that the wages saved when production is moved to China is going to corporate profits?

At 8/15/2011 4:05 AM, Blogger Ian Random said...

I don't understand this obsession with Chinese goods is so significant, why do we batter the hell out of domestic manufacturers. You'd think it would motivate governments to streamline all industrial development approvals. But the only thing I hear is the need for more unions and tariffs. I think the manufacturing sector should be called the forgotten sector like Amity Shlaes's book.


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