Made in China

The United States is running a record trade deficit with China. This is no surprise, given the wide array of items in stores labelled "Made in China." Researchers at the Federal Reserve Bank of San Francisco examine what fraction of U.S. consumer spending goes for Chinese goods and what part of that fraction reflects the actual cost of imports from China. They answer three questions:

What fraction of U.S. consumer spending goes for goods labelled "Made in China" and what fraction is spent on goods "Made in the USA"?

The vast majority of goods and services sold in the United States are produced here. In 2010, imports were about 16 per cent of U.S. gross domestic product (GDP); imports from China amounted to 2.5 per cent of GDP.

A total of 88.5 per cent of U.S. consumer spending is on items made in the United States.

Chinese goods account for 2.7 per cent of U.S. personal consumption expenditure – about one-quarter of the 11.5 per cent foreign share.

What is the U.S. content of "Made in China"?

If a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer.

Thirty-six per cent of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. On average, of every dollar spent on an item labelled "Made in China," 55 cents go for services produced in the United States.

What part of U.S. consumer spending can be traced to the cost of goods imported from China?

Not all goods and services imported into the United States are directly sold to households. Many are used in the production of goods and services in the United States.

Hence, part of the 88.5 per cent of spending on goods and services labelled "Made in the USA" pays for imported intermediate goods and services.

When total import content is considered, 13.9 per cent of U.S. consumer spending can be traced to the cost of imported goods and services.

Source: Galina Hale and Bart Hobijn, The U.S. Content of 'Made in China,' Federal Reserve Bank of San Francisco, August 8, 2011.

For text: http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 24 August 2011