#363. Really – Made in China?

Really – Made in China??

As we enter the New Year, we are optimistic about the economic climate and look forward to improving business conditions for our country. With that being said, we would like to start the year with some encouraging information by sharing with you the results of a study conducted by the Federal Reserve Bank of San Francisco that looked at The U.S. Content of “Made in China”. Keep reading – it really is surprisingly good news!

The study set out to 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. Keys points from the study include:

Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States are produced here. In 2010, imports were about 16% of U.S. GDP; imports from China amounted to 2.5% of GDP.

A total of 88.5% of U.S. consumer spending is on items made in the United States. This is largely because services, which make up about two-thirds of spending, are mainly produced locally.

36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers, covering U.S. transportation, wholesale, and retail activities, including marketing the products.

The U.S. content of Chinese goods is much higher than for imports as a whole – 55% – mainly due to higher retail and wholesale margins on consumer electronics and clothing.

The import content of U.S. PCE attributable to imports from China is useful in understanding where revenue generated by sales to U.S. households flows. It is also important because it affects to what extent price increases for Chinese goods are likely to pass through to U.S. consumer prices.

We have discussed in the past the increasing wage structure taking place in China. Base on this study, the good news is, that since the share of PCE 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.

For the complete report, visit here.