$0.55 of Every Consumer Dollar Spent on Imports from China Goes to U.S. Transporters, Wholesalers, and Retailers

First there was the “iPod Paper.” That now-iconic study found that Chinese inputs amount to only $6 of the $150 cost of producing an Apple iPod, yet the entire $150 is chalked up as an import from China. Then there were spin-off studies for the iPhone and iPad (described and editorialized here), reaching similar conclusions. This week the Federal Reserve Bank of San Francisco published an excellent contribution to the growing body of literature supporting the conclusion that “Made in China” labeling and trade flow statistics, more broadly, are farcically uninformative and dangerously misleading.

In light of next month’s start to what is likely to be 14 months of nastier-than-usual China-bashing from unions, paid advocates of protectionism, politicians running from the real issues, and other shallow thinkers, the new Fed paper is a timely and welcomed addition for those of us in the business of presenting fact- and logic-based arguments.

Among the study’s findings are:

  • Despite globalization, the U.S. economy “actually remains relatively closed.” (By “relatively closed,” the authors mean that imports are puny compared to the size of the economy—not that U.S. policies are relatively restrictive of imports.)
  • The vast majority of goods and services purchased by U.S. consumers (88.5%) is produced in the United States
  • When accounting for the value of foreign content in final U.S. production of goods and services, 86.1% of U.S. consumer purchases of goods and services is produced in the United States.
  • Of the 11.5% of total U.S. consumer spending on imports, 64% accounts for the goods and services produced abroad and 36% accounts for transportation, wholesaling, retailing and other activities performed in the United States.
  • Only 2.7% of U.S. consumer spending is devoted to goods labeled “Made in China.”
  • Of the 2.7% of U.S. consumer spending on imports from China, only 45% is for the foreign-produced good and 55% goes to transportation, wholesaling, retailing, and other activities performed in the United States. In other words, $.55 of every dollar spent on imports from China directly supports economic activity in the United States.

This Cato paper gives broader perspective to the findings of the aforementioned studies.