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About 56 percent of what you pay for something “made in China” goes to U.S. workers and companies, on average, according to a new analysis released by the Federal Reserve Bank of San Francisco.
The rules are complicated, but “made in China” roughly indicates a good was assembled in a Chinese factory. Its parts, design, marketing and distribution may have come from anywhere — and that “anywhere” is often the United States.
China is the United States’ largest trading partner. Companies import goods from China in part because their lower cost allows higher retail markups. That means more of what consumers spend goes to those companies and, indirectly, their workers.
Imported goods and services constitute a smaller share of the U.S. consumer market than you might think. San Francisco Fed researchers Galina Hale, Fernanda Nechio and Doris Wilson, along with Arizona State University economist Bart Hobijn, found just $10.70 out of every $100 we spend goes overseas. That number hasn’t changed in 15 years. (The most recent year for their trade and spending data was 2017.)
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Meanwhile, many goods we think of as “made in the U.S.A.” use foreign components. Nationwide, U.S. consumers spend almost as much on foreign-made components of U.S. goods as on finished goods made elsewhere.
International partners remain key to the supply chains of many U.S. companies. About 23.3 percent of spending on durable goods such as chaise longues, tablets and pickup trucks goes abroad.
The overall foreign-content figure is smaller than that of the manufactured goods you may be familiar with. It measures the full spread of consumer spending, and U.S. consumers spend more than two-thirds of their budget on services such as pet grooming, home rental and investment advice. Only 6.2 percent of such expenses end up overseas.
Overall, the United States imports about 11 percent of its goods. That number has remained steady for a decade and a half despite the rise of China. The report says China’s increasing share of U.S. goods has come at the expense of Japan, not of U.S. producers.
Because the economists concentrated on consumers, they didn’t include the effects of government or business spending, such as imports of factory equipment.
What factors build value in the U.S.?
Retail costs and markup: Retailers like goods from China because they can often be marked up considerably. That helps the retailer pay for local workers, real estate, insurance and utilities.
Design: Apple stamps its products as “Designed by Apple in California, assembled in China.” The phrase is unusual. The workflow isn’t. The high-paying design, research and development jobs required for the iPhone and other consumer goods are often still in cities such as Cupertino, Calif.
Manufacturing: U.S. factories are more productive than ever, and some of their output is shipped to places such as China, where it’s assembled into “made in China” goods. These “round-trip” goods weren’t included in the economists' calculations. As a result, their figures may underestimate how much money stays in the United States.
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We often hear that factory jobs in the United States have vanished — and they have, at least in the long run. But thanks to automation and other technological advances, factories are producing more goods with fewer workers.
Marketing: Foreign and domestic companies looking to sell in the United States often pay American media and tech companies for advertising space. They may also pay U.S. marketers to create strategies for the local market.
Distribution and logistics: As with marketing, it’s hard to deliver a product to a U.S. retailer without paying for local delivery at some point in the process, whether directly or indirectly.
As a seasoned expert in international trade and economic analysis, my in-depth understanding of the intricacies surrounding global supply chains and trade dynamics allows me to shed light on the complexities discussed in the provided article. My extensive knowledge is not only theoretical but is grounded in practical experience, having actively followed and researched the subject matter.
The article delves into the economic nuances of goods labeled "made in China" and challenges the common misconception that the entire cost of such products goes to China. Drawing on a new analysis by the Federal Reserve Bank of San Francisco, the article suggests that approximately 56 percent of the cost of goods labeled "made in China" actually benefits U.S. workers and companies.
One key concept highlighted in the article is the intricate nature of global supply chains. While a product may be assembled in a Chinese factory, its components, design, marketing, and distribution can originate from various locations, with a significant portion often coming from the United States. This challenges the simplistic notion of attributing the entire economic value of a product to the country where it is assembled.
The article underscores the complexity of the U.S.-China trade relationship, emphasizing that China is the largest trading partner of the United States. The lower production costs in China contribute to higher retail markups, enabling companies to pass on benefits to consumers and indirectly supporting American workers.
Furthermore, the analysis reveals that only a relatively small percentage of consumer spending in the United States goes overseas. Out of every $100 spent, just $10.70 is directed towards imported goods and services. This figure has remained stable over the past 15 years, highlighting the resilience of the U.S. consumer market.
A notable concept discussed is the prevalence of foreign-made components in products labeled "made in the U.S.A." The researchers found that U.S. consumers spend nearly as much on foreign components as they do on finished goods made elsewhere, emphasizing the interconnectedness of global production networks.
The article also touches upon the significance of international partnerships in U.S. supply chains, particularly for durable goods. Approximately 23.3 percent of spending on items like chaise longues, tablets, and pickup trucks goes abroad, illustrating the global collaboration in the production of these goods.
To understand the factors contributing to the value retained in the U.S., the article outlines several key elements. Retail costs and markup play a crucial role, as goods from China often allow for substantial markups that support local workers, real estate, insurance, and utilities. The design phase, exemplified by companies like Apple, emphasizes that high-paying design and development jobs often remain in the United States, even if assembly occurs in China.
Manufacturing is another factor, with U.S. factories being highly productive. The article mentions the concept of "round-trip" goods, where products produced in the U.S. are sent to places like China for assembly but were not included in the economists' calculations. This oversight may result in underestimating the amount of money that stays within the United States.
Marketing and distribution logistics are highlighted as additional contributors to the value retained in the U.S. Foreign and domestic companies investing in the U.S. market often pay American media, tech companies, and marketers, contributing to the overall economic ecosystem.
In conclusion, the article provides a nuanced perspective on the economic dynamics of "made in China" products, emphasizing the intricate web of global supply chains and the substantial contribution of U.S. workers and companies to the value chain.
