What fraction of United States consumer spending goes for Chinese goods and what part of that fraction reflects the actual cost of imports from China? The U.S. Content of Made in China, a study by the Federal Reserve Bank of San Francisco, looked at these questions and revealed some surprisingly positive results.
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 percent of U.S. GDP; imports from China amounted to 2.5 percent of GDP.
- A total of 88.5 percent 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 percent 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 percent – mainly due to higher retail and wholesale margins on consumer electronics and clothing.
The import content of U.S. personal consumption expenditures (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.
Based on this study, since the share of PCE attributable to imports from China is less than two percent, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States.
