Supply and demand: Crash Economics Course # 4
China's goods and services accounted for only 2 7 personal expenses of US consumption in 2010, of which less than half reflected the actual costs of Chinese imports The rest went to companies and American workers transportation, sale and marketing of products bearing the made in China label Although the fraction is higher when the import content of the products manufactured in the United States is considered, Chinese imports still represent a small share of total consumer spending US This suggests that Chinese inflation will have little direct effect on consumer prices in the United States.
The United States a record trade deficit with China This is not surprising, given the wide range of items in stores labeled Made in China This Economic Letter examines what fraction of US consumer spending is going to Chinese products and what part of that fraction reflects the real cost of imports from China We perform a similar exercise to determine the foreign and domestic content of all US imports.
In our analysis, we combine data from multiple data sources Census Bureau 2011 U S International Trade; the Office of the matrix input-output Labor Statistics 2010; and personal consumption expenditures by category PCE national accounts U Bureau of the Commerce Department of Economic Analysis We use the combined data to answer three questions.
What fraction of U consumer spending goes for Labeled Products Made in China and what fraction is spent Produced in the United States.
What part of the cost of products made in China is actually due to the cost of imports and what part reflects the value added transport US wholesale and retail business is, what is the content US Made in China.
What part of the U S consumer spending can be attributed to the cost of goods imported from China, given not only the goods sold directly to consumers, but also goods used as inputs in the intermediate stages of production in the United States.
Although globalization is widely recognized these days, the US economy remains relatively closed in fact the vast majority of goods and services sold in the US is produced here in 2010, imports were about 16 of US GDP Imports from China was 2 5 of the GDP.
Table 1 content import personal consumption expenditures U by category.
Table 1 shows our calculations of the import content of US household consumption of goods and services a total of 88 5 of US consumer spending is on goods manufactured in the US This is largely because the services, which account for about two thirds of expenditure, are mainly produced locally, the market share of foreign goods is higher in durable goods, which include cars and electronic devices for two-thirds of US consumption of durable goods for GOES products labeled Made in the United States, while the other third is for goods made abroad.
Chinese products account for 2 7 c S PCE, about a quarter of the 11 5 foreign equity Chinese imported goods consist mainly of furniture and household equipment; other durables; and clothing and footwear in the category of clothing and footwear 35 6 U S in 2010 was consumer purchases of products with the label Made in China.
Obviously, if a pair of sneakers made in China costs 70 in the United States, not all of the retail price goes to the Chinese manufacturer In fact, most of the retail price paid for the transport of sports shoes the United States, rent for the store where they are sold, profits for shareholders of the US retailer, and the cost of the marketing of sports shoes such costs include salaries, wages and benefits paid to US workers and managers who staff these operations.
Table 1 shows that of 11 5 US consumer spending that goes for the goods and services produced abroad 7 3 reflects import costs The 4 remaining 2 goes to transport US, wholesale, and retail activities Thus, 36 of the price US consumers pay for imported goods will actually businesses and American workers.
This fraction of the United States is much higher for imports from China Whereas goods labeled Made in China is February 7 of US consumer spending, only January 2 actually reflects the cost of imported goods Thus, average, of every dollar spent on an item labeled made in China, 55 cents go for services produced in the US in other words, the US content of made in China is about 55 that the US content of Chinese products is much higher than for imports as a whole is mainly due to higher retail margins and wholesale consumer electronics and clothing than on most other goods and services.
All goods and services imported into the United States are sold directly to many households are used in the production of goods and services in the US Therefore, part of the 88 5 spending on goods and services labeled Made in the USA STATES pays for imported intermediate goods and services to fully take into account the share of imports in US consumer spending, it is necessary to take into account the contribution of imported intermediate inputs We use arrays of O to calculate the import contribution to American production of finished products and services Combining hand imported US -produced goods and services imported goods and services sold directly to consumers gives the total content of PCE imports.
Table 1 also shows the total amount of imports as a fraction of total PCE and its subcategories When the total content of imports is considered 13 9 US consumer spending can be attributed to the cost of goods and services imported this proportion is significantly higher than 7 3 includes only the final imported goods and services and leaves imported intermediate goods imported oil, which makes a large part of production costs of gasoline, fuel oil and other energy products and transport categories, is the main contributor to June 6 percentage points difference.
Sources Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau and own calculations.
The total share of PCE will for goods and services imported from China is Sept. 1 0 This is 7 percentage points more than the share of final goods and services produced in Chinese PCE This difference is mainly due to the use of property intermediates imported from China in American production services.
Figure 1 shows the total content of imports and Chinese PCE US during the last decade, the share of PCE imports was relatively constant from 11 to 7 and 14 2 Contents of import peaked in 2008-14 2 which is probably due to the spike in oil prices at the time the share of imports in PCE is slightly lower than the overall GDP because the content of imports of capital goods appears to be twice as high that of consumer goods and services.
The fraction of the content of imports due to Chinese imports has doubled in the last decade in 2000, Chinese products accounted for 0 9 content of the PCE in 2010, Chinese products amounted to 1 9 The fact that the overall content of imports consumer goods in the US has remained relatively constant while the Chinese share has doubled indicates that Chinese gains came largely at the expense of other exporting countries.
The import content of US PCE due to imports from China is helpful in understanding the revenue generated by sales to US households flow is also important because it affects how rising prices for Chinese products are likely to pass through US consumer prices.
China in 2011 the inflation rate is close to 5 If Chinese exporters had to go through all their domestic inflation to the prices of goods they sell in the United States, the index of PCE price increase does PCEPI 1 9 this 5, which reflects the Chinese share of consumer goods in the United States and services that would amount to an increase of 0 1 percentage point in PCEPI inflationary effects will be highest in sectors where the share of Chinese imports is the highest of clothes and shoes, and is in electronics, recent data show accelerating price increases for these products compared to other products.
However, it does not seem that far Chinese exporters fully pass through their domestic inflation in May 2011, Chinese import prices have increased by 2 8 from May 2010 is partly because a significant part of cost Chinese output consists of imports from other countries Xing and Detert 2010 show by examining the production costs of an iPhone in 2009, it cost about 179 in China to produce an iPhone, which sold to the States United for about 500 So 179 of the US retail cost consisted of Chinese imported content, however, 75, 10 for parts manufactured in the US only 6 50 was actually due to assembly costs in China the other 172 50 reflects the cost of parts produced in other countries.
Sources Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau and own calculations.
Figure 2 shows the share of PCE is based on where the goods were produced, taking into account the production of intermediate goods, and domestic and foreign content of 2 imports 7 consumer purchases in the United States go to products labeled Made in China, only China January 2 actually represents the product contained taking into account imported intermediate goods, about 13 9 US consumer spending is attributable to imports, imported from September 1 China.
Given that the share of PCE attributable to imports from China is less than 2 and a part of which can be attributed to the production in other countries, it is unlikely that recent increases in the cost of labor work and inflation in China will generate inflationary pressures generally given to States States.
Galina Hale is a senior economist at the Economic Research Department of the Federal Reserve Bank of San Francisco.
Bart Hobijn is a Senior Advisor Research in the Economic Research Department of the Federal Reserve Bank of San Francisco.
Pacific Basin Notes are published from time to time by the Pacific Basin Center Studies The views expressed in economic letter FRBSF do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve This publication is edited by Sam Zuckerman and Anita Todd A reproduction permission must be obtained in writing.
Economic research U, economic, research, labeled Made China.