It seems like a huge amount of the consumer goods available for us to purchase these days is made in China. Toys, apparel, housewares, glasses, plates, lamps, you name it, it all seems to be produced in the Middle Kingdom. The U.S. imported $365 billion dollars worth of stuff from China last year, a 841% increase from 1994. 19% of all U.S. imports came from China. The five largest import categories in 2010 were: Electrical Machinery ($90.8 billion), Machinery ($82.7 billion), Toys and Sports Equipment ($25.0 billion), Furniture and Bedding ($20.0 billion), and Footwear ($15.9 billion). The U.S. ran a $273 billion dollar trade deficit with China last year. Our trade deficit with China four times larger than our next highest trade deficit, which is our trade deficit with Mexico ($66 billion). China is now the second largest economy in the world, having recently supplanted Japan as #2 behind the U.S.
While I have not seen American consumers grabbing torches and pitchforks regarding the flood of Chinese products into this country, there have been some definite concerns expressed over the last few years. Tragically, Americans with these concerns are misguided. I came across a report that the San Francisco branch of the Federal Reserve published in August, and it turns out that everything is hunky dory in our trade relationship with China. It seems that not much of our consumer spending is lavished on the Chinese and that which is really helps the American economy.
According to the report, “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 is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP.” The authors of the report acknowledge that 2/3 of consumer spending is taken up by services, almost all of which are carried out by Americans. Getting your oil changed, your rockery built, or your house painted by a person living in China would be a little tricky to say the least. If that is what the authors meant when they said that the U.S. economy is relatively closed, big whoop. By that measure, every other economy on the planet “remains relatively closed” since virtually all services in every country are performed by citizens of that country. But when it comes to goods, the remaining third of U.S. consumer spending, the U.S. economy is wide open and the impact of China is huge.
Since there are few Chinese nationals among us providing us with services, China’s impact on this country is felt exclusively through our imports of Chinese made consumer goods. Chinese goods account for 2.7% of U.S. Personal Consumption expenditures, roughly one-quarter of the 11.5% foreign share. According to the report, 35% of all the clothing and shoes we bought last year were made in China. However, the report downplays the impact of our imports of Chinese products by noting all the benefits to the U.S. economy produced by the importation of Chinese goods. “Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations.” Wow, I never thought about it that way before! Buying Chinese goods is good for our economy and American workers, even if American workers don’t make the goods! But wait a second. I have a question.
Let’s say that instead of buying a pair of Reeboks made in China, you bought a pair of New Balance 587s made in Massachusetts. Wouldn’t the bulk of the retail price of the New Balance 587s also pay for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers? And wouldn’t those costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations? So let me get this straight. If I buy the New Balance 587s, I get all the benefits of buying the Chinese made Reeboks, plus I get the benefit of creating manufacturing jobs for American workers, as opposed to Chinese workers. Humh, I am stumped. Why didn’t the report make this point? I am sure that the authors are smarter than me, I mean they work for the Federal Reserve for heavens sake. I just don’t get it. Well actually I do.
$365 Billion is a lot of money. As a nation, we sent that amount to China last year in exchange for a whole bunch of shoes, shirts, socks, sweaters, and other assorted shit. People in this country just intuitively know that running a $273 billion dollar trade deficit with China is not a great idea. But there it is. It’s not like an ugly painting from your aunt that you can just put in a closet. It has to be dealt with. One way to deal with it is to try to convince Americans that it is no big deal. Heck, don’t worry. Our imports from China only amounted to 2.5% of our GDP. It’s not like they are painting our houses for Pete’s sake. Take it easy! The other way to deal with it is to do something about it. That is what I encourage you to do.
Imagine if next year, as our New Year’s Resolution, we all decided that instead of buying shoes made in China, we would buy shoes made by members of our extended American family at the New Balance plant in Norridgewock or a pair of Allen Edmonds made in Port Washington. Instead of buying a blouse for your wife made in China, you bought one made in Vernon California by workers at Karen Kane. Instead of buying Dockers made in god knows where, you bought a pair of Jack Donnelly Khakis made in Georgia. Or polo shirts made by Loggerhead Apparel in South Carolina. Instead of minimizing the importance of our trade deficit with China, we would reduce it. We could create a lot of jobs for Americans. And that would be a turn of affairs that I think we can all agree would be a positive development.