'Made in China' threat not so big after all

Updated: 2011-08-18 16:07

(chinadaily.com.cn)

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While July's rebound in China's trade surplus to $31 billion - the highest level since January 2009 - is likely to spark a new round of recriminations among US politicians on whether the undervalued yuan is to blame, new research findings show that China is far from the culprit, asserts a blog in the Wall Street Journal on Aug 10.

According to senior economist Galina Hale and research advisor Bart Hobijn of the Federal Reserve Bank of San Francisco, the share of Chinese-produced goods in US consumption is in fact not as high as is widely believed.

Surveying data from the Commerce Department, Bureau of Labor Statistics and the Census Bureau, the two found that "88.5% of goods and services consumed by US households are produced domestically. Of the 11.5% that is imported, goods made in China account for just over a quarter - or 2.7% of total US consumption spending," says the blog.

In fact, even that figure "overstates" the true share of China's imports. Because almost all consumer goods are the product of "many hands," finding out exactly what is made where further reduces the share of "made in China." Indeed, research shows that an average of 36% of the price of imported goods goes to US companies and workers, and for goods imported from China, "that number is even higher."

"On average, of every dollar spent on an item labeled 'Made in China,' 55 cents go for services produced in the US," the study says. "In other words, the US content of 'Made in China' is about 55%. The fact that the US content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services."

Chinese made parts also go into the 88.5% of US consumption spending devoted to goods made in the US. Adding it all up, the researchers conclude that the total share of "made in China" goods in US household consumption is just 1.9%.

"What does it all mean?" asks the blog.

For one thing, it means the China threat that looms so large in the US political arena is overstated. China's exports as a share of US consumption might have grown quickly, but they are still a small fraction of the total. US workers and companies are also taking a fair chunk of change from the process.

For another, it means the argument that a stronger yuan will redress the trade imbalances between China and the US, thus helping US manufacturers sell more to the domestic market, appears even less credible. "If most of the cost of 'made in China' imports actually accrues to US workers and companies, yuan appreciation will have only a limited impact on competitiveness."

The economic silver lining, according to the blog, is that a small share for "made in China" also means China's inflation will have quite a limited impact on pushing prices in the US higher.

"China's 2011 inflation rate is close to 5%. If Chinese exporters were to pass through all their domestic inflation to the prices of goods they sell in the US, the personal consumption expenditure price index would only increase by 1.9% of this 5%... That would equal a 0.1 percentage point increase in the index," according to the research findings.