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‘Made in China,’ but Still Profiting Americans

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Over the years I’ve heard many Americans fret about buying goods that are “Made in China,” since they want their cash to go to American companies instead of Chinese ones. A new study, however, finds that a majority of the price consumers pay for goods labeled “Made in China” actually does go to American businesses, not Chinese ones.

The study, from the Federal Reserve Bank of San Fransisco, estimates that of every dollar consumers spend on a product labeled “Made in China,” about 45 cents goes to China for the cost of the original import.

On the other hand, about 55 cents of that dollar pays for services produced in the United States, such as the transportation for the product, rent for the store where the product is sold, the salaries of the salespeople at the store, the cost of marketing the product, the profits for shareholders of the retailer selling the product and so on.

What’s more, the fraction of a retail product’s price going to American services is higher for Chinese-made products than for products made in other foreign countries. For retail prices on overall imported goods, only 36 percent — or 36 cents on the dollar, instead of 55 cents on the dollar for made-in-China goods only — goes to American companies and their workers.

That difference is largely caused by the types of products American import from China versus other countries.

“The fact that the U.S. 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,” write Galina Hale and Bart Hobijn, the authors of the study.

Bear in mind that there are other ways that American consumer spending gets channeled to China, among other countries. That is, many American-made products or services use imported goods as inputs. These types of imports, which are used as parts and not sold directly to consumers, are called “intermediate goods,” as opposed to “final goods.”

Given this, the San Francisco Fed’s study also looked into what share of total personal consumption expenditures in the United States goes to imported final goods (again, consumer products) and intermediate goods (parts).

The authors found that about 13.9 percent of all United States consumer spending goes to imports, including both final and intermediate goods. Chinese imports alone — including both final goods and intermediate goods from China — accounts for just 1.9 percent of total consumer spending.