Mike the Mad Biologist

If our mainstream political discourse is to be believed, the U.S. ‘doesn’t make anything anymore.’ We should all become ‘knowledge workers’, constantly reinvent our personal brand. Manufacturing–and the engineering it takes to support efficient manufacturing processes–are anachronisms. Hell, everything these days in made in China, right?

But like most popular economic bromides, this is utter bullshit that is completely contradicted by those damn facts. From the SF Fed:

The market share of foreign goods is highest in durables, which include cars and electronics. Two-thirds of U.S. durables consumption goes for goods labeled “Made in the USA,” while the other third goes for goods made abroad.

Chinese goods account for 2.7% of U.S. PCE [personal consumption expenditures], about one-quarter of the 11.5% foreign share. Chinese imported goods consist mainly of furniture and household equipment; other durables; and clothing and shoes. In the clothing and shoes category, 35.6% of U.S. consumer purchases in 2010 was of items with the “Made in China” label.

…of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. 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…

When total import content is considered, 13.9% of U.S. consumer spending can be traced to the cost of imported goods and services….Imported oil, which makes up a large part of the production costs of the “gasoline, fuel oil, and other energy goods” and “transportation” categories, is the main contributor to this 6.6 percentage point difference.

The total share of PCE that goes for goods and services imported from China is 1.9%…

The import content of PCE has been relatively constant at between 11.7% and 14.2%. Import content peaked in 2008 at 14.2%, which was probably due to the spike in oil prices at the time.

I don’t want to be pollyanish about this, but, as I’ve noted before, manufacturing still employs a lot of people–and much of our consumption of manufacturing is U.S. made products. We still make a lot of things–we’re not just a ‘Burger King’ service economy. This has two implications.

The first is educational: we still need to training engineers–real ones, not ‘financial engineers’ (who are nothing more than looting rioters protected by the aegis of law). Our economy is dependent on this, and will continue to be dependent on manufacturing. The other point is political: given the manufacturing sector’s importance (along with transportation of said goods as well as sales), unions still matter. An economy of latte-sipping idea ‘workers’ is hard to unionize (and might not be as productive). But we can unionize workers in industry and their auxiliaries. The 40 million Americans who want to join a union probably don’t work at JPMorgan. As long as we labor (so to speak) under the myth that we’re all either serving burgers or shuffling emoticons (“What do you do for a living?” “I email”), we deny the reality many American workers experience, along with their economic needs.

Comments

  1. #1 Moopheus
    August 12, 2011

    Well, yes, we do make stuff. Certain industries, like consumer electronics, are pretty much extinct here, and clothing and shoes are endangered (I own some very high-quality made in US jeans and shoes). And of course, we import a lot of stuff from places other than China. And we export stuff, we even export stuff to China. For instance, we are a major supplier of feed grain to China. China imports a lot of raw materials.

    However, the problem that remains is the trade deficit, which is large. Unlike the government deficit, the trade deficit represents money flying out of the economy and not coming back. And the two largest components of the trade deficit are China and oil. In national income-accounting terms, the trade deficit represents “living beyond our means” in a way that government spending does not.

    So, I have no problem avoiding buying stuff from China as much as possible. I am not against trade in general, which is overall a good thing, but China does not play fair.

  2. #2 Wow
    August 12, 2011

    “I am not against trade in general, which is overall a good thing, but China does not play fair.”

    Ask the Canadians.

    Or Vanatu (IIRC).

    Hell, ask Cuba for the last 5 decades…

  3. #3 Vene
    August 12, 2011

    I’d rather live in a nation with a trade deficit than a trade surplus. A deficit means we are able to buy nice things other nations make, a deficit means that we can’t afford the nice things we make and have to sell it to richer nations.

  4. #4 Left_Wing_Fox
    August 12, 2011

    I’ve argued for a while now that we need to replace free trade with a labor-based tariff.

    Protectionist tariffs in the past arbitrarily made goods more or less expensive based on lobby pressures. Free trade promotes the race to the bottom in labour wages, costing jobs and siphoning wealth in the developed worlds, and encouraging repressive governments in the developing world.

    Match tarriffs to the minimum wages: Companies which meet or exceed the importing nation’s minimum wage standards and international environmental regulations pay no tariffs, if they do not meet the minimum wage, you bring the tariff to match the difference. That would reduce the incentives for companies to offshore, allow domestic companies to compete, while still allowing competitive trade from foreign companies for better consumer choices, and allow the living standards of those nations to increase without fear of companies withdrawing for more favorable regimes.

  5. #5 QuietDesperation
    August 12, 2011

    The show “How It’s Made” on the Science Channel is a good eye opener for this. A lot of the places they visit to show things being built and assembled are in the USA. Great show if you love clever machines even a little bit.

  6. #6 Richard Katz
    August 12, 2011

    Please keep in mind that “made in USA” particularly for big ticket items like cars subsumes US assembly with an acceptable level of domestic parts–it can (indeed does) include transmissions or engines from abroad yet still satisfy the label. So, I guess we are manufacturing, but not necessarily always from domestic stuff.
    I guess I also would worry about the China example–trucking around Chinese Korean or Japanese electronics is better than not doing so, but it is at best a less skilled form of labor–as you note in the 55% figure–it gestures at service economy
    I agree on unions–we need them more than ever, and they are being demonized for political gain

  7. #7 Roland
    August 12, 2011

    US Mfg is stronger than it’s ever been. What’s weak is Mfg employment. Lots of automation here. It’s hard to automate clothing/shoes mfg. But I don’t get the electronics bit. That’s automated everywhere: board-stuffing robots are standard. How much labor does it take to close up an Ipad?
    For my stereo, it’s only 4 screws. Building computers is even easier.