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It's All Made in China? Not So Fast! It's All Made in China? Not So Fast!

It's All Made in China? Not So Fast!

by Tim Fernholz

August 11, 2011

How much of the stuff you buy in America is made in China? It’s an important question to ask as the world’s second largest economic power continues its rise and Americans fret about the direction of our manufacturing sector and economy at large, but the answer may surprise you.

While Chinese goods seem ubiquitous, especially given America’s economic woes, the reality is that imports from the country are a relatively small part of the economy: A total of 88.5 percent of consumer spending in the United States is on items made here, with only 2.7 percent spent on “Made in China” goods, according to new research from the Federal Reserve Bank of San Francisco:

When you exclude the services sector, which naturally advantages the U.S.—you’re not going to Beijing for a Big Mac or a doctor’s appointment—China still takes a relatively small share, about 20 percent of household equipment and furniture spending and 35.6 percent of clothing and shoe sales.

Even that doesn’t entirely reflect the amount of money spent on Chinese goods that stays in the United States. Chinese goods need to be transported, sold and marketed here, and so it turns out that for every dollar spent on products made in China, 55 cents go to services produced in the United States.

The San Francisco Fed studied whether rising prices in China will affect prices of goods here in the United States, and concluded it’s not likely because the amount of spending on Chinese goods is already so low. Manufacturers in China—like FoxConn, a Taiwanese company that makes electronics, including many Apple products—are increasingly addressing workers’ demands for higher wages by seeking even cheaper locales for their plants and replacing people with robots. But it’s not clear that major shifts in price would affect U.S. consumers.

The chart is a timely reminder of how much of our economic activity is right here at home, not just abroad.

That’s why consumer spending is so important in the United States—we’re our own biggest market—and why the drop in consumer confidence has made the Great Recession so much worse. But if the lack of consumer spending is a problem, it’s also an opportunity to figure out how to leverage our own buying power to pull the country out of an economic ditch.

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