Wanna start an interesting discussion at a dinner party? Ask people how much of what we consume in the US comes from or is manufactured in China.

Over the weekend, I had a discussion with a chum from UBS about wide public misconceptions. My example was the idea China is the primary funder of US deficits (They actually fund between 7.5-9.5%). We all kicked around others — where we get our oil, religion & science, source of fiscal deficits, belief in Angels, Laffer Curve, supply side economics, water consumption, etc. — but the most interesting one is how much of our consumption is from China.

A quick search turned up this Federal Reserve Bank of San Francisco research report: The U.S. Content of “Made in China.”

What did they find?

“Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling, and marketing goods carrying the “Made in China” label. Although the fraction is higher when the imported content of goods made in the United States is considered, Chinese imports still make up only a small share of total U.S. consumer spending.”

The Fed researchers fastidiously backed their with deep lots of data sourced from BEA, BLS, and the U.S. Census Bureau. Their conclusion was a surprisingly low number — I would have guessed closer to 10%. But i cannot argue with their data or methodology.

Perhaps a reason for believing China’s share of the US consumer market is how often we see the Made in China label. They dominate the toys, clothing and electronics that get sold in stores like Wal-Mart and Target and Toys-R-Us.

Morgan Housel explained:

“A common rebuttal I got was, “How can it only be 2.7% when almost everything in Wal-Mart (NYSE: WMT ) is made in China?” Because Wal-Mart’s $260 billion in U.S. revenue isn’t exactly reflective of America’s $14.5 trillion economy. Wal-Mart might sell a broad range of knickknacks, many of which are made in China, but the vast majority of what Americans spend their money on is not knickknacks.”

We also spend far more on others than we realize: Housing, Commodities (especially Food and Energy) and Services (Health Care, Financial, Accounting, Education etc.). Housel noted that in 2010, “we spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services.

That’s one more piece of misinformation put the rest. Now if we can only do something about the Laffer Curve . . .

>

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Previously
Is China Really Funding the US Debt? (January 14th, 2011)

Sources:
The U.S. Content of “Made in China” (Mirror)
Galina Hale and Bart Hobijn
Federal Reserve Bank of San Francisco, August 8, 2011
http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

3 Misconceptions That Need to Die
Morgan Housel
Motley Fool, October 25, 2011
http://www.fool.com/investing/general/2011/10/25/3-misconceptions-that-need-to-die.aspx

Category: Economy, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

50 Responses to “How Much of US Consumables Are Made in China?”

  1. doug says:

    “Consumables” include services that could not possible be made in China eg health care or hair cuts.
    More interesting to me would be, what percentage of our mfg goods come from China?
    Thanks.

  2. Nuggz says:

    Thank you Mr. Ritholtz.

    The Made in China outrage is based on myth. The US is still the #1 manufacturer on the planet by a long shot. People keep bloviating about shipping jobs to China, but the reality is that productivity rates are averaging 6 – 7 percent y-o-y. That has eliminated a lot of low end manufacturing jobs in the US…in China as well.

    This is why housing was/is so critical for many of these people because of it’s ability to employe marginally trained individuals.

  3. chavan says:

    “what percentage of our mfg goods come from China?”

    It’s in the Motley Fool link. 6.4% of nondurable physical goods from China. 76.2% manufactured in the US. 12% of durable physical goods from China. 66.6% made in the US.

  4. Jim Greeen says:

    BR~~This is what you talk about at dinner parties??

  5. m111ark says:

    I have become quite resigned to the probability that humanity is not yet ready to govern itself. That banksters may represent the best we can currently hope for until such time ‘we the people’ can be trusted to take the reins of governance for ourselves. The most obvious example of the peoples low state of mental, spiritual and emotional development is our monetary system, which is best understood as a ponzi scheme where only a tiny majority wield, eventually, all the power.

    Angels? Even very smart wall street denizens can be counted on to display complete ignorance of universe reality. And, make a very good living without ever pressing on beyond the mere human. While we all are born human, the real tragedy of life is to die a human. Second chances are given to nearly everyone so the lacking is not fatal, wouldn’t be a universe of love otherwise. So along with your daily reading list, seek the one true source (I didn’t know it was a book either when I started) to get you started on your own journey.

  6. Rightline says:

    ahh…but what is the core number ex food and energy….

  7. dad29 says:

    Although the fraction is higher when the imported content of goods made in the United States is considered

    That’s a key line. Did the FRB study elucidate on that?

  8. ssc says:

    I don’t know what the right number is, but I do know that “made in China” is much more than WMT crap and electronics (lots of those are Korean anyway). For instance, there was a big fiasco with made in China dry walls (they were falling apart), I vaguely remember there was an WTO anti dumping suit against Chinese tires (steel too??), every single electrical outlet and switch in my house is made in China, as is most, if not all of the parts, of all the major appliances. That said, I too, believe the whole shipping jobs to China thing is a myth (while we are are it, so too is the illegal taking our jobs thing).

  9. dead hobo says:

    BR challenged:

    That’s one more piece of misinformation put the rest. Now if we can only do something about the Laffer Curve . . .

    reply:
    ———-
    If the Laffer Curve was properly dismissed as an interesting effect that applies only to extreme tax situations, (just as Arthur Laffer claims from time to time), then nobody would care much about it. The Laffer Curve is just an application of the law of diminishing returns. There’s nothing complicated about it. Most people, including Laffer Curve enthusiasts, consistently ignore the other half of the Laffer Curve that clearly states tax revenue that is too low will also inhibit economic growth, mirroring the fact that tax rates that are too high (such as 70%+ on the highest incomes), inhibit economic growth.

    How can taxes be too low to support economic growth? Ask Greece, Italy, or socialist Europe to look it up. Borrowing money is fun. Paying it back is a bitch. C+I+G works well until you factor in interest payments, credit based economic collapses, and foreign lenders and combine those characteristics with an ongoing need to issue new debt just to keep the doors open and pay for current consumption of ordinary stuff.

    The free ride associated with borrowed money will with 100% certainty take the free loader back to the top of the Laffer Curve if debt service is responsibly acted upon (see Greece, Italy). If tax rates remain low, then the low end of the Laffer Curve will look just like the high end, except high taxes will be replaced by high interest rates that permeate the cost of all items and likely high inflation costs to support monetizing the still rising government debt (see post WWI Germany).

    This being said, I don’t expect Laffer Curve fantasies to end soon. Such an event would destroy Republican politics and end the Democratic promise of a free ride for everyone except the richest among us.

  10. Petey Wheatstraw says:

    “we spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services.”
    ____________

    I have noticed that the ‘Made in USA’ label is usually affixed to those “consumables.”

    In fact, the last time I finished “consuming” my quarterly “supply” of auto insurance from GEICO, I noticed that the made-in sticker was now printed in English and Spanish (BTW: I wonder if the gecko has a green card. If not, he’s taking work away from an American skink).

    Are we talking about total spending by consumers or are we talking about consumables?

    From solar panels to the razor you shave with, the vast majority of what we “consume” is obviously made in China (or, to a lesser extent, some other emerging-economy nation).

    We ship raw materials to developing countries where they are manufactured into finished goods or parts which, in some cases, are then shipped back to the US for assembly. How does one quantify that manufacturing process?

    Tangentially related: I can’t find a link, but I recently read somewhere that they were running out of the raw materials used in the manufacture of pensions.

  11. theexpertisin says:

    Nuggz

    I agree with your housing (construction/renovation/maintenance) observation. But I would not call folks who work within this sector “marginally trained”. When your plumbing breaks, or your electric flames out, you’ll call one of these marginally trained folks, not your Harvard trained economist or a teacher’s union president. Those in the trades successfully educated themselves post-public school, where the curriculum was geared towards the myopic goal of sending everybody to college whether their interests were in that realm or not.

    This country was built on the backs of tradesmen. We need the manual trades sector to recover in all species. It creates and maintains tangible wealth.

  12. Raleighwood says:

    And what would the amount be if that 2.7% had been manufactured in America?

    http://www.businessinsider.com/apple-child-labor-2012-1

    And that’s why it’s disconcerting to remember that the low prices of our iPhones and iPads — and the super-high profit margins of Apple — are only possible because our iPhones and iPads are made with labor practices that would be illegal in the United States.

  13. reader48293454 says:

    The U.S. also only accounts for around 17-18% of Chinese exports (a little less than Europe, Japan is China’s biggest trading partner); so much for “bringing down” China by refusing to shop at Wal-Mart.

  14. Nuggz says:

    Good Morning theExpertisin.

    I was not referring to those people. Plumbers will always find work, as will electricians. This issue here is that housing construction is one of the last labor-intensive industries remaining. Not to mention it’s ability to create peripheral jobs real estate agents/brokers/Home Depot employees, etc….

    On an indirect note, I am enjoying the ads that the Petroleum Industry is running for the XL Pipeline…jobs! jobs! jobs! The fact is that the oil industry is at the bottom of the list when in comes to long-term employment and the reason that Texas, Louisiana are in a continual boom-bust cycle.

  15. Sechel says:

    Interesting tid-bit, and I have no doubt there’s a great deal, but often left out of the conversation is the very global nature of trade and the disadvantage a high cost producer faces, so consider that companies seek to transfer patents to low cost /tax countries, generate profits overseas, and keep the costs in the u.s., then have huge stock piles of cash and in the case of AON, ultimately choose to reincorporate outside the U.S.

    As much as one can argue that U.S. companies game the system with regards to taxes and moving jobs abroad or outright purchasing from low cost providers, the truth or sad fact is that it’s either this, or shut the u.s. companies down, or engage in protectionism with tariffs and all the stuff that stalls living standards.

  16. Bill Wilson says:

    Just like with the Laffer curve, there’s a grain of truth that gets exagerated. If your job was manufacturing solar panels, the Chinese have likely put you out of a job, but there’s still manufacturing happening in the U.S. Also, I think there’s a point where high tax rates collect less revenue, but that point is probably much higher than Art Laffer would have us believe.

  17. abelenky says:

    “The Fed researchers fastidiously backed their with deep lots of data sourced from”

    That one phrase needs a lot of proof-reading, please.

  18. rww says:

    Whatever the percentage, it is still $366 Billion in imports annually, for a $270 B trade deficit. http://www.census.gov/foreign-trade/balance/c5700.html. So what is the point? How many $50,000 jobs is that?

  19. Iamthe50percent says:

    Recently I bought a can of apple juice from a vending machine. The label said,”Contains juice from concentrate produced in China, Australia, and New Zealand.” So much for food made in the USA. BTW, this was at a site about 50 miles from the Wisconsin apple orchards.

    Figures don’t lie, but liars can figure. It has been years since I last saw a made in USA label. Most of my computer parts are made in China or Taiwan. The CPU was labeled,”Fabricated in Germany, Assembled in Indonesia”, sold in the USA, a global trip. Most of the AC Delco auto parts I buy are labeled,”Made in Mexico” or “Made in the Netherlands”. It’s probably been decades since I saw a GM car part made in the USA.

    I recall the companies that I’ve worked for: Motorola Television Division, International Harvester, Motorola Automotive. All dust now, along with Zenith, Admiral, and RCA.

    Sure Made in China is a “Myth”.

  20. nofoulsontheplayground says:

    BR, subtracting out the non-value added components of the 2.7% consumables from China and you’d likely be left with less than 0.5% total value of consumables from China.

    Most folks don’t understand that China, much like Japan in the 1980′s, imports almost everything but labor to produce their finished products.

  21. bmoseley says:

    this is great. thanks.

  22. constantnormal says:

    An interesting topic, one that thinking people can kick around using their own data, and back-of-the-envelope calculations using their own household annual spending.

    Non-thinking people will tend to ignore their own data, preferring their preconceived notions over Reality, without hesitation, every time.

    Presently, our single largest expenditure, bar none, is health insurance.

  23. H. Rider Haggard says:

    The Laffer curve? That is SO passe. It’s the Armey curve that’s more interesting.

    Laffer only looks at the point of diminishing returns for revenue versus tax rates.

    Dick Armey looks at the point of diminishing returns for government spending as fraction of GDP. The optimum seems to be about 33% for the USA, higher for more socialistic societies (“Sizing the Government”, http://www.springerlink.com/content/mxtp6l2l7w67p505/fulltext.pdf)

  24. Bruman says:

    Wow. That is an eye-opener to me, and is going to force me to rethink a lot of stuff. Thanks, BR.

  25. bear_in_mind says:

    A few observations:

    1) Agree that on the surface, this 2.7 percent number appears surprisingly insignificant. But as “rww” points out, what share of that trade deficit = how many U.S. jobs?

    2) As for trends, the report states, “The fraction of import content attributable to Chinese imports has doubled over the past decade. In 2000, Chinese goods accounted for 0.9% of the content of PCE.” Hard to ignore that rate of change.

    3) Were U.S. workers seeing meaningful growth in median (inflation-adjusted) wages, this doubling in Chinese import content would likely have nil impact. Unfortunately, that’s not been the case.

    4) The shift is not just seen in electronics assembly. The 525-foot high main steel tower and 2.2 miles of steel deck sections for the new eastern span of the San Francisco Bay Bridge was constructed in Shanghai, China, then shipped in pieces for assembly stateside:
    http://www.bloomberg.com/news/2011-07-11/sf-bay-bridge-gets-5-300-ton-delivery-from-china.html

    5) These correlations suggest conditions favorable for companies to engage in, as Bill Moyers asserts, “wage repression.” If this wage repression claim is accurate, it would signal much broader implications for the U.S. labor market and economy than just the growth of Chinese imports:
    AUDIO @ http://worldofideas.wbur.org/2010/12/12/moyers-zinn-memorial

  26. RAK says:

    Wait a minute, I’m not so sure this is really a misconception. Individual perception is driven by the number of “things” one buys, not the total cost of the items. So if you buy five items worth $100 at Walmart and then go out and purchase a $30K Ford, I’m not sure you figure that only ~1.5% comes from China.

    A better metric might be, what percentage of MFG goods come from China, excepting big ticket items like
    housing and cars that aren’t purchased too often? By that measure, the number is much higher.

  27. Arequipa01 says:

    Speaking of China and manufacturing, Ira Glass pokes at monsters with a microphone and/or an NPR antenna (qué cojones, chochera):

    Ira Glass: OK, I am holding a new iPhone 4S in my hand. This is the one that you can talk to, and it talks back. It’s a program called Siri. So let’s try this. I’m just going to hold it up to the microphone here and push a button.

    Ira Glass: Siri, where do you come from?

    Siri Software: I, Siri, was designed by Apple in California.

    Ira Glass: Where were you manufactured?

    Siri Software: I’m not allowed to say.

    Ira Glass: Why?

    Siri Software: Good question. Anything else I can do for you?

    from Cryptogon: http://cryptogon.com/?p=27002

    Be sure to listen to the full piece embedded.

  28. bobmitchell says:

    Laffer is a backdoor Sharia law proponent, he stole the idea from a muslim extremist-

    http://en.wikipedia.org/wiki/Muqaddimah

  29. ashpelham2 says:

    I also think we are seeing small %’s, but those translate into BIG $$$ relatively. And all of those marginally trained low end jobs now in China, that people don’t seem to think contribute to the economy, causes a strain on social safety nets, and that’s REAL, current $’s. Not some fabricated % or statistical anomoly.

    Dollars in still must equal dollars out.

  30. gordo365 says:

    So if we double the percentage of the economy spent on health care, we’ll reduce the relative amount of hinese imports as % of economy. Lets do it! Oh wait – already did…

  31. tortugajefe says:

    What misconceptions about the Laffer curve would you like to disabuse me of? Genuinely curious.

  32. [...] – 85 cents of a dollar spent in America buys American goods. [...]

  33. [...] explain our economic woes largely through the prism of competition with China may be exaggerated. (h/t The Big Picture) – Jay [...]

  34. ashpelham2 says:

    and probably 75 of that 85 spent is for fuel/food/utilities/services (like wireless svc, internet, etc). Not a good comparison. The jobs that paid middle class income are now in China. We are forcing Americans to either work at poverty level, or move up to management levels. Nothing in the middle.

    Not all of us were A students growing up. Proud C+ to B+ student here.

  35. gkm says:

    So, at the margin, would Chinese goods consumption in the US be discretionary by and large? And to what degree are the exports from the US to China discretionary consumption by the Chinese? Which of these two would be the greater share of its respective GDP?

    Are there now any notions of a tail and dog and which is wagging which?

    Now what exactly is this whole discussion addressing other than suggesting that the inter-relatedness is not as perceived but is a lot more significant than the numbers might show.

    Now how about playing that ‘Ode to Decoupling’ circa 2008 Larry (Kudlow).

  36. clipb says:

    2.7% doesn’t sound like much, but it’s still a pretty big number though not as much as petroleum imports. posted the census bureau numbers from 1990, 2000, and 2011. notice anything?

    2011 : U.S. trade in goods with China
    NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding.

    Exports Imports Balance

    TOTAL 1990 4,806.4 15,237.4 -10,431.0
    TOTAL 2000 16,185.2 100,018.2 -83,833.0
    TOTAL 2011 94,172.0 366,493.3 -272,321.3

  37. [...] How Much of US Consumables Are Made in China? Barry Ritholtz, ritholtz.com [...]

  38. donna says:

    Well, I still save a lot of money by not buying stuff made in China…. ;^)

  39. formerlawyer says:

    Are rare earths consumables in this formulation?

    Last I checked the U.S. had no, repeat no viable rare earth mining and China had a monopoly on these strategic minerals.

  40. kris says:

    So Barry — If US is not consuming much of China’s products, then nobody else in the world is. We all know Chinese are not consuming. Can we conclude that most of their products are thrown into the ocean?

    ~~~

    BR: Ahhh, the fine line between sarcasm and utterly incomprehensible rubbish. I haven’t the slightest clue what you mean.

  41. kris says:

    Your friend may have used you to disperse some misinformation. Watch your back. I remember you said to Tom Keen right after the crash of 2008: Fool me once shame on you, fool me twice shame on me. You are quite inclined to believe official data.

    ~~~

    BR: Yes, this blog readily accepts official information, and has not spent a decade and 21,000 posts pushing back against official data from BLS, wirehouses, the Fed, etc.

  42. bear_in_mind says:

    To Make the US Stronger, You’re Going to Need Some Chinese Steel
    CNBC
    By Dan McNichol
    Friday Jan 13, 2012

    “Looming natural disasters, willful neglect and infirmity of America’s infrastructure demand our rebuilding. Reconstruction, however, is going to require Sino steel.”

    “We the people of the United States fabricate less steel than the island nation of Japan, currently putting out 7% of the world’s metal materials. China forges nearly half of the world’s steel.”

    SOURCE: http://www.cnbc.com/id/45987724/

  43. [...] pictures of the Costa Concordia disaster – How Much of US Consumables are Made in China – Blight takes no holiday – BBC reader predictions for life in 100 years - Michael [...]

  44. kris says:

    Barry, ok, ok. One thing though, spoken sarcasm is great, written sarcasm is pathetic.

    ~~~

    BR: I totally agree

  45. Old Rob says:

    I wonder if the 8.5% unemployment rate is also a BIG LIE?

    Also the referenced articles Barry uses refer to time spans when we were a manufacturing country and had huge exports to a service economy of today. Not good reference stats!!
    If the article is true we are destined to have permanently high unemployment as well as a permanent surplus of people who will never be employed; nothing to do with China.

    Politicians were falling all over themselves in the early 1990s trying to get those jobs off shore (no only to China). Ross Perot mentioned this in his campaign speeches. Now it is payback time for workers; not the politicians.

  46. bonderman says:

    My former employer consistently shipped roughly 40% of it product (semiconductor manufacturing equipment) TO the PRC. I understand that continues today.

  47. alvinlance says:

    It is good to know as a lifelong tradesman I am marginally trained. at the age of 23 i started and operated for the past 24 years my own construction/remodeling buisness. I managed to put 3 children through college owned my own home and made an above average income doing so. Thanks to the GREEDY BASTARDS my buisness and 25 years worth of hard work are now defunct. with no demand for the type of work that I do thanks to the condition of the housing market I am no longer able to use the skills I have gained through hard work and dedication. I was forced into a 10.00 an hour job, thankfully my children are all grown and not relying on my support. It is good to know that what I worked so hard for and dedicated my life to uis so easily considered “marginal”. these types of attitudes are exactly what the greedy bastards want from us. How can I be important. I don’t work on wall st. I didn’t attend some fancy university. It is shameful how little americans tend to respect the values of being a self starter and hard worker. It is the main reason why the 1% are winning the battle to crush and exploit the 99% of us who have had to work for the money we have. I guess i should regret the fact i didn’t find a way to exploit my customers through extraction, rather than trying to provide a oustanding service for a fair price. Sorry but i don’t consider myself “marginal”

  48. Nuggz says:

    @alvinlance.

    I wasn’t referring to general contractors as marginal. I was referring to all those individuals who benefit from a healthy housing market who are normally low wage earners who lack structure, education, and verbal skills.

    I find it fascinating that so many parents seek a “fancy” education for their children. Nine times out of 10 they don’t belong there and would benefit greatly from a trade/vocational schooling. It’s not “wall street” or the “elite” that is doing the denigration, it’s their very own people.

    But don’t tell that to the GOP….because…you know…they are the “working mans party”.

    Indeed!

  49. [...] that much, Barry Ritholtz finds, with a link to a Fed study: Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in [...]