A notable study on imports

Hat tip to our friend Steve Waite of Research 2.0 for alerting us to this research from two senior members of the Federal Reserve Board of San Francisco entitled "The US Content of 'Made in China.'"

In their analysis, senior economist Galina Hale and senior research advisor Bart Hobijn determined the percentage of US consumer spending which goes to imported goods made overseas. Further, they determine the percentage of the cost of imported goods which actually ends up going to the value added by US transportation, wholesale and retail activities. Their findings are very interesting.

For starters, they find that 88.5% of US consumer spending actually goes towards goods and services produced in the US. Of course, they note that a large percentage (about 66%) of this number is spent on "services," which are largely produced in the US. Durable goods, on the other hand, contain a higher percentage of goods made overseas (about 33%).

In total, the study found that only about 11.5% of the total personal consumption expenditure went to foreign goods. About 2.7% of the total went to goods that were made in China. Of the amount spent on goods made in China, the authors found that about 55 cents of every dollar went to services that were provided by people in the US who were involved in getting those goods to the end consumer.

We believe that the numbers in this study are important for investors to understand, especially in light of the fact that politicians and pundits of all political persuasions are fond of declaring that the US economy is dead or dying because "we don't make anything here anymore" (a complaint we have debunked many times in the past, such as in this previous post). The most recent politician we have heard floating this complaint is Republican presidential candidate Jon Huntsman in the recent Iowa debates, in which he said, "We don't make things anymore in this country."

Besides proving this sentiment to be wrong, the analysis also reveals something that should be obvious: Americans and American jobs are involved in importing, distributing, marketing and selling those goods which are imported. We pointed this out before in a post entitled "The ugly tomatoes of protectionism," in which we showed how a Supreme Court case back in 1893 which ruled to protect domestic tomato growers from foreign competition ended up hurting the family business run by John Nix and his three sons, who initiated the court case. The modern data shows that imports are just as important to the livelihood of many Americans as they were back then.

The entire article is worth reading and understanding, as an antidote to the anti free-trade sentiments which still surface frequently in political discussions from both members of both major US parties.