With the American economy stuck in neutral, there has to be someone to blame. Wall Street has certainly taken the brunt of criticism in the last few years, mostly because the financial sector almost went down and then the taxpayers had to bail them out. But recent major economic crises aside, the longer term economic complaint has been trade.
The argument is mainly that as America loses our manufacturing base to other countries (and for many reasons, this point is most associated with China), our more service based economy can’t replace the jobs for laborers from that sector. In other words, giving a laid off autoworker a gig at Starbucks isn’t really comparable, and it contributes to underemployment.
The Federal Reserve Bank of San Francisco came out with a report late last week that makes two major points. First, it points out that only 2.7% of Americans personal consumption expenditures are spent on goods and services “made in China,” versus the 88.5% that is homegrown. That’s certainly a big number, and one not often heard. But the second point the SF Fed makes is this:
In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations….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%.
It’s an important point that some of the revenue from the sale of goods made in China comes back to the U.S. But it also glosses over the fact that the manufacturing sector has been leaving the country and going abroad. And it actually seems to prove exactly what free trade advocates would probably not want: that the wages paid to American workers are exported to China, while the due to shareholders and “marketers” of goods come back home.
The below graphic from the report shows how the goods and services consumed in the US are created, by geography.
