Most of what you pay for a ‘made in China’ product goes to US workers and businesses

About 56 per cent of what you pay for something “made in China” goes to US workers and companies, on average, according to a new analysis released by the Federal Reserve Bank of San Francisco.

The rules are complicated, but “made in China” roughly indicates a good was assembled in a Chinese factory. Its parts, design, marketing and distribution may have come from anywhere — and that “anywhere” is often the United States.

China is the United States’ largest trading partner. Companies import goods from China in part because their lower cost allows higher retail markups. That means more of what consumers spend goes to those companies and, indirectly, their workers.

Imported goods and services constitute a smaller share of the US consumer market than you might think. San Francisco Fed researchers Galina Hale, Fernanda Nechio and Doris Wilson, along with Arizona State University economist Bart Hobijn, found just $10.70 out of every $100 we spend goes overseas. That number hasn’t changed in 15 years. (The most recent year for their trade and spending data was 2017.)

Meanwhile, many goods we think of as “made in the U.S.A.” use foreign components. Nationwide, US consumers spend almost as much on foreign-made components of US goods as on finished goods made elsewhere.

International partners remain key to the supply chains of many US companies. About 23.3 per cent of spending on durable goods such as chaise longues, tablets and pickup trucks goes abroad.

The overall foreign-content figure is smaller than that of the manufactured goods you may be familiar with. It measures the full spread of consumer spending, and US consumers spend more than two-thirds of their budget on services such as pet grooming, home rental and investment advice. Only 6.2 per cent of such expenses end up overseas.

Overall, the United States imports about 11 per cent of its goods. That number has remained steady for a decade and a half despite the rise of China. The report says China’s increasing share of US goods has come at the expense of Japan, not of US producers.

Because the economists concentrated on consumers, they didn’t include the effects of government or business spending, such as imports of factory equipment.

What factors build value in the US?

— Retail costs and markup: Retailers like goods from China because they can often be marked up considerably. That helps the retailer pay for local workers, real estate, insurance and utilities.

— Design: Apple stamps its products as “Designed by Apple in California, assembled in China.” The phrase is unusual. The workflow isn’t. The high-paying design, research and development jobs required for the iPhone and other consumer goods are often still in cities such as Cupertino, Calif.

— Manufacturing: US factories are more productive than ever, and some of their output is shipped to places such as China, where it’s assembled into “made in China” goods. These “round-trip” goods weren’t included in the economists’ calculations. As a result, their figures may underestimate how much money stays in the United States.

We often hear that factory jobs in the United States have vanished — and they have, at least in the long run. But thanks to automation and other technological advances, factories are producing more goods with fewer workers.

— Marketing: Foreign and domestic companies looking to sell in the United States often pay American media and tech companies for advertising space. They may also pay US marketers to create strategies for the local market.

— Distribution and logistics: As with marketing, it’s hard to deliver a product to a US retailer without paying for local delivery at some point in the process, whether directly or indirectly.