Made in China: Ensuring Everyone Gets Paid Less

The San Francisco Federal Reserve has a report showing that we don’t really import all that much from China (this, in spite of yesterday’s report that our trade deficit rose again last month). It manages to make the claim by tracking not the volume of all the stuff we use, but the percentage of the ultimate amount of money we spend on that stuff. That calculation shows that just 2.7% of what we spend goes to China.

Here’s how that works:

Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. 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.

Table 1 shows that, of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. 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%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services.

Now, the whole calculation relies on the fact that most of what we spend money on–the 66.9% of our spending that goes to housing (16.6% of our spending), health care (18.4%), recreation (8.2%), and other services (14.9%)–can’t be outsourced very easily (though some of this money presumably pays for call centers in India). Add in the 8% of our spending that goes to food–most of which is still grown in America (more on that below)–and this calculation doesn’t the include three-quarters of our spending that either can’t be or won’t be outsourced very easily.

There’s another way of thinking of this, though: it basically means we don’t pay the Chinese teenagers who make our sneakers very much.

We knew that–that’s the whole point of producing stuff in China!

That allows the companies importing goods from China to spend money, instead, on marketing and shipping and sales. So rather than make sneakers at a US plant, a working class American is left with a job in a big box store selling sneakers made for pennies by someone in China.

Mind you, that still means this whole process leaves room for jobs for those who design the products Made in China, people like engineers, and for B-School grads who manage the logistics of all this. But much of the jobs left for the unskilled workers are low wage.

Now, the process by which increasing amounts of money are spent on marketing and transportation is not just happening in the areas where we do import from China: clothing, cars, and furniture.

The same process is happening in the one area where we still largely produce for ourselves: food. The USDA recently recalculated how much of our food dollar goes where. And while the results aren’t as stark as the Chinese example–American farmers are still making a bigger chunk of what you spend on food than Chinese workers make from your $70 sneakers–the numbers are still pretty striking.

Farmers make less than $.12 of every dollar Americans spend on food. The bulk of the money go to food processing (more very low wage jobs) and food service (low wage restaurant jobs).

Interestingly, one thing seems to be fairly consistent across these measures. 6.6% of our spending on imported goods go to imported oil.

Imported oil, which makes up a large part of the production costs of the “gasoline, fuel oil, and other energy goods” and “transportation” categories, is the main contributor to this 6.6 percentage point difference.

And 6.8% of the American food dollar goes to energy.

This series indicates that payments from each food dollar going to the energy industry group approached 7 cents in 2008, an increase of 75 percent since 1998.

I compare the food dollar to our “China dollar” not just because it illustrates how much of our spending supports relatively non-productive roles. But also because it provides a way to understand the alternative.

Mr. EW and I spend a lot on eating out (though we frequent restaurants that locally source food). But of what I spend on food directly, the bulk of it goes right to a farmer that lives within 30 miles of me–these women, this family and this family, for example. Of course, that means I have to actually cook to make dinner. But it also means my money stays in my community rather than paying Saudis for oil.

There are some goods it makes sense to outsource. And I don’t begrudge Chinese workers for the pennies they’re making off manufacturing consumer goods for Americans. But at some level the logic of spending all that money on marketing and oil rather than on actually making things defies reason.

25 replies
  1. bmaz says:

    This is all gonna change once the Chinese figure out those pancakes. That may take them a while though….

  2. rg says:

    These stats seem questionable. This analysis doesn’t support the balance of trade facts. The breakdown on goods labeled “Made in China” must not include things like steel. And also too, not all “consumer goods” are so labeled.

  3. emptywheel says:

    @rg: They account for that–they note that .7% of what comes from China is in intermediary products (which would be a chunk of the auto imports from China, for example).

    The total share of PCE that goes for goods and services imported from China is 1.9%. This is 0.7 percentage point more than the share of Chinese-produced final goods and services in PCE. This difference is mainly due to the use of intermediate goods imported from China in the U.S. production of services.

    Besides, not that much of our imported steel comes from China–just 7.5% of what we imported in June. We import a lot more from Canada, significantly more from Korea, and close to the same amount from Mexico.

  4. randiego says:

    What good is having a blog if there isn’t a Trash Talk thread on the opening day of the NFL? Sheesh.

    Marcy, a kid from Cornell (Bryan Walters) ran back a 103yd TD for the Bolts last night. He’s the new Wes Welker!

    sorry bmaz would have posted this earlier but fell asleep…

  5. emptywheel says:

    @randiego: Wait, there was another guy who looked like the new Wes Welker to me I saw yesterday.

    Can I make it up to you by getting Trash up by end of day today, for the rest of the this weekend? That’ll give me a chance to say the Pats look only slightly less scary then the formidable Iggles. Though bmaz will probably make sure he gets to Trash before I do, so he can boast how well BabyJesus Tebow played last night for Denver.

    Incidentally, this NYT story has set off a discussion on twitter about lobster. So I’m looking for someone in SoCal to drive down to Puerto Nuevo to have some lobster burritoes so I can enjoy them vicariously. Can I count on you?

    • bmaz says:

      Believe in Baby Jesus! And in Donkos getting Luck in draft! Seriously, you think the Broncos wouldn’t feel all was right in the universe if they got another QB from Stanford in charge of the team??

  6. rg says:

    Another lesson in commenting off the cuff, w/o doing the homework. After more coffee, I consulted a blowup off the fuzzy posted chart, to determine what is meant by PCE. OK, so were in PERSONAL expenditures, not for things like steel. Still, to say that we’re spending mostly for domestic production (except for shoes and clothing) seems counterintuitive, and certainly counter to our low manufacturing base. (Now some of this could be attributable to the fact that our foreign consumption is not all Chinese, but that raises the question as to the purpose of the Fed’s report.)But when shopping, one is overwhelmed by the paucity if domestic production available.

    I’m confused as to the right half of the chart, referencing Import Content, especially the Directly Sold to Final Demand heading (unless this is where that intermediate factor comes in). There’s room for ambiguity in discussing “Chinese Goods” as to whether the data pertain to goods produced by Chinese businesses, or includes American/International companies using Chinese labor. Which brings up my doubts about the data. It has the feel of a snow job.

  7. emptywheel says:

    @rg: That’s why their study is so “neat.”

    Because even when you’re faced w/entire stores full of Chinese clothing, only a teeny fraction of what you’re paying goes to pay for the Chinese part of the production (and remember that China uses a lot of subsidized US cotton to make that cheap clothes). So while it is a huge volume of stuff, it’s really a matter of WalMart having found a way to pay very little for the actual goods they sell, and instead pay for things like shipping those goods to your store.

  8. randiego says:

    Lobster – I’ll be in Mex to surf in the morning, but not far enough to be in Puerto Nuevo unfortunately. I’ll be in a buddies truck, so can’t really control where we go. Basically down and and back.

    Our VW van (with the Sentri Lane RFID tag) died a month back and is being replaced with a different van, which is not yet Sentri-fied (but will be as soon as I get my hands on it).

    The sad thing about PN is that the tourist traffic is 10% of what it used to be, due to the violence (and rumors of violence) in TJ. Real or not, it’s had a huge effect on the tourist economy down there. (the surfers however, had reaped a huge benefit – empty waves).

    Get away from the border towns and life is very much the same as it’s been – but try telling people that.

    There’s a place in the Gaslamp that has Lobster Tacos on the menu, and man they are killer!

  9. scribe says:

    When you note:

    Now, the process by which increasing amounts of money are spent on marketing and transportation is not just happening in the areas where we do import from China: clothing, cars, and furniture.

    What that tells me is “signs of a mature market”, i.e., no growth in overall demand, so a consequent growth in spending to try to capture the marginal percentage of market share. We saw this with the consumer battery (flashlight and AA) market starting in the 80s and continuing to the present. All sorts of sums were spent on marketing, creating the Energizer Bunny, advertising, and the like because there was no growth left in the market for batteries and no technological advantage left to exploit. All the manufacturers were left with was trying to move the last percent of buyers to change brands.

    I think the same obtains on a larger scale in the US of A consumer market as a whole. People have enough stuff – they only buy to replace the broken and update the obsolete. They are too strapped to be diving into new consumeristic adventures, so they don’t. And the sellers of stuff, faced with the eternal demand to increase sales, are stuck with trying new and inventive ways to pitch their crap to the market.

    And I, too, would rather buy local than imported. (Of course, I’m staring at a tidal wave of my tomatoes to start breaking on my head in the next week. Which I am awaiting in ecstatic anticipation, after foregoing $4/lb supermarket tomatoes all year. So that, and lettuce, I don’t have to buy right now.)

    Lobster? Tacos? Burritos? I can be down with that. Heh…..

  10. randiego says:

    Hah hah there’s a little old lady that makes us breakfast burritos after surf… I’ll ask if she has some langosta. k?

    • bmaz says:

      I have missed Surfer Dude. Now this is really starting to feel like home again. If we can just get Masaccio back in the fold properly…..

  11. MsAnnaNOLA says:

    At some point, assuming there is no new form of energy to exploit, it will become too expensive to import this cheap lead laden crap from China. I guess we will have to import from Mexico then or start making something besides fast food.

  12. Arthur Wilke says:

    No doubt, a mature economy has a lot of stuff, often redundant with replacement in durable goods and style changes in nondurables maintaining some dynamic. However, the U.S. economy looks to be overextended. High consumer debt, large finance industry debt (with respect to what has been disclosed), dim prospects at the moment for housing to inflate the “wealth effect” for consumer consumption and debt are indicators. Meanwhile, downward pressure on wages and benefits is netting greater social inequality. It appears the field of economic opportunities are the dismantling of the public sector via privatization and selling off public assets. Greece is a poster child.

    The report on Chinese imports can be read as the booby prize for the vast number of consumers/citizens. The large mass of consumers do not have growing buying power. Cheap imports buffer the harshness of this.

    If I recall correctly, a Federal Reserve study commissioned by then Chairperson, Alan Greenspan, concluded the affluent constituted the critical category in the consumer economy. Don Peck (Atlantic, Sept. 2011) reports that in 2005 Citgroup analysts reported that the dynamics the future economy and stock market was composed of the rich and the remainders. Tracking the latter was a waste of time.

    In an August 3, 2011 NYTimes piece, Stephanie Clifford quotes Mark Zandi of Moody’s Analytics: “. . . [T]he top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of the spending.” The spending patterns and dynamics of upper income consumers are considered the key to the economy. Clifford goes on to highlight the dynamics of growing social inequality.

    Meanwhile, in a world of multinational firms, international trade entails more than labor arbitrage and self-conscious national political economic concerns (though it might under a different, but not likely, regime). An interview with German economist Dalia Marin ( sketches matters relating to human capital, off-shoring and outsourcing and positioning for market development (elsewhere than the U.S. and Western Europe).

    Given the differential constraints and power and little opposition to an often bewildering set of economic conditions, domestic production to substitute for imports requires having a labor force that’s globally competitive. While U.S. males are slouching toward this, the efforts to drive them into the fields (such as in Georgia) once populated with immigrant labor has not, in the frenzy of anti-immigrant legislation, working. It may take time. Or . . . ????

  13. thatvisionthing says:

    I can see Mexico from my house…but I’m a vegetarian, so I’d say Pedro’s in San Juan Capistrano for veggie tacos.

    (and vicarious dining hurts, ow)

  14. thatvisionthing says:


    re buying local tomatoes — Barbara Kingsolver wrote about that in 2007 Mother Jones article — she had moved back to [Kentucky? Virginia?] and she and her family were going to grow all their own food. Small farmers around her were trying to establish themselves as certified organic coop and sell tomatoes to local supermarkets. In the end the farmers’ beautiful tomato harvest went unsold because when the moment came, they were undercut by California tomatoes — taxpayers pay the shipping.

    These tomatoes were perfect, and buyers were hungry. Agreements had been made. But pallets of organic tomatoes from California had begun coming in just a few dollars cheaper. It’s hard to believe, given the amount of truck fuel involved, but transportation is tax-deductible for the corporations, so we taxpayers paid for that shipping. The California growers needed only the economics of scale on their side, a cheap army of pickers, and customers who would reliably opt for the lower price.

    “We were glad we could give it away,” one of the farmers told me. “That’s who we are. But a lot of us are barely making ends meet ourselves. It seems like it’s always the people that have the least who end up giving the most. Why is that?”

    I excerpted the tomato part on Daily Kos comment here in beach babe in fl’s piefight diary about CSAs and food stamps in Kentucky.

    And note, when I was visiting rural Kentucky a few years ago I was amazed that their supermarket tomatoes were as bad as my California supermarket tomatoes…ding!…and eating out ther@scribe: e was McDonald’s and Pizza Hut. I was surrounded by farms!

  15. P J Evans says:

    I’d think Florida would be a good place to grow tomatoes, actually (certainly better than shipping them across country). But what do I know? I’ve never been to Florida.

    On buying US-made rather than imported stuff: I bought a pair of US-made knitting needles last month. They’re the high-end kind, and they have a price to match – but their quality is much better than even the good imported ones.

  16. orionatl says:

    housing 16.6%


    medical care 18.4% ?

    that’s insane –

    and draining, for a family –

    and unsustainable.

    health insurance companies and docs et al., are ripping us off in an extraordinary way.

    ditch the health insurance companies, institute single payer, and give the health workers the choice of salary as private money or as adequately compensated public salary.

    i’d bet that within a decade, the docs and nurses would be happy doing what they love to do and making a good wage but not a larger private wage.

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