Made in China: most of what you pay goes to American employees and companies, despite what the label says

About 56 percent of what you pay for something "made in China" goes to US employees 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 that a good is assembled in a Chinese factory. Its parts, design, marketing and distribution may have come from everywhere – and that & # 39; everywhere & # 39; is often the United States.

China is the largest trading partner of the United States. Companies import goods from China in part because their lower costs enable higher retail markings. That means more of what consumers spend on those companies and indirectly their employees.

(Andrew Van Dam / Washington, D.C.)

Imported goods and services form a smaller part of the US consumer market than you may think. San Francisco Fed researchers Galina Hale, Fernanda Nechio and Doris Wilson, along with Bart Hobijn, economist at Arizona State University, found that only $ 10.70 out of every $ 100 we spend goes abroad. That number has not changed in 15 years. (The most recent year for their trading and spending data was 2017.)

Meanwhile, many goods that we consider to be made in the U.S.A. & # 39; foreign components. National consumers in the US spend almost as much on parts of American goods made abroad as on finished products made elsewhere.

International partners remain the key to the supply chains of many American companies. Approximately 23.3 percent of the spending on durable goods such as chaise longues, tablets and pick-up trucks goes abroad.

The total figure for foreign content is smaller than that of the manufactured goods with which you are familiar. It measures the full distribution of consumer spending, and American consumers spend more than two thirds of their budget on services such as pet care, rental housing and investment advice. Only 6.2% of such expenditure ends up abroad.

In general, the United States imports about 11 percent of its goods. That number has remained steady in spite of the rise of China for a year and a half. According to the report, the increasing share of China in American goods was at the expense of Japan and not of American producers.

Because the economists concentrated on consumers, they did not take the effects of government or business expenses, such as the import of factory equipment.

Which factors build value in the US?

Shopping costs and markup: Retailers such as goods from China, because they can often be marked significantly. This helps the retailer to pay for local employees, real estate, insurance and utilities.

Design: Apple stamps its products as "Designed by Apple in California, assembled in China." The expression is unusual. The workflow is not. The well-paid design, research and development jobs required for the iPhone and other consumer goods are often still in cities such as Cupertino, California.

production: American factories are more productive than ever and some of their exports are sent to places such as China, where it is being assembled into "made in China" products. These round-trip goods were not included in the calculations of the economists. As a result, their numbers can underestimate how much money remains in the United States.

We often hear that factory jobs in the United States have disappeared – at least in the long run. But thanks to automation and other technological developments, factories produce more goods with fewer employees.

marketing: Foreign and domestic companies that want to sell in the United States often pay American media and technology companies for advertising space. They can also pay American marketers to develop strategies for the local market.

Distribution and logistics: As with marketing, it is difficult to deliver a product to an American retailer without paying directly or indirectly for local delivery at any given time in the process.