The Federal Reserve Bank of San Francisco published a study which tries to answer this question. The short answer is US consumers spent 2.7% of total personal expenditure on goods which are "Made in China". The study goes further is point out that out of every dollar spent on these goods, $0.55 goes to US businesses and workers for marketing, rents, transportation, electricity, etc. Thus, only $0.45 goes towards the costs of "Made in China" goods.
However, the study did not go far enough in analysing the $0.45 that supposedly goes to China. Many US businesses (read WalMart etc) have buying offices in China which places the orders with Chinese manufacturers. The goods are shipped off to the US after a hefty markup by the buying office to drop off the profits in a lower tax regime.
For example, an iPhone which retails for $500 "costs" $179 to make in China. Of the $179, $172.50 actually goes to parts that are not made in China. So $6.50 is the assembly costs that is earned by the Chinese or 1.3% of the retail price.
So why do we think that "everythjing we buy is made in China"? The answer is simply mis-perception. Blame this on the media.
We keep reading about the US trade deficit with China and how this is growing. However, as a percentage of total US production this is only a smal percentage (2.9% of a $10 trillion economy).
According to the study, 88.5% of consumer spending is on goods and services made in the US. The key word here is services, think mortagage repayment, car repayment, insurance payment, school fees, etc.
Forcing China to revalue the RMB upwards by 30% would only increase the Chinese component of the costs by $1.95, hardly enough to discourage imports from China but increasing costs to consumers.
Would US workers be willing to work for $500 per month assembling iPhones? Probably not, so the work and money will go to some other low costs countries. US businesses do their sum everyday. If they can make it cheaper and more efficiently somewhere else, they would have already done so. The benefit is passed on to US consumers in terms of lower prices, and to US businesses as higher profits which enable them to hire US employees.
However, the study did not go far enough in analysing the $0.45 that supposedly goes to China. Many US businesses (read WalMart etc) have buying offices in China which places the orders with Chinese manufacturers. The goods are shipped off to the US after a hefty markup by the buying office to drop off the profits in a lower tax regime.
For example, an iPhone which retails for $500 "costs" $179 to make in China. Of the $179, $172.50 actually goes to parts that are not made in China. So $6.50 is the assembly costs that is earned by the Chinese or 1.3% of the retail price.
So why do we think that "everythjing we buy is made in China"? The answer is simply mis-perception. Blame this on the media.
We keep reading about the US trade deficit with China and how this is growing. However, as a percentage of total US production this is only a smal percentage (2.9% of a $10 trillion economy).
According to the study, 88.5% of consumer spending is on goods and services made in the US. The key word here is services, think mortagage repayment, car repayment, insurance payment, school fees, etc.
Forcing China to revalue the RMB upwards by 30% would only increase the Chinese component of the costs by $1.95, hardly enough to discourage imports from China but increasing costs to consumers.
Would US workers be willing to work for $500 per month assembling iPhones? Probably not, so the work and money will go to some other low costs countries. US businesses do their sum everyday. If they can make it cheaper and more efficiently somewhere else, they would have already done so. The benefit is passed on to US consumers in terms of lower prices, and to US businesses as higher profits which enable them to hire US employees.
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