Clearing Up the Confusion Over “Made in China“

On his blog, “The Big Picture,” the author and commentator Barry Ritholtz sends us to a Federal Reserve Bank of San Francisco paper from last summer that makes a point about which many people seem confused: Despite globalization and all that, the bulk of a consumer dollar spent in America falls on American-produced goods and services. According to the paper, titled “The U.S. Content of 'Made in China,' “

“Goods and services from China accounted for only 2.7 percent of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling and marketing goods carrying the 'Made in China' label.”

The reason this matters — or at least one reason it matters — is for the discussion of austerity, stimulus, and all that. I often get comments along the lines of “Well, maybe stimulus worked back in the old days, but now it just means spending more on stuff from China.” In reality, that’s nowhere near true. Why? For one thing, most consumer spending is on services, few of which are really tradable. For another, even if the thing you buy at Walmart says “Made in China,” the price includes a lot of U.S. value- added in the form of transportation and retailing costs.

According to the paper’s estimates (available at frbsf.org), the United States is still a country where about 85 cents of a consumer’s dollar is spent at home, one way or another. And this means, among other things, that the rules of macroeconomics haven’t changed nearly as much as people imagine.

Apple and Agglomeration

The recent New York Times article on Apple manufacturing, “How the U.S. Lost Out on iPhone Work” by Charles Duhigg and Keith Bradsher, was excellent, and I’ll have more to say about it when I have the time. One thing worth noting right away, however, is that the piece is in large part an essay on the economies of agglomeration: ” 'The entire supply chain is in China now,' said another former high-ranking Apple executive. 'You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.' “

The point is that manufacturing plants don’t exist in isolation; they benefit a lot from being part of a manufacturing cluster, with specialized suppliers and a large pool of workers with the right skills close at hand.

This is the kind of stuff I emphasized in my own work on both trade and economic geography. The policy implications aren’t as clear as you might imagine. But more about that when I have time to do it right.

Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007).

Copyright 2012 The New York Times.