HONG KONG -- Americans are getting more than just cheap prices from products made in China.
Research this month from the Federal Reserve Bank of San Francisco shows that for every dollar spent on a China-made item, 55 cents go to U.S. businesses for services such as marketing and sales. Last year, 2.7% of U.S. consumer spending went to products made in China, according to the study.
The findings may surprise U.S. consumers, given the widespread belief that the most spending is on foreign-made items, says Bart Hobijn, a senior research adviser at the San Francisco Fed who co-wrote the report with economist Galina Hale. "But consumer spending means a lot more than going shopping," he says. "If you get a haircut, pay your electricity bill, go to the movies, that's all part of consumption."
The research comes amid heated debate about the value of foreign-made goods as the U.S. unemployment rate — which dipped slightly to 9.1% in July after rising for three consecutive months — remains high. The data underscore the complex nature of the U.S.-China trade relationship, and how interlinked the countries' economies have become.
Overall, the vast majority of goods and services sold in the U.S. are made in the country, the San Francisco Fed's researchers found. Shoes and clothing are an exception, with nearly 36% of U.S. dollars spent on Chinese-made items, compared with 25% on U.S.-made products.
Certain products, including clothing, are no longer made in the U.S. "at competitive prices or in commercial quantities," says Craig Shearman, a spokesman for the National Retail Federation. "So the question isn't whether you source from China vs. the U.S., but rather China vs. India, or China vs. Vietnam."
Retailers stock foreign-made products, Shearman adds, to provide consumers with affordable options.
Yet, with inflation and labor costs rising in China, it may only be a matter of time before U.S. consumers see higher prices, says Dennis Yau, director-general of the Federation of Hong Kong Industries, a trade group for manufacturers, many with factories in the Pearl River Delta.
While price increases could be seen in the commodity and clothing industries, overall, U.S. consumers won't be hard hit by China's rising inflation, Hobijn says.
China's growing market
Even as the U.S. buys goods from China, it also aggressively sells into this market of 1.3 billion consumers.
China has become the USA's third-largest export market — behind Canada and Mexico — and its fastest-growing.
From 2000 through 2010, U.S. exports of electronics, agricultural and other products to China rose 468% to $91.9 billion, while its exports to the rest of the world increased 55%, according to the U.S.-China Business Council.
"Frankly, you don't hear enough about the export story," says Erin Ennis, vice president of the U.S.-China Business Council, which represents American firms doing business with China. "The more we export to China, the more jobs we sustain here."
Yet, the U.S. has a record trade deficit with China, meaning that it buys significantly more than it sells. In 2010, the U.S. imported $364.9 billion worth of Chinese goods, nearly four times the value of its exports to China, according to the U.S. International Trade Commission. Meanwhile, the U.S. market share of foreign goods imported into China has dropped to 7% from 10% in the past decade, according to the U.S.-China Business Council.
U.S. manufacturers say that outsourcing production to China is costing Americans jobs. Jobs are being lost, for instance, in industries such as apparel manufacturing as production moves to factories in China. The Obama administration has also argued that China's undervalued currency, by making Chinese exports cheaper, hurts American manufacturers and boosts U.S. unemployment.
But the Trade Partnership, a Washington, D.C., firm that consults with businesses on trade issues, estimates that nearly 1 million domestic jobs exist because the U.S. imports goods from China.
"Because we import from China, prices are cheaper, consumers have more money in their pocket, and they go out and spend more," generating a greater number of U.S. jobs than are lost, says Laura Baughman, president of the Trade Partnership.
If the U.S. pares back on foreign-made goods, it could hurt domestic firms as well as Chinese manufacturers, adds Baughman, because products such as American-made semiconductors are sent abroad to be built into TVs and computers, then come back with the "Made in China" logo.
"Even though you have the impression that certain products are made in China, there's a lot of value to U.S. businesses," says Yingying Xu, an economist at the Manufacturers Alliance, a public policy group for U.S. manufacturers.