Adding Up "Made in China"

Many investors have a dim view of China right now, not only for the fact that they own great chunks of our national debt, but for the perception that the Chinese have appropriated our manufacturing base. Two economists at the San Francisco office of the Federal Reserve have looked into the latter claim, and found some very surprising results.

We do have a record trade deficit from China, but the impact of this on our economy is smaller than you might think. While imports account for 16 percent of our GDP, imports from China account for only about 2.5 percent of GDP, and about 2.7 percent of our personal consumption expenditures. And of that last figure, about half of those expenditures go toward the production of the goods themselves (i.e., to China), and the other half go to American businesses that transport and sell those products.

The one area in which China does dominate our consumer goods is, unsurprisingly, clothing. Fully 35 percent of the money we spend on clothing and shoes goes for products made in China, with only about 25 percent going for those made in the U.S. But even so, all our apparel expenses add up to only 3.4 percent of all consumer spending.