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Guess What? US Onshore Production Never Really Left

January 25, 2012

This post has little to do with our typical stuff  which tends to be tidbits we believe can assist New Market Entrepreneurs like ourselves.   But every so often we come across ideas we just have to put out there.  This happens to be one of those occasions.

There has been a lot written lately about Apple’s overseas production.  We tweeted about this article from the NYT last week.  It’s an in-depth assessment of the forces that caused Apple to move almost 100% of its production to Asia and why it is never coming back.  For those of you interested in a case study why our manufacturing base has hollowed out in certain sectors, give it a read.

Yet shortly before that NYT piece appeared, we happened upon some stats that were actually published last summer that were quite shocking.

What percentage of your product consumption do you think comes from China?  10%, 20%, 30% or more?  Given all the attention in the media about how little of the things in our households are actually made in America… and how much manufacturing is being done in China, you would think those would be reasonable guesses.

Think again.  Here are some startling stats published last summer by the Economic Research Department of the Federal Reserve Bank that suggest our economy has not hollowed out as much as the spinsters would have us think:

Goods and services from China accounted for only 2.7% 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.

Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP.

Figure 1 plots the total and Chinese import content of U.S. PCE (personal consumption expenditures) over the past decade. The import content of PCE has been relatively constant at between 11.7% and 14.2%. Import content peaked in 2008 at 14.2%, which was probably due to the spike in oil prices at the time. The share of imports in PCE is slightly lower than in GDP as a whole because the import content of investment goods turns out to be twice as high as that of consumer goods and services.

 

 

 

 

 

 

 

 

 

Figure 2 shows the share of U.S. PCE based on where goods were produced, taking into account intermediate goods production, and the domestic and foreign content of imports. Of the 2.7% of U.S. consumer purchases going to goods labeled “Made in China,” only 1.2% actually represents China-produced content. If we take into account imported intermediate goods, about 13.9% of U.S. consumer spending is attributable to imports, including 1.9% imported from China.

 

 

 

 

 

 

 

 

 

While there is no doubt that entire industries have hollowed out– just ask clothing mill and footwear workers or former Apple factory workers– since the new millennium, we seem to have held our own.    If you’re curious which industry sectors have been hit hardest by off-shoring and what share of that off-shoring China now owns, click thru to the above report.  There’s a great table that spells it out.

Finally, let’s end this on an even more upbeat note.   Here’s a recent post that suggests the slope in the first chart might soon begin to decline.  It argues that the US Manufacturing base is poised for a comeback due to Chinese labor rates growing at 15%-20% per year and good ol’ fashioned US productivity (which means manufacturing coming back on shore may not translate to new jobs, unfortunately).

As all entrepreneurs know, you wanna be where the puck’s going, not where it’s at.   So for those of you with strategies or plans that include onshore production (or serving the sector), perhaps this is yet another tidbit!

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