Made in China

As both a fact of labeling and an economic boogeyman, this now qualifies as a complete joke (from MR):

Chinese goods account for 2.7% of U.S. PCE, about one-quarter of the 11.5% foreign share. Chinese imported goods consist mainly of furniture and household equipment; other durables; and clothing and shoes. In the clothing and shoes category, 35.6% of U.S. consumer purchases in 2010 was of items with the “Made in China” label.

When my in-laws were renovating their home a couple years ago, I helped out where I could when we visited. They were intrigued and somewhat excited to source some shelf units from Canada (they live in Canada).

The shelf units were garbage. The customer service was garbage. I unhelpfully quipped that we should expect nothing less from something that wasn’t made in China.

Now, I’d say that the real story is that this company was just out of its league distributing furniture through Home Depot. It has nothing to do with Chinese vs Canadian manufacturing; it’s actually about scale and professionalism.

Let’s face it, most professional companies that operate at scale have a portion of their supply chain laying across the Middle Kingdom. In that sense, my comment was appropriate: a company that makes ‘stuff’  and doesn’t source something from overseas is suspect in my books. They’ve probably effed up their supply chain.

And that’s a signal that they’ve probably effed up a bunch of other stuff, too.

The point is that the bulk of value does not sit in China, no matter what the stupid label says. Most of it is very close to home.

Michael Mandel responds with two points in support of the “the sky is falling because we don’t make anything anymore” philosophy:

The authors did not distinguish between dollar shares and quantity shares of imports. When imported goods are much cheaper than domestic goods, then the quantity share can be much larger than the dollar share.

The input-output tables used by the authors contain no actual information about how much of Chinese imports are going to personal consumption.

I’ll start with the second point, which is a strong one: the data used to allocate the cost of imports to personal consumption don’t measure the imports for personal consumption and how could they? Intermediate goods, parts, goods for corporate consumption: it’s hard to tell what’s what.

The way around it is to measure the share of PCE in the economy as a whole and apply that share to the imports as a whole. If there is a different mix of GDP factors in imports relative to the whole economy, our figures are way off.  Ok, got it.

Now for the first point, which makes sense. The problem is that he goes on to say this:

Which share is right?  For sizing the  impact of imports on U.S. jobs and manufacturing, the quantity share is much more relevant than the dollar share.

But if the per unit cost of imports plummets, there’s a lot more money to be spent elsewhere. This isn’t measured in quantities.

Mandel is the most persuasive proponent of the manufacturing fetish around, but he still doesn’t have me.

Look at this graph from an earlier post:

The U.S. needs to change course to a production economy: put more emphasis on investment in physical, human, and knowledge capital, and less on consumption as the yardstick of success. We need to take up our fair share of the global productive burden.

Good analysis and graph.

But I don’t share the doom-and-gloom. I still can’t think of anything that says that this relationship is a terrible thing.

Personally, would I rather be an engineer or a sales manager? Engineer, for sure. But are sales managers less valuable to the world?

Look a bit harder and it looks like what Mandel is really worried about is debt, not consumption vs production:

Given that we as a society are running up big debts,  it is highly likely that our children will be better off if we choose to invest more today and consume fewer goods and services, whether they are imported or domestic.

No disagreement with me, then. If we took out gigantic blocks of debt and spent it on useless white elephant projects I presume Mandel would have a problem with that, too.

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