Understanding Trade

Just saw a great piece on the ForeignPolicy.com website called “The Myth of Made in China” (http://experts.foreignpolicy.com/posts/2009/06/10/chinese_exports_are_not_exactly_chinese)

The article, in unusually clear language, makes the point that most of what China ships to the US consists of components sourced all over the world and merely assembled in China.  For this reason, it does not make sense to view the trade deficit with China as an indicator that we are big losers in this flow of products across the Pacific.  The piece also notes that much of what we import from China used to be produced in other Asian economies, not in the US anyway.  Here’s a sample from the article:

“…”Made in China” is a bit of a misnomer these days. Over the last 20 years, supply chains have fragmented across the globe — with one part made here, and another made there. Rarely is any one product made in any one country. China often specializes in the final stage of production: putting components together before exporting to the final users. Indeed, much of the value of U.S. imports from China, and similarly from Mexico, includes parts and components made in other countries — the United States among them. According to our recent study, domestic content (the stuff that directly contributes to domestic economic growth) makes up about 45 percent of Chinese exports and 34 percent of Mexican exports to the United States. The rest comes to China from abroad to be assembled and sold. A tag like “Made in China, Vietnam, the United States, Japan, and China again,” might be more apt.”

The article makes points that sophisticated analysts of trade flows have been trying to make for some time.  Unfortunately, it is much more satisfying (and beneficial) for politicians to rail about the US-China trade deficit and assert that it is a substantial cause of the problems facing US manufacturers over the past decade or so.  Too bad it’s just not true.  Read the full article.

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Explore posts in the same categories: China, Economy, Investment, Trade

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