How Much Do We Spend on Imports?
When U.S. shoppers buy something imported, are they also paying for local inputs? How much of what is “Made in the U.S.A.” actually is? These questions require accounting for both the U.S. components in the price of imported goods and the use of imported inputs in U.S. production. Estimates show that nearly half of spending on imports stays in the United States, paying for the local components of these goods. Over 10 cents of every dollar U.S. consumers spend reflects the cost of imports at various stages of production.
News about trade policy discussions in recent months demonstrate the importance of understanding how much the U.S. economy relies on imports. We frequently hear about the increasing importance of imports of so-called intermediate goods to U.S. production (Parilla 2017 and USITC 2017). But exactly how much do imports contribute to U.S. consumption?
In this Economic Letter, we answer this question by examining the most recent consumption and trade data available. Our calculations take into account two important factors: the U.S. domestic component in the price of imported goods and the amount U.S. companies spend on imported intermediate inputs. These calculations help explain the importance of imports for U.S consumers and businesses.
Our estimates show that nearly half the amount spent on goods and services made abroad stays in the United States, paying for the local component of the retail price of these goods. At the same time, imports of intermediate inputs make up about 5% of the cost of production of U.S. goods and services. Overall, about 11% of U.S. consumer spending can be traced to imported goods. This ratio has remained nearly unchanged in the past 15 years, although the relative importance among the major U.S. trading partners has changed somewhat during that time. In particular, the share spent on Chinese goods has increased at the expense of goods and services made in Japan.
The mix of makers in U.S. goods and imports When you buy a $100 pair of Nike sneakers made in Asia, only $25 of its cost goes to the Asian factory that assembles the shoes (Kish 2014). Of the remaining $75, $3.50 is spent on shipping from Asia to the United States, and $21.50 goes to Nike to cover its design, marketing, profits, and other expenses. The remaining $50 goes to the U.S. retailer that pays for the transportation of the sneakers inside the United States, worker wages in its U.S. warehouses and retail outlets, rental cost of retail space, insurance, and so on. Thus, half the cost of a pair of sneakers made abroad pays for workers and capital expenditures in the United States, not even counting the part that goes to Nike.
When you buy a Jeep Patriot manufactured in Illinois, at least 17% of the cost goes to parts made in other countries (NHTSA 2017). Thus, even for a car that is manufactured in the United States, a substantial part of its cost traces to imported intermediate parts used in its production.
These examples are useful to understand how raw statistics on imports fail to fully account for the cost of imports, and how part of the cost of American goods and services reflects imports. To account for these factors—namely, the U.S. content of goods sold as imports and the import content of goods sold as “Made in the U.S.A.”—we combine information from the 2017 Census Bureau U.S. International Trade Data, the 2016 Bureau of Labor Statistics input-output matrix, and the 2017 personal consumption expenditures (PCE) from the U.S. national accounts.
Share of spending on imports While shoppers are used to seeing various imported items—like Nike shoes—in stores across the country, the United States remains a relatively closed economy. In fact, the vast majority of goods and services sold here are produced domestically. Even in categories with high levels of imported goods, most expenditures are on domestic goods.
Figure 1, panel A summarizes the composition of U.S. PCE by category between durable goods, nondurable goods, and services. The exact numbers for all calculations are provided in the online Appendix. For each category the bar is split between the share of consumption spent on domestic goods (solid portion) and imported goods (lighter shaded portion). Panel B shows the source of overall imported goods and services by trading partner.
Domestic and import expenditure shares by categories and trade partners
Note: Top bars in both panels are computed directly from PCE and headline trade data. Bottom bars in both panels reflect authors’ adjustments to account for imported content of U.S. goods and U.S. content of imported goods.
The top “unadjusted” bars in both panels report data computed directly from PCE and headline trade numbers, which classify trade in goods and services based on their country of origin. For now, we focus on the top bars and leave the discussion of the bottom “adjusted” bars for a later section.......MORE