If you don't want your dollars going toward Chinese-made products, don't sweat it -- most of the cash you spend on them goes to U.S. companies and workers.
By Sheridan Prasso, contributor
FORTUNE -- Worried about buying a $70 pair of sneakers that say "Made in China" this back-to-school season because you'd rather spend your dollars on "Made in U.S.A." products instead? Worry not, according to a new study.
More than half the amount you spend on products made in China actually stays here -- going to American companies, workers, marketers, retailers, and transport providers. The amount is least 55 cents per each $1 spent, says a report from the Federal Reserve Bank of San Francisco. So for that $70 pair of sneakers, $38.50 of it boosts bottom lines here in the U.S.
And despite what you may conclude from shopping at Wal-Mart (WMT) or other large stores -- or hearing big, scary figures about the trade deficit with China -- imports from China make up just a very small portion of our total economy: just 2.5% of gross domestic product in 2010. Overall, products from around the world accounted for only 16% of our GDP last year. "The vast majority of goods and services sold in the United States is produced here," according to FRBSF report authors Galina Hale and Bart Hobijn. The exceptions are furniture and household items, electronic goods, and clothing and shoes. A third of U.S. consumer purchases for clothing and shoes in 2010 carried a "Made in China" label. For furniture, it was one fifth.
But it's services that make up the overwhelming majority of the U.S. economy, according to the data, and no services at all came from China -- just manufactured products. 88.5% of U.S. consumer spending is for products and services originating here, the report says. "This is largely because services, which make up about two-thirds of spending, are produced locally," according to Hale and Hobjin.
The authors also point out that a large number of component parts -- like semiconductor chips and designs used in the iPhone -- originate in the U.S. They point to a 2009 Asian Development Bank Institute study reporting that it cost about $179 to produce an iPhone in China. The phone is then sold here for about $500. Thus, $179 of the U.S. retail cost consisted of Chinese imported content. But only $6.50 actually went to cover assembly costs in China. The other $172.50 was for parts produced in other countries, including $10.75 for parts made in the U.S.
The reason for the new FRBSF report is the red flag raised by China's growing inflation. The latest numbers from Beijing show a 6.5% annual rise across the country in July, up from 6.4% in June and breaking a three-year record. But with such low levels of Chinese content in products like iPhones, the report's authors conclude that recent increases in labor costs and inflation in China are not likely to translate into broad inflationary pressures in the U.S. "This suggests that Chinese inflation will have little direct effect on U.S. consumer prices," Hale and Hobjin say. Given the state of the U.S. economy these days, consumers can take that data and breathe a small sigh of relief.
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Maybe the rare earths aren't as rare as we thought.
Shares of the rare earth stocks, notably Vancouver-based trader Rare Element Resources (REE) and Colorado's Molycorp (MCP), plunged Thursday after the New York Times reported China had resumed shipments of rare earth elements.
Shares of the Van Eck Market Vectors Rare Earth Strategic Metals exchange-traded fund dropped 1% in their debut, reversing the morning's 2% gain.
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The Carlyle Group co-founder says the U.S. threatens to fall behind China, thanks to our growing deficit and government debt. Meanwhile, Treasury Secretary Tim Geithner downplays the threat of a looming trade war.
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News that exports rose last month was something to cheer, but it will be consumption at home -- not abroad -- that will lift this economy out of the doldrums.
It was somewhat of a relief this week when the Commerce Department reported that exports grew more than expected in July -- further signaling that the U.S. might not slip back into a recession after all. American goods and services sold MORENin-Hai Tseng, Writer - Sep 10, 2010 1:41 PM ET
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