Friday, August 12, 2011

Despite Globalization, US Still a ‘Closed’ Economy

Some important figures from Cato’s Dan Ikenson

-Despite globalization, the U.S. economy “actually remains relatively closed.” (By “relatively closed,” the authors mean that imports are puny compared to the size of the economy—not that U.S. policies are relatively restrictive of imports.)

-The vast majority of goods and services purchased by U.S. consumers (88.5%) is produced in the United States

-When accounting for the value of foreign content in final U.S. production of goods and services, 86.1% of U.S. consumer purchases of goods and services is produced in the United States.

-Of the 11.5% of total U.S. consumer spending on imports, 64% accounts for the goods and services produced abroad and 36% accounts for transportation, wholesaling, retailing and other activities performed in the United States.

-Only 2.7% of U.S. consumer spending is devoted to goods labeled “Made in China.”

-Of the 2.7% of U.S. consumer spending on imports from China, only 45% is for the foreign-produced good and 55% goes to transportation, wholesaling, retailing, and other activities performed in the United States. In other words, $.55 of every dollar spent on imports from China directly supports economic activity in the United States.

This Cato paper gives broader perspective to the findings of the aforementioned studies.

Added thoughts:

US trade with the world has been less than 20% of the world’s GDP. Given the heft of the US economy, this low % has brought down the average % of world trade. In other words, many nations have merchandise exports at vastly over 50% of their respective GDPs.


Chart from Google Public Data

The popular anti-trade mercantilist rhetoric about China’s significance (or usurping jobs and trade) has been vastly exaggerated. This only exposes politicians, who advocate protectionism, are engaged in the power of suggestion to dupe gullible masses.

Another way to look at this is that for the US economy to have a stronger recovery, she has to open her trading doors wider to the world, instead of using the printing press which only diverts resources to politicians and their allies and cronies.

In short, there is immensely more room for genuine and sound economic growth via free trade.

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