Wednesday, March 14, 2012

The Myth of China Dominating the American Economy

Despite recent hue and cry about China taking unfair advantage of trade with the U.S., an analysis revealed that the amount of Chinese goods and services being consumed by the Americans in 2010 accounted for (gasp) 2.7% of America's total personal consumption. Not only that, but 1.2% were actual costs of imports from China. The other 1.5% were accounted by the U.S. business transporting, selling, and marketing of the made-in-China goods. By contrast, 88.5% of the total personal expenditures were spent on goods and services made in the U.S.

This study was performed by the Federal Reserve Bank of San Francisco and can be read in its entirety here. Ostensibly the reason for conducting this study was to determine how inflation in China might impact on the U.S. economy. Obviously, if Chinese imports only account for 2.7% of our total personal expenditure, it won't matter if China experience inflation in the near future. For that matter, it is immaterial whether China is manipulating its currency or not.

Keep this study in mind, the next time some politician or pundit makes a mountain out of this mole hill or indulge in flights of runaway imagination on how China is ruining our economy. Your response should be simply: Nonsense.

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