Made in China: US can't afford high cost of low-priced Christmas gifts

Although the first predictions of a record holiday shopping season have been scaled back, hopes remain alive that December retail sales will still give the US economy a badly needed lift. But consumers’ binging on holiday gifts will actually produce much more red ink for America than growth and jobs. For nearly all of their purchases are imports, and new government data make clear that this year their debt-creation will hit new records.

Consumption by Americans does generate greater US output and therefore more employment – but mainly when the goods and services they buy are produced domestically. When Americans buy imports, nearly all the growth and jobs are created where these products are made – overseas.

Worse, like any items bought by Americans with credit, purchases of imports financed by borrowed money (as US trade deficits show has often been the case) add to the country's already bloated national debt. Relatively speaking, nowhere are these leakage and debt-creation effects greater than in the consumer goods categories long dominated by products manufactured abroad, and that account for nearly all holiday gifts.

The way Christmas shopping affects the economy is best seen by examining 24 categories of consumer goods where reliable data from the US Census Bureau can be found. For all of 2009, Americans consumed just over $143 billion worth of these consumer products. Nearly 80 percent came from abroad, and nearly 45 percent were produced in China alone. In 2010, these purchases rose to just under $158 billion, with slightly higher percentages of goods imported from abroad and China. (The figures cited would be even higher if the Census data for consumer electronics products were included, but that data contain too many internal contradictions to be reliable.)

The domination of imports was nearly total – between 95 and 99 percent – in such popular gift categories as games and toys other than dolls or stuffed animals; gloves and mittens; shirts for men and boys other than work shirts; and suits, coats, jackets, and skirts for women and girls. In a broad men and boys’ apparel sector encompassing everything from athletic clothing of all sorts to raincoats to down jackets to swimwear, 98 percent were imports. And all but 3 percent of women’s non-athletic shoes are imported. China was the biggest single country supplier in most of these and other individual sectors as well.

Import penetration is lower, but still extensive (ranging from 84 to 87 percent), in sectors like men and boys’ suits and coats; women and girls’ dresses; fine jewelry; and men’s non-athletic shoes except for sneakers. Imports account for 69 percent of neckties and scarves for men and boys and 76 percent of power-driven hand-tools.

The 2011 figures won’t be available for another year, but all the signs point to even greater import domination in this year’s Christmas shopping. Output in the US economy, for all its troubles, generally remains much stronger than the import-swamped Christmas gift industries. It is up 3.94 percent over the last 12 months, according to the latest year-on-year data. However, imports in the Christmas goods sectors are up by 5.8 percent during virtually the same period. So Christmas gift imports are on track to outpace any gains in America’s output in this sector.

Because penny-wage countries like China have major competitive advantages in manufacturing labor-intensive goods, imports’ prevalence in holiday shopping bags and carts has become taken for granted. But American policies can make or break the fortunes of domestic US producers of these items as well.

Consider the situation in 1997, the first year in which detailed import penetration figures can be calculated. Americans then still made more than 57 percent of the men’s and boys’ suits and coats they bought, a third of the men’s dress and sport shirts, more than 70 percent of the women’s dresses, nearly 40 percent of women’s blouses and skirts, nearly half the fine jewelry, nearly two-thirds of the power hand tools, and more than 27 percent of the toys and games.

Four years later, however, Washington approved China’s entry into the World Trade Organization. This decision handed China virtual immunity to US laws aimed at fighting unfair trade practices like intellectual property, and imports from the People’s Republic skyrocketed.

More striking, imports from high- and low-cost countries alike also are rapidly gaining share of US markets in higher-value, capital- and technology-intensive industries alike. In these industries, labor costs mean much less and domestic American producers should therefore retain major advantages. But that hasn’t been the case. Imported goods are beating out US-made goods for American market share.

For more than 100 of these advanced industries studied for a decade by the US Business and Industry Council, the import share of the collective US market hit a record 38 percent in 2010 – up from 24 percent in 1997. And in many prized sectors, like semiconductors, machine tools, broadcast and wireless communications gear, inorganic chemicals, and power-generation equipment, imports have made even greater inroads.

These gains, at American producers' expense, show how dramatically US competitiveness in high-value manufacturing can be eroded by misguided trade deals, which have encouraged overseas production and job offshoring. Foreign government subsidies of foreign manufacturing give imports artificial but often decisive price advantages.

Regaining these lost shares of the US manufacturing market is essential not only for reviving the sector’s fortunes, but for turning today’s borrowing- and spending-fueled national economic slump into a healthy, production-led recovery. But success will require a thorough overhaul of US trade and other international economic policies. An obvious first step would be enacting into law of a bill already approved by the Senate to combat currency manipulation by China and other US trade competitors.

A new international economic policy should include several other key building blocks. The federal government needs stronger and broader “Buy American” provisions for its purchases, to maximize the expenditure of tax dollars on goods and services produced in the United States. The US should levy tariffs on countries whose value-added tax systems subsidize their exports to the US and impede American sales in their markets. Foreign investors in the United States should be required to use mainly American-made parts and components in their products and share their cutting-edge technologies with US partners. And the US must implement more sweeping import tariffs if these measures don’t promptly and significantly reduce US trade deficits.

These measures will certainly ruffle feathers abroad and create some short-term costs at home. But the US retains ample leverage to neutralize foreign market-rigging and ample capacity to overcome the inevitable domestic challenges. And without this fundamentally new approach to the global economy, Americans could become just as dependent on imports for the advanced manufacturing vital to their security and prosperity as they are for their holiday gift bargains.

Alan Tonelson is a research fellow at the US Business and Industry Council, which represents almost 2,000 domestic manufacturing companies. He is a contributor to the Council’s AmericanEconomicAlert.org website and the author of “The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards.”