It is generally understood by Members of Congress, journalists and the public that exports are good for the American economy. They generate revenue, are responsible for a significant portion of U.S. economic growth, and contribute to employment. But what about imports?

Trade Not Well Understood

According to Howard Rosen of the Peterson Institute for International Economics, American exporting firms, on average, employ nearly twice as many workers, produce twice as much output, pay workers more, and have higher productivity levels than non-exporting firms. And since 95 percent of the world’s consumers live outside the United States, exporting is a very important way to reach them with U.S. goods and services.

Yet, many question the benefits of international trade. But it’s not the exporting function that’s typically at issue, it’s the importing one.

Numerous Americans believe imports are bad for the economy. And there are various reasons for this. One reason involves the negative impact of imports on gross domestic product (GDP).

Imports Are Subtracted from GDP

Last year, U.S. GDP was nearly $15.7 trillion, according to the Bureau of Economic Analysis. One of the main line items, Net Exports of Goods and Services, was -$566.7 billion.

This was the result of the addition of approximately $2.18 trillion in exports and the subtraction of $2.75 trillion in imports. As a result of this negative value of trade, many draw the conclusion that imports are damaging to the economy. In reality, it’s not that simple.

Over half a million jobs are supported by imports of Chinese-made clothes and toys alone.

Imports Provide Many Benefits

Imports offer American consumers greater choices, a wider range of quality, and access to lower-cost goods and services. Imports also create competition, forcing domestic producers to improve value by increasing quality and/or by reducing costs.

Plus, since imports like inexpensive clothing allow the American family to purchase more goods for less money—stretching the dollar—more disposable income is available for other things, like education, health care and mortgage payments.

Imports also help keep inflation down, which is one of the most important factors in raising our standard of living. And very importantly, they help U.S. manufacturers remain competitive.

In fact, according to the Bureau of Economic Analysis, last year more than half of all U.S. imports (56 percent) were not consumer goods from low cost countries like China, but imports of industrial supplies and materials, and capital goods. These are sources of supply used by American manufacturers to improve their products and make them more globally competitive.

Do Imports Cost Jobs?

Lower priced or higher quality imports that compete directly with U.S.-produced products can cause U.S. job dislocations. But surprising to many, the number is much smaller than generally assumed. In fact, according to data published before the recession of 2008 by the Progressive Policy Institute, a Democratic-led think tank, imports accounted for approximately 5 percent of layoffs, with the real figure closer to 2 to 3 percent.

Even more surprising, however, is the number of U.S. jobs created from imports. Research by the Heritage Foundation, a Washington, D.C.-based think tank, says “the increased economic activity associated with every stage of the import process helps support American jobs. A lot of them.”

In The Spotlight

The Heritage Foundation says over half a million jobs are supported by imports of Chinese-made clothes and toys alone. “These are jobs in fields such as transportation, wholesale, retail, construction, and finance, and in a myriad of other activities that are involved in turning a manufactured product into a good that is ready for use by the average American.” And that’s not all.

Further stated by The Heritage Foundation, “the idea that trade deficits lead to higher unemployment also is false. Concern over the size of the U.S. trade deficit, and particularly its impact on jobs, is based on a misconception of the way trade affects economic activity.”

Trade Statistics Are Misleading

The method of measurement used in international trade “ignores the fact that many imports into the U.S. start their lives as American intellectual property or components of goods, which are then modified or assembled overseas,” the Heritage report continues. And the means by which imports are valued adds confusion.

Take Apple’s G4 iPhone, for example. This product, which typically retails in the United States in excess of $600 if purchased without a wireless phone contract, is researched and designed in California. Then, various components, which are manufactured in the United States and other countries, are shipped to China for assembly.

When completed in China, the iPhone is imported into the United States at a price of approximately $180, according to the University of California at Irvine. As a result, $180 goes against the U.S.-China trade deficit; the default assumption being all $180 is Chinese content. But how much of that $180 is really Chinese content?

Surprising to just about everyone, China’s value-added on this product, which includes Chinese labor but no components, is $7.10 or about 4 percent of the import cost, the University of California at Irvine says. Of course, the vast majority of products imported by the United States include much more foreign content than this. However, due to the sophisticated nature of international trade and today’s complex global supply chains, a product labeled “Made in China” is very likely comprised of many components and intellectual property from a number of countries, including the U.S.

The bottom line: imports are extremely beneficial to American companies and consumers. But the understanding of what an “import” actually is needs to be revised, and with it, the method in which the value of trade is measured.

This article appeared in Global Impact, a Great American Insurance Group publication, April 2013.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, and the latest economic trends. He's also founder of both the ManzellaReport.com and Manzella Trade Communications, Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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