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Investing and Economics Blog

The USA Is Not as Dependent on China Economically as People Think

3 Economic Misconceptions That Need to Die

Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services… Walmart’s $260 billion in U.S. revenue isn’t exactly reflective of America’s $14.5 trillion economy. Walmart might sell a broad range of knickknacks, many of which are made in China, but the vast majority of what Americans spend their money on is not knickknacks.
…
Just 6.4% of nondurable goods — things like food, clothing and toys — purchased in the U.S. are made in China; 76.2% are made in America. For durable goods — things like cars and furniture — 12% are made in China; 66.6% are made in America.

Those numbers are significantly less than I expected but the concept matches my understanding – that we greatly underestimate the purchasing of USA goods and services.

We have an inflated notion of how large the China macro economic numbers are for the USA (both debt and manufacturing exports to us). The China growth in both is still amazingly large: we just overestimate the totals today. We also forget that 25 years ago both numbers (imports from China and USA government debt owned by China) were close to 0.

We also greatly underestimate how much manufacturing the USA does, as I have been writing about for years. In fact, until 2010, the USA manufactured more than China.

China owns 7.6% of U.S. government debt outstanding. As of November, China owned $1.13 trillion of Treasuries. Government debt stood at $14.9 trillion that month. That’s 7.6%.

Who owns the rest? The largest holder of U.S. debt is the federal government itself. Various government trust funds like the Social Security trust fund own about $4.4 trillion worth of Treasury securities. The Federal Reserve owns another $1.6 trillion.

Ok, this figure is a bit misleading. But even if you thrown out the accounting games 1.13/8.9 = 12.7%. That is a great deal. But it isn’t a majority of the debt or anything remotely close. Other foreign investors own $3.5 trillion trillion in federal debt (Japan $1 trillion, UK $500 billion). The $4.6 trillion of federal debt owned by foreigners is a huge problem. With investors getting paid so little for that debt though it isn’t one now. But it is a huge potential problem. If interest reates increase it will be a huge transfer of wealth from the USA to others.

Just 9.8% of oil consumed in the U.S. comes from the Middle East. According the U.S. Energy Information Administration, the U.S. consumes 19.2 million barrels of petroleum products per day. Of that amount, a net 49% is produced domestically. The rest is imported.

The oil figure is a bit less meaningful, I think. Oil import are hugely fungible. The USA cutting back Middle East imports and pushing up imports from Canada, Mexico, Nigeria… doesn’t change the importance of Middle East oil to the USA in reality (the data might seem to suggest that but it is misleading due to the fungible nature of oil trading). Whether we get it directly from the Middle East or not our demand (and imports) creates more demand for Middle East oil. It is true the USA has greatly increased domestic production recently (and actually decreased the use of oil in 2009). So while I believe the data on Middle East oil I think that it is a bit misleading. If we had 0 direct imports from there we would still be greatly dependent on Middle East oil (because if France and China and India… were not getting their oil there they would buy it where we buy ours… Still the USA uses far more oil than any other country and is extremely dependent on imports. Several other countries are also extremely dependent on oil imports, including the next two top oil consuming countries: China, Japan.

Related: Oil Production by Country 1999-2009 – Government Debt as Percentage of GDP 1990-2009: USA, Japan, Germany, China… – Manufacturing Output as a Percent of GDP by Country – The Relative Economic Position of the USA is Likely to Decline

February 22nd, 2012 John Hunter | Leave a Comment | Tags: economic data, Economics, economy, Financial Literacy, quote

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