A Peek Under the Hood: Manufactures Trade

A Peek Under the Hood: Manufactures Trade

| June 03, 2020
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We all know the United States imports a huge volume of finished manufactured goods from the wider world, with China being the largest source. What is less understood is the far larger volume of goods the Americans manufacture at home. Of the roughly $1.6 trillion output of value-added American manufacturing, less than one-fifth of the intermediate components are sourced abroad, with roughly half of the total originating in America’s NAFTA partners.
 
Chinese components obviously play a role, but even here their contribution is via sales to the United States rather than third parties. In other words, the US takes those imports and builds the final product. You can see that in the data below: American use of Chinese parts is roughly triple that of their combined presence in Canadian and Mexican manufacturing.

Such centrality bodes well for the NAFTA system as companies look for ways to reshore manufacturing operations. While there are many manufacturing supply chains that will need to find alternate suppliers and workarounds, China’s limited presence in the intermediate goods trade suggests such alternates and workarounds will be manageable for the system as a whole. From the point of view of American capital, workers, firms and communities, this is a welcome piece of good news.
 
The real problem moving forward will be what can go wrong with the manufacture and supply of all those already finished products the United States imports. As China’s links to the world fracture, the entire East Asian manufacturing system will need to be broken up, reordered and relocated. It took five decades to build Asian manufacturing into its current form. Its unraveling will happen much more quickly.
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