A new Fed paper outlines the “local content” in US Imports, to highlight that trade is not “us against them” but that global supply chains are intertwined. It is well known that Apple designs in the US, builds components globally, and assembles its phones in China. That is one reason why US tariffs on Chinese goods hurt not only China, other countries that produce intermediate inputs, and also the US itself!

“When you buy a $100 pair of Nike sneakers made in Asia, only $25 of its cost goes to the Asian factory that assembles the shoes (Kish 2014). Of the remaining $75, $3.50 is spent on shipping from Asia to the United States, and $21.50 goes to Nike to cover its design, marketing, profits, and other expenses. The remaining $50 goes to the U.S. retailer that pays for the transportation of the sneakers inside the United States, worker wages in its U.S. warehouses and retail outlets, rental cost of retail space, insurance, and so on. Thus, half the cost of a pair of sneakers made abroad pays for workers and capital expenditures in the United States, not even counting the part that goes to Nike.

When you buy a MADE IN THE US of A Jeep Patriot, manufactured in Illinois, at least 17% of the cost goes to parts made in other countries (NHTSA 2017). Thus, even for a car that is manufactured in the United States, a substantial part of its cost traces to imported intermediate parts used in its production.

These examples are useful to understand how raw statistics on imports fail to fully account for the cost of imports, and how part of the cost of American goods and services reflects imports. The Fed study accounts for the US (“local”) content of US imports and finds that for some countries (including China) over half of the expenditures for imports flows back to US companies and workers.”