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De Omnibus Dubitandum - Lux Veritas

Wednesday, June 3, 2020

A Peek Under the Hood: Manufactures Trade

 By Melissa Taylor and Peter Zeihan on June 2, 2020 @ Zeihan on Geopolitics

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.

 https://mcusercontent.com/de2bc41f8324e6955ef65e0c9/images/04224792-0794-4c04-b114-a1af7f8e1bbc.jpg

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.



On June 3 Melissa Taylor and Peter Zeihan will be hosting a video-conference on Manufacturing in a New Era. We’ll address the future of automotive, automation, reshoring, COVID’s shattering of supply chains, consumption shifts, as well as get you an update on the deepening trade war.

For those of you who don’t want to pop for the fee, we’ve recently completed a video on our projected shape of the COVID epidemic to come. You can watch it for free here.

Our June 3 manufacturing video-conference is only the first of a series which will include events focusing on Mexico, China, Energy and Agriculture. Scheduling and sign up information can be found here.



Newsletters from Zeihan on Geopolitics have always been and always will be free of charge. However, if you enjoy them or find them useful, please consider showing your appreciation via a donation to Feeding America.

One of the biggest problems the United States faces at present is food dislocation: pre-COVID, nearly 40% of all foods were not consumed at home. Instead they were destined for places like restaurants and college dorms. Shifting the supply chain to grocery stores takes time and money, but people need food now. Some 23 million students used to be on school lunches, for example. That servicing has evaporated. Feeding America helps bridge the gap between America’s food supply (which remains robust) and its demand (which coronavirus has shifted faster than the supply chains can keep up).

A little goes a very long way. For a single dollar, FA can feed one person for three days.

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