goods in motion

Only a small part of the price of the Chinese made goods is impacted by the value of the yuan.

Marc Chandler:

Many pundits talk about China being the factory of the world.  This is misleading.  China might be more accurately thought of as the assembler of the world.

While last year it was the world’s biggest exporter, it was also one of the world’s biggest importers.  China does not simply import raw materials and commodities; it also imports parts and semi-finished goods which it then assembles.

The imported raw materials and commodities are largely invoiced in U.S. dollars.  So are the parts and semi-finished goods.  The cost of these inputs is estimated to be about 25% of the price of the finished good.  The value-added in the assembly work can also be worth another quarter of the price of the finished good. This assembly work is the only part that is sensitive to the value of the yuan.

The other 50% of the price of the Chinese good is incurred locally in the U.S. for storage, shipping, and marketing. Of course, each of those middlemen also earns a profit.