The importance of imports of capital and intermediate goods to the U.S. economy

See The importance of imports: Import tariffs, imports of production inputs, and domestic investment from the Federal Reserve Bank of St. Louis. 

"U.S. trade policy continues to change, with rising tariffs on imports of capital goods and intermediate inputs from China and other countries. But how important are these types of imports for the U.S. economy, especially compared with total U.S. imports? As usual, FRED can help answer our question: The graph above plots the share of capital and intermediate inputs in aggregate U.S. imports over the period 1999-2019.

As the graph shows, the share is not small. In fact, it’s the majority of total imports, ranging from 46% to 61% over this period, with an average well above 50%. Because these imports play an important role for the domestic production of U.S. goods, one would expect that raising tariffs on these goods would have a negative impact on domestic production.

Again, FRED sheds some light on the question: The graph below shows that imported capital goods make up a substantial fraction of aggregate investment, ranging from a bit under 12% to almost 18% for 1999-2019. In particular, the share of imported capital goods in gross fixed capital formation has been growing over the past two decades: Between the 2001 recession and the Great Recession, it was in the 12% to 14% range; after the Great Recession, the values were largely above 16%.



"U.S. trade policy continues to change, with rising tariffs on imports of capital goods and intermediate inputs from China and other countries. But how important are these types of imports for the U.S. economy, especially compared with total U.S. imports? As usual, FRED can help answer our question: The graph above plots the share of capital and intermediate inputs in aggregate U.S. imports over the period 1999-2019.

As the graph shows, the share is not small. In fact, it’s the majority of total imports, ranging from 46% to 61% over this period, with an average well above 50%. Because these imports play an important role for the domestic production of U.S. goods, one would expect that raising tariffs on these goods would have a negative impact on domestic production.

Again, FRED sheds some light on the question: The graph below shows that imported capital goods make up a substantial fraction of aggregate investment, ranging from a bit under 12% to almost 18% for 1999-2019. In particular, the share of imported capital goods in gross fixed capital formation has been growing over the past two decades: Between the 2001 recession and the Great Recession, it was in the 12% to 14% range; after the Great Recession, the values were largely above 16%.




These specific imports comprise a significant portion of both total U.S. imports and domestic investment, which suggests that the ongoing changes to U.S. trade policy might have a negative impact on firms that rely on these capital goods and inputs to conduct their productive activities. In particular, tariffs on capital goods might negatively affect aggregate U.S. investment and, thus, aggregate output."

Why the number of Guatemalans coming to the U.S. has increased so much

See The Guatemalan City Fueling the Migrant Exodus to America: Guatemala is now the largest source of illegal immigrants headed to the U.S., with the emigration epicenter in Joyabaj, population 100,000 and falling by José de Córdoba of The Wall Street Journal.

When people change what they are doing, as the first sentence below shows, economists ask what changed to cause the change in behavior? The article gives a number of reasons.

Excerpts: 

"Apprehension of Guatemalans jumped to about 236,000 in the first nine months of fiscal year 2019 from about 15,000 in 2007"

"Guatemala’s economy has averaged 3.4% growth in the past five years, and the homicide rate has fallen by half to 22.5 homicides per 100,000 people compared with 2009. The U.S. homicide rate was 5.3 per 100,000 in 2017, according to the latest available data.

Yet those improvements haven’t been enough to counter at least three events that drove the immigration surge, according to immigration experts, Guatemalan émigrés, local officials and migrant smugglers.

First, a 2015 U.S. federal court ruling made it easier for migrant families with children to apply for asylum and stay in the U.S. until their cases are decided by a judge. After the ruling, many more families with children began turning up at the U.S. border. President Trump wants Congress to pass a law eliminating what he sees as a loophole in the law.

Second, a yearslong drought has shrunk corn and bean harvests. The manager of a bank in Joyabaj specializing in agricultural loans said they have reduced loans to local farmers by 60% over the past six years and now lend only to those who already have their own irrigation systems. Separately, coffee prices have fallen, hurting growers and killing many seasonal jobs.

Finally, there was Mr. Trump. The president’s promise to build a wall along the U.S.’s southern border led many Guatemalans to conclude they should leave now—or risk getting shut out of the U.S. for good."

"a 2016 poll by the United Nations’ International Organization for Migration found nine of 10 Guatemalans said they emigrated for financial reasons."

Passport children

"The Central American migration crisis erupted in 2014. Unlike previous waves of adult male migrants, a large number were children and teenagers traveling without their parents.

One reason was passage of a 2008 law intended to protect unaccompanied minors from long stretches in U.S. custody. It also shielded them from deportation—except for minors from Mexico or Canada—and ordered their release to relatives in the U.S. as quickly as possible.

To slow the migration, the Obama administration asked Mexico to step up deportations of Central Americans crossing through Mexico. In addition, the U.S. began holding Central American families at border detention centers.

In July 2015, a federal judge ruled the detention of immigrant children and their mothers violated a court settlement known as the Flores Agreement. U.S. District Judge Dolly Gee determined that the agreement applied not just to unaccompanied minors but also to families with children.

After the court decision, immigrant families claiming asylum were quickly released to await their court hearings in the U.S., often for years.

The belief that children were the ticket to U.S. entry spread through Guatemala and neighboring countries. “Kids are the passports,” said Maria Elena Castillo, manager of the Joyabaj branch of the government office that issues identification documents."

"Human smugglers offer steep discounts for those who bring a child. That is because an adult traveling alone has to be taken on a dangerous journey across the U.S. border. A family claiming asylum can be dropped off at a U.S. border checkpoint."

"Sometimes mothers send a son or daughter north with an adult relative or friend pretending to be the parent. Many times it is to join family already living in the U.S."

Has social media increased the demand for wedding party activities?

It seems like people are spending more money on weddings and related activities. This gets expensive for bridesmaids and groomsmen. Some of them drop out because it their bride or groom friends want them to spend too much money.

See Go Broke or Go Home Bachelorette Parties by Rhiannon Picton-James in The NY Times. Excerpts:

"The cost of bachelorette parties is ever growing, with weekend wedding festivities at destination locales now the norm. Millennials are even going broke to attend, and I’m one of them.

A recent survey from Credit Karma found that about one in three millennials have gone into debt to attend a bachelor or bachelorette party. Among them, 36 percent were more than $500 in the red.

It’s not only bachelorette parties that are cash drains. A third of people who have been attendants in a wedding in the last two years have incurred debt and regret the money they spent. Some people are even declining invites to be in wedding parties because of the costs they will incur.

The pressure to afford lavish nights out and trips away is exacerbated by the need for everything to be Instagrammable."

"“Social media is normalizing expensive bridal traditions, like destination bachelorette parties,” said Stefanie O’Connell, a New York-based money expert who focuses on millennials. She is also the author of “The Broke and Beautiful Life: Small Town Budget, Big City Dreams” (Coventry House Publishing, 2015).

“If our point of comparison was limited to our own social circle — the people we live near and work with — we’d naturally be comparing ourselves to people with means somewhat similar to our own,” Ms. O’Connell said. “But because of social media, our point of comparison has shifted.”

People now look at pictures of others who might have incomes 10 to 100 times what we have, she said. But we don’t see that in the pictures. We just see the trips and the dresses and the gifts, and so it’s easy to fall into the trap of thinking, well that’s normal and I should have that, too."

"A recent survey by CompareCards, a division of LendingTree, found that 58 percent of bridesmaids and 61 percent of maids of honor felt pressured to spend money on bridal party-related expenses and say the financial pressure strained their relationship with the bride. The survey also said 43 percent of groomsmen and half of those who were the best man, said they also felt the strain of being in a wedding. And the survey said 37 percent of people — I wish I had been one of them — have declined being in a wedding because of the costs."

"They feel like it’s their moment to shine and everyone else should spend money, too. It’s just become the norm and societal expectation.”

This brings us back to social media. “They want to create the perfect Instagrammable wedding moment,” Dr. Kaplan said. “It pulls them further from reality, and more into a fantasy world, built on unrealistic expectations.”"

Was there really a shortage of meatless burgers?

See Mission Impossible? Maker of Plant-Based Burger Struggles to Meet Chains’ Demand: The popularity of Impossible Foods’ meatless burger patty is disrupting supply chains at White Castle and Red Robin by Neil Vigdor of The NY Times.

The article mentions a shortage. But it also mentions that demand had increased and that one restaurant had raised its price. That is what we expect to happen when demand increases. Maybe people would like to buy more meatless burgers at the price of a regular burger, that does not mean there is a shortage. Excerpts:

"Impossible Foods, a Redwood City, Calif., company that makes the patties from genetically engineered, soy-based heme protein, said that it was not playing favorites and that it was ramping up production of the burgers. It uses more than 400 distributors and does not sell its burgers directly to restaurants and retailers, according to the company."

"But at a dozen White Castle and Red Robin locations across the United States, the much-discussed burgers were in scarce supply on Friday, when the eateries were contacted by The New York Times."

"Ms. Scanlon said her Red Robin location ran out of the meatless burgers about a week ago. At her restaurant, she said, the specialty patties cost an extra $3.50."

"White Castle, . . . attributed the shortage to the burger’s popularity and a planned transition in the shape of its sliders."

"Ms. Konrad said grilling season had increased the demand for the burgers, which Impossible Foods said could be used to make tacos, meatballs, lasagna and Bolognese sauce for pasta."

"The key ingredient of the Impossible Burger is genetically engineered, making the patties themselves a so-called G.M.O. food."

Ws there really a shortage of meatless burgers?

See Mission Impossible? Maker of Plant-Based Burger Struggles to Meet Chains’ Demand: The popularity of Impossible Foods’ meatless burger patty is disrupting supply chains at White Castle and Red Robin by Neil Vigdor of The NY Times.

The article mentions a shortage. But it also mentions that demand had increased and that one restaurant had raised its price. That is what we expect to happen when demand increases. Maybe people would like to buy more meatless burgers at the price of a regular burger, that does not mean there is a shortage. Excerpts:

"Impossible Foods, a Redwood City, Calif., company that makes the patties from genetically engineered, soy-based heme protein, said that it was not playing favorites and that it was ramping up production of the burgers. It uses more than 400 distributors and does not sell its burgers directly to restaurants and retailers, according to the company."

"But at a dozen White Castle and Red Robin locations across the United States, the much-discussed burgers were in scarce supply on Friday, when the eateries were contacted by The New York Times."

"Ms. Scanlon said her Red Robin location ran out of the meatless burgers about a week ago. At her restaurant, she said, the specialty patties cost an extra $3.50."

"White Castle, . . . attributed the shortage to the burger’s popularity and a planned transition in the shape of its sliders."

"Ms. Konrad said grilling season had increased the demand for the burgers, which Impossible Foods said could be used to make tacos, meatballs, lasagna and Bolognese sauce for pasta."

"The key ingredient of the Impossible Burger is genetically engineered, making the patties themselves a so-called G.M.O. food."

People Spend Real Money On Imaginary Products

See You Spent $1,500 on Virtual Bazookas? Kids Are Splurging on Digital Goods:In-game purchases come under new scrutiny from lawmakers; with virtual spending, ‘money turns magical’ by Julie Jargon of The WSJ. Excerpts:

"Kids are now spending hundreds or even thousands of dollars on more ephemeral goods such as outfits for their videogame avatars and gems to help them level up in games."

"Buying an item while playing a game is instantaneous. Meanwhile, the dollar amounts add up without kids noticing how light the piggy bank is getting."

"“The danger with these purchases is that money turns magical,” said Nathan Dungan, founder and president of financial-education firm Share Save Spend. “Children’s brains can’t process these virtual transactions because it’s not tangible to them.”"

"A Microsoft spokeswoman said Xbox has family settings that allow parents to approve and limit purchases and to receive alerts when purchases are made."

One young person said "“feels a little weird” to spend real money on virtual items but that buying cool stuff gives him something to talk about with his friends and improves his game play."

"In-game spending is starting to get more attention from lawmakers, regulators and plaintiff’s attorneys. Amazon.com Inc. AMZN -0.89% in 2017 agreed to refund $70 million to customers who were charged for unauthorized in-app purchases made by a child, as part of a settlement with the Federal Trade Commission."

"“Fortnite” has made $3.9 billion in revenue since its July 2017 launch, with almost all of it coming from microtransactions"

How to Manage Your Child’s Virtual Spending

Control the money. “You are the bank,” said Joost van Dreunen, a co-founder of Nielsen’s SuperData who also teaches a course on videogame economics at NYU. “At all times you must be in charge of the credit card.”"