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The importance of imports

Import tariffs, imports of production inputs, and domestic investment

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.

How these graphs were created: For the first, search for and select “Imports of Goods: General Merchandise: Capital goods except automotive” and click “Add to Graph.” From the “Edit Graph” panel, under “Customize Data,” select another series to combine with the existing series. Search for and select “Imports of Goods: General Merchandise: Industrial Supplies and materials” and click “Add.” This series is now labelled as series “(b)” in the “Edit Graph” panel. Repeat this procedure to add the series: “Imports of Goods: General Merchandise.” Now use formula (a + b)/c*100.

For the second, start with the same search, then add another series by searching for “Gross Fixed Capital Formation in the United States” under “Customize Data” and clicking “Add.” The units of the two series are different, so to normalize we need to multiply the Imports of Capital Goods by one million. So, use formula (a*1000000)/b*100.

Suggested by Matthew Famiglietti and Fernando Leibovici.

View on FRED, series used in this post: IEAMGC, IEAMGI, IEAMGM, USAGFCFQDSMEI

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