Cheap Imports Likely to Push Consumer Prices Lower

 

August 18, 2004 -- The Labor Department reported on Tuesday that consumer prices dipped 0.1 percent in July, which should ease some current inflation fears. However, a recent study said that even if prices were to climb in the short term, the United States' dependence on imports from low-wage countries is increasing rapidly, which should help moderate inflation over the long term.

In their study, economists Andrew Bernard of Dartmouth College, J. Bradford Jensen of the Institute for International Economics, a think tank, and Peter Schott of Yale University forecasted that 24 percent of all U.S. manufacturing imports would originate in very low-wage countries, such as China, by 2011. Comparatively, imports from low-wage countries accounted for only 4 percent of U.S. manufacturing imports in 1981 but as much as 15 percent by 2001, the latest year with country-by-country data available.

Imports from low-wage countries will continue to be concentrated in low-skill, labor-intensive industries, said the report. American consumers should expect low-wage countries to make more and more of the products they buy in categories such as leather goods, apparel, furniture, toys and expensive jewelry, according to the study.

While the report is good news for inflation-watchers, it is not as cheery for the U.S. manufacturing sector, which the economists said has already lost 2.7 million jobs over the last three years. The study also noted that there is little chance that the move toward imports from low-wage countries will stop or reverse itself.


Matt Quinn

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.