A closer look at American manufacturing in commercial and industrial sectors. By Jeremy Blankenship
American manufacturing has always been the standard of high quality products for local businesses and international brands. The highly coveted “Made in the USA” label offers assurance for buyers, suggesting that the product is genuinely superior, compared to companies that are unable to make such claims.
In the past decade, globalization and international influence have placed a strain on US-based manufacturers that support “Made in the USA” products. With the intention of reducing costs and increasing margins, many businesses have resorted to outsourcing (just by moving operations to Mexico, some businesses have been able to cut costs by a whopping 75 per cent); and as a result, formed strategic partnerships with overseas groups that offer cheap labor and mass production services.
US president Donald Trump promised to stop the proliferation of this trend and withdrew from the Trans-Pacific Partnership (TPP), forcing international companies that want to maintain their deals with US businesses to setup shop in the country. With Trump prioritizing American manufacturing, now is the perfect time to learn about what “Made in the USA” really means and its applications to consumer and industrial goods.
“Made in the USA” regulations and policies
These days, companies that disclose the origin of their products through a statement or label must closely adhere to regulations set forth by the Federal Trade Commission (FTC). Interestingly, most businesses aren’t actually forced to reveal the origin percentages of their products (there is an exception to this practice for cars, textile, wool and fur products). Yet, establishments want to be able to apply such distinct markings on their offerings because it helps improve sales and provides assurance for local consumers.
One should carefully note that a company does not need approval from the FTC to apply the label. But to ensure compliance, the product must be “all or virtually all” made in the US, which includes all 50 states, the District of Columbia, as well as US territories and possessions – based on the Enforcement Policy Statement. The term “all or virtually all” refers to all major or significant parts and processing of the product, which must originate from the US. Furthermore, the product should not contain any or only “negligible amounts” of foreign content.
How companies use the label
Stretching the application of “Made in the USA” regulations can get businesses in trouble. For example, a chair with a US-made label contains an imported wooden base from Chile – a crucial component of the product. The product is assembled and finished in the US, using paint from Maine. In this scenario, the use of the label could be seen as deceptive, due to the incorporation of a major imported component.
In another example, an LED lamp with a US-made label uses a tiny, custom switch that is imported from Taiwan. All of the other components, such as the housing, LED components, bases and plugs are made in the US. The lamp is also manufactured in the US, where it will be sold at local electronic shops. In this case, the practice of using “Made in the USA” labeling is not deceptive, because the custom switch does not make up a large part of the product’s overall manufacturing costs; and the small component can be viewed as insignificant (although crucial to the functionality of the lamp), when compared to other parts of the product.
The FTC does not closely regulate the application of US-made labels, simply because it lacks manpower to serve as a policing agency against such practices. But when companies are caught exploiting the lax policies, the Commission aims to make an example out of the negative behavior by imposing
hefty fines. Although rare, the FTC does take action against businesses that cross the line.
In the 90s, FTC officials engaged in a civil penalty case with Stanley, a brand that specializes in industrial tools and handheld equipment, asserting that the company’s “Made in the USA” labeling practices were misleading. The product in question was a line of Zero Degree ratchets, which the FTC proved was utilizing a significant amount of foreign components during manufacturing. In 2006, Stanley was forced to fork out $205,000 in fines to settle the case.
What it means for consumers
Consumers who praise “Made in the USA” labels can sleep well at night, knowing that US-made products have gone through strict vetting and inspection processes set by American manufacturing regulators. Some imported products that are made using foreign manufacturing standards may not be as reliable, sturdy or safe.
For instance, in 2007 a non-profit organization found some toys from China to contain unsafe levels of poisonous lead. Holgate Toys, a US-based manufacturer that applies US-made labels on wooden toys, benefited from the scare and saw a surge in sales during the incident. During this period, company president Richard Bly mentioned that people would walk into toy stores and specifically ask for “Made in the USA” products to avoid foreign products with potentially harmful substances.
Moreover, companies that outsource manufacturing outside of the US may not be able to regulate operations as effectively due to limited access. This is prevalent in the fashion and garments sector, where large brands rely on rural factories to meet product demand and monthly quotas. Lastly, people who are concerned about the exploitation of child labor and destructive environmental practices in other parts of the world may be wary of purchasing foreign products that ultimately support such businesses
This article by Jeremy Blankenship originally appeared as a blog on Larson Electronics website.
For more information, visit: www.larsonelectronics.com