Monday, December 2, 2013

FTC Rule for "Made in America" Clashes with New Rule

The New York Times reports that the production of cheaper goods, for which consumers are looking for, is by and large staying overseas, where manufacturers can find less expensive manufacturing. Essentially, to Buy American is to pay a premium price — a reality that is acting as a drag on a weak manufacturing resurgence, forcing U.S. companies to focus their American-made efforts on only higher-quality goods that fetch higher prices.

The New York Times article goes on to say that labor costs are 40 percent higher in the U.S. than they are in China, so retail prices end up being 20 percent higher.

According to a poll taken early this year, two-thirds of Americans say they check labels when shopping to see if they are buying American goods. This is a sentiment that advertisers have picked up on, and so a flurry of new corporate promotions now has the Federal Trade Commission policing Made-in-America claims. According to the FTC's rules, “all or virtually all” of a product has to be both assembled and sourced in the United States, in order to be qualified to make the claim "Made in the US" or "American-Made" or stamped "USA".

A majority of consumers, rich and poor, say they believe that American-made products are higher in quality than imports. But when shoppers say that they are interested in buying American-made goods, it doesn’t always square with how they actually spend their money --- especially when they are on a budget (think of Walmart).

"With higher-end fashion goods, where they're made is an identifying source of quality," said Anthony Dukes, an associate professor of marketing at the Marshall School of Business at the University of Southern California. "But at the lower end, I don’t get a sense that people pay too much attention to where it’s made." (Such as comparing a pair of designer jeans to a straw basket.)

American manufacturers have already been offshoring jobs overseas for decades, but domestically made products usually had a faster turnaround time. But during the Great Recession, Chinese factories started offering airfreight, making their turnaround time almost as fast --- and for about half the cost. All of a sudden, in this respect, the U.S. had competition from China and everyone else.

According to the New York Times article, they say there are some hopeful signs for retailers, even at the lower end, such as Walmart, which centers its business on inexpensive items. Walmart started a program this year to increase its purchasing of American-made goods by $50 billion over the next 10 years, with products ranging from socks to flat-screen TVs. (But that's only a fraction, considering that last year Walmart had $444 billion in annual sales)

And Walmart has a great advantage that few other retailers can match: Because of its economy-of-scale, it can push suppliers on cost. Michelle Gloeckler, a Walmart executive who oversees the "American-made" program, says "Research says customers will pay more for Made in the U.S., but we don’t believe that they should have to." (But we know they will.)

But when asked if Walmart would push suppliers to provide more apparel that's made domestically, executives said probably not, because of the labor costs. Michelle Gloeckler said, "The wages in other countries are still lower than the absolute wages here, so products that lend themselves to more U.S. production are generally more highly automated."

Some people believe that there might be a "reshoring" of manufacturing jobs back to the U.S. because Chinese wages are getting too high. But most people believe that the factories in China (contract manufacturing) will just move to other lower-wage countries, such as Cambodia and Vietnam (See link, link, link)

The average price of a garment sold in the United States is $13.49, according to the NPD Group, an industry researcher. Low prices such as this are largely a result of sales at extremely low prices by huge retailers like Walmart, Target and H&M — sales that are made possible by efficient supply chains and purchases of products from low-cost countries like Bangladesh and Cambodia. But keeping costs low, which consumers now expect, can also often mean lower quality.

Although some consumers look for higher quality, even at the higher end, the market is too new and uncertain to bet on the future. A lot of companies are just testing the waters now on American-made goods.

Read the Fair Trade Commission's definition: "Complying with the Made in USA Standard". Then explain how another new rule will effect this standard if America's outsourcers will soon be reclassified as manufacturers?

"The new international guidelines state that the recording of imports and exports of goods should be based on the transfer of economic ownership."

Have you ever heard of factoryless manufacturers? By redefining global outsourcing as ownership at the intermediate stages of manufacturing, multinational corporations can offshore plants, capital, jobs and services overseas --- but because they own it, this redefinition will make global production a part of the U.S. domestic economy. So Apple iPhones (that are manufactured in China), instead of being classified as an "imports", can probably be stamped with the Made in the USA label, and legally comply with the Fair Trade Commission's rules (and also artificially driving the government's reported GDP, making our economy appear better than it really is).

No comments:

Post a Comment