Patriot Games: The Great ‘Made in USA’ Illusion

The federal government has rules about what it takes for consumer goods to carry a “Made in USA” label, but it does little to enforce those rules. As a result, marketers exaggerate the degree to which their products are made in the United States. Unfortunately, deceptive labeling practices appear unlikely to change anytime soon.

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A label that says “Made in USA” appears to carry a lot of influence with consumers in the United States.

According to a 2012 survey by Boston Consulting Group, 81 percent of 1,001 U.S. consumers who were surveyed said they would spend more for products that are made in the United States—and 60 percent said they spent more for a U.S.-made item after they compared it with a made-in-China alternative within 1 month of the survey. Another 2012 study that was performed by Perception Research Services International, which is a market-research company, found that 76 percent of at least 1,400 shoppers who were surveyed said they’re more likely to buy a product when it has a “Made in USA” (or “Made in America”) label. A 2013 Gallup poll found that 45 percent of Americans try to buy U.S. products. Consequently, companies that make products in the United States understand the allure of a label that says so.

“They have a powerful marketing tool,” says Dave Schiff, who is the founder and chief creative officer of Made Movement, which is an advertising agency that specializes in clients that manufacture in the United States. Consumers cite factors such as quality and safety when they choose to buy U.S.-made products, but many also say they want to support a U.S. manufacturing base that’s been battered economically by cheap overseas labor.

“Patriotism sells,” says Bonnie Patten, who is the executive director of Truth in Advertising, which monitors advertising.

Unfortunately, consumers can’t assume that a product that has a “Made in USA” label is all that it says it is. Our examination of labeling laws and practices found that tough-sounding regulations are so vague that it’s easy to skirt them. Couple that with the fact that the regulations are hobbled by weak enforcement, and you get companies that make misleading or outright phony “Made in USA” claims. In addition, groups are pushing to change or water down the government’s labeling standard, which could lead to even more confusion for consumers and less certainty about which products that have a “Made in USA” label really are made in the United States.

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LAX GUIDANCE. Federal Trade Commission, which establishes rules for “Made in USA” labels as well as labels that denote the country in which the product or its components were assembled, doesn’t approve labels or verify their accuracy. According to FTC’s Bureau of Consumer Protection, a product may have a “Made in USA” label if “all or virtually all” of its parts and its manufacturing processes take place in the United States. Labels that read “Made in USA” should have “no—or negligible—foreign content.” However, FTC doesn’t state what percentage of the product must be from the United States. That leaves wiggle room for marketers to determine how much “all or virtually all” constitutes.

The result is that it’s possible that more than half of a product could be made of foreign components but still bear a “Made in USA” label, says Michael Hasler, who is the program director for McCombs School of Business at The University of Texas at Austin. As an example, Hasler says a product that has 100 parts, 99 of which are from outside of the United States and only one of which is U.S. made might qualify for a “Made in USA” label if, say, that one U.S. piece were gold that came from the United States. He says it could be argued that, as a result, more than half of the value of the product in question comes from the United States.

Reading FTC’s literature on the subject provides little clarity. FTC publishes for manufacturers a 44-page booklet on its “Made in USA” labeling standard, but the booklet is rife with seeming contradictions. For example, it notes that a clock radio that has a plastic case that’s made from imported petroleum “likely” would qualify for a “Made in USA” claim as long as all of the other parts of the product were made domestically. By contrast, a computer that has major components from other countries but is assembled in the United States wouldn’t even meet the FTC standard for an “Assembled in USA” label, because FTC defines the major components’ country of origin as the place where the computer’s last “substantial transformation” took place. You read that right: Assembling the final product isn’t necessarily a “substantial transformation” in FTC’s eyes. Instead, “substantial transformation” is “a manufacturing process that results in a new and different product with a new name, character and use that is different from that which existed before the change.” FTC says these judgments are made on a case-by-case basis.

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