The labels on our purchased items that purport to tell us where the products were made are often misleading. They are the result of labeling laws that ignore today’s reality of global supply chains. This is why I find the series on ABC News which challenges its viewers to reject products simply because they do not carry a “Made in America” label so misleading and rather disturbing; it focuses people’s attentions on the wrong issues.
Many of today’s companies divide their operations across several countries to maximize efficiency and outputs and to minimize costs. Meanwhile, labeling laws require that the label name the last country in which an operation occurred that added some value to the product. However, the label does not reflect the multitude of operations which may have occurred in previous locations.
Let’s take clothing. One of the ABC series noted the foreigners who travel here to “buy American” only to find a “Made in Haiti” label. Much of the apparel found on U.S. store shelves may say “Made in Bangladesh” or “Made in Haiti”. What does that mean exactly? The designers and owners of all the intellectual property associated with these garments almost certainly continue to reside in the USA. And where do the raw materials come from?
The clothing is cheaper here because of trade preference programs which allow them to be manufactured in Haiti, for example, and to enter the United States duty-free, but only on certain conditions. These programs are complex, but generally speaking one important condition is that the t-shirt – or jeans/skirt/name the garment – must include some U.S. content. Depending on the product and the country involved, this might mean that the garment must contain as much as 100% US raw materials, while assembly must occur in the beneficiary country. Some programs also allow the use of some materials that may be sourced locally or from a third country, again under very circumscribed conditions. These preference programs exist as a means of helping US farmers while providing some trade-related assistance to some of the poorest and most vulnerable countries in the world.
As a result, the “Made in Haiti” label indicates only the last place that any value was added, in this case, in Haiti. Behind the label, are a US-based designer, US cotton farmers, US textile-makers, a US seller, on the one hand; and on the other the poor women in Haiti who earned a basic wage to make the garment.
Who could argue with this? Let’s take a more difficult case – the ubiquitous and dreaded “Made in China” label.
The Apple i-Pod is made in India, Taiwan, China, and California’s Silicon Valley. Design of the chip, which involves both hardware layout and software coding, is split between a US-based company and its subsidiary in India. The microprocessor chip design is actually licensed from a UK-based company, co-founded by Apple. The final design is sent to two Taiwanese-based companies that specialize in made-to-order chips. Testing and packaging of the wafer takes place in Taiwan and Korea. The finished chip is plugged into a circuit board and inserted into an iPod – in China. From there it is shipped directly to the customer. Made in China?
China is indeed a manufacturing superpower, but one whose main contribution has been the ability to provide lots of cheap labor. As its labor costs rise in keeping with its increased standards of living, manufacturing will simply shift to other countries. Meanwhile, China shares the goal of any other industrialized country – to begin to create, own, and manage its own designs and brands, perhaps even shipping them off to third countries for manufacturing.
Instead of focusing on the label, let us look behind the label to better understand the real threats to jobs and economic growth, and how to address them.