“The determination of whether a product is American-made is binary"

“The determination of whether a product is American-made is binary"

Changes in the structure of manufacturing make it difficult to design government policies that support manufacturing-related value added and employment in the US, according to a recent report.

'The Meaning of Made in the USA', published by the Congressional Research Service say many federal laws adopted with the goal of supporting manufacturing do not take into account the "increasingly blurred lines" between manufacturing and other types of economic activity.

It adds that, to the extent that domestic content requirements raise the cost of goods procured under federally funded contracts, they reduce the volume of procurement for any given level of expenditure and thus adversely affect employment in non-manufacturing industries.

The report, authored by section research manager Mark Levinson, says the provisions in federal law intended to support manufacturing define it as the process of physically transforming goods (e.g., moulding, cutting, and assembly) and establish a variety of potential benefits, preferences, or penalties based on the country in which physical transformation occurs.

However, the report adds, these policies rest on two implicit premises that it says have been rendered questionable as a result of developments in the private sector.

The first is that each manufactured product is assumed to have a single country of origin.

"The determination of whether a product is American-made is binary; either it was made in the United States or it is an import," Levinson explains. "This assumption fits uneasily with the global value chains now widely used by manufacturers to combine raw materials, components, services, and intellectual property from multiple countries into a single, finished manufactured good."

Secondly, the report points out that physical transformation is assumed to be the means by which manufacturing creates economic benefits.

"Under a variety of statutes, the fact that other activities related to making a product are conducted in the United States is not relevant to the determination of whether the product is made in the United States. This is generally the case even if those activities account for a large proportion of the value of the finished good or of the employment related to the good's production," Levinson adds.

"Conversely, a good may be treated as US-made if significant parts are of US origin and if the good was transformed in the United States, even if all research, design, software development, and other nonphysical activities related to its production occurred in other countries."

Levinson say that while there may be motivations for encouraging domestic production of manufactured goods other than fostering employment and increasing value added, it is becoming increasingly challenging to design and enforce effective government policies, as emphasis on the location of physical transformation addresses an aspect of the manufacturing process that is likely to become less important over time.

The report comes as the Trump administration has made revitalising domestic manufacturing and increasing associated jobs a primary focus of trade policy.

Last month, President Donald Trump signed an executive order aimed at promoting American industry and protecting it from "unfair competition".

The move was applauded by the country's textile industry, which said it would work with the administration to help it improve implementation and enforcement of these job creating statutes and regulations.

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