At a time when more consumers are paying attention to where products are made and expressing greater interest in buying “Made in USA” products even if they cost more, there are changes proposed that could impact consumers being able to make decisions on the products they buy.

The first reason to know where products are manufactured is to have a clear picture of whether the nearly six million manufacturing jobs we have lost since 2000 have been mainly the result of technologic advances and higher productivity in the U.S. or whether outsourcing to foreign countries like China has been the main cause.

For decades, there have been companies referred to as manufacturers that I called “virtual manufacturers” in my book.

These companies have no manufacturing capability in-house. Sometimes they don’t even have the personnel to design the product. The founders of the company may have a concept of the new product they wish to develop and market, but they don’t have the technical expertise to do the design and development themselves. They hire outside consultants to design and develop the product or subcontract the design, development, and prototyping to a company specializing in these services.

At the extreme end, they subcontract out everything from start to finish, including engineering design, procurement of parts and materials, assembly, test, inspection, and shipping to the end customer. They may handle marketing and customer service themselves, but sometimes they even subcontract these functions to marketing and customer service firms. There was no real impact on  U. S. manufacturing data as long as these U. S. companies outsourced their manufacturing to other domestic manufacturers.However, in the past 20 years, these virtual manufacturers have increasingly outsourced most or all of their manufacturing offshore.

This resulted in U. S. federal agencies involved in economic data labeling them as “factoryless goods producers” and classifying them as “wholesale traders,” if they didn’t do any domestic manufacturing themselves.  Apple, Nike, and Cisco are some of the more well known “factoryless goods producers” because of having their manufacturing outsourced offshore.

Changing Classification of Domenstic Manufacturing

Now, U.S. federal agencies involved in economic data want to change the way they classify companies that have outsourced their U.S. production to foreign manufacturing companies. They are proposing to reclassify these “wholesale traders” as “domestic manufacturers.” This means that their sales would be counted as U.S. production and their products that are made offshore and imported into the U. S. for sale would no longer be counted as imports.

As reported in the August 20th issue of Manufacturing & Technology News, the purpose of this change is supposedly “to determine how much products are been offshored and to pinpoint the number of American companies that are linked to manufacturing, even though they don’t make the products they design and sell.”

For the past decade, “U.S. statistical agencies found that the North American Industry Classification System (NAICS) did not provide a clear definition of companies that outsourced their production overseas, but that still owned the design and controlled the production and sale of goods from that foreign production.” A Manufacturing Transformation Outsourcing Subcommittee was formed in 2008 by the Economic Classification Policy Committee “to define outsourcing and identify “characteristics of establishments that outsource manufacturing transformation activities.” The committee was made up of representatives from the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Census Bureau and the White House Office of Management and Budget.

“The committee decided that all factoryless goods producers should be classified in manufacturing, the specific industry classification based on the transformation production process used by the contractor”  and recommended that the classification changes be implemented in the 2017 North America Industry Classification System.

There is disagreement on whether this change would be beneficial as it would impact a dozen major government statistical series, such as industrial production, producer price indexes and industrial productivity.

In my opinion this change would result in data that is misleading and wouldn’t be giving a true picture of American manufacturing. We would not be able to know how much is actually being produced in the United States if we count imports from offshore as if they are domestic production. This change could radically increase U.S. production statistics and reduce our import statistics making our trade balance artificially look better.

A better way to find the answer to this question has been provided by San Diego entrepreneur and businessman, Alan Uke in his book, Buying America Back:  A Real-Deal Blueprint for Restoring American Prosperity. Mr. Uke writes, “Our future as a nation and as individuals is being threatened. Since our spending habits as consumers have contributed to this situation, we can change our spending habits to reverse it… in order for a change to happen, consumers must demand to be more honestly and completely informed about what they are buying and where their money goes.

"To this end, we are starting a consumer movement to bring this to the attention of Congress…The goal of this movement is to encourage people to change their buying habits toward purchasing things that help the U. S. economy and job situation.”

Question of Proper Labeling

He points out that the current information provided on country of origin labels is “misleading, incomplete, inaccessible, or all of these…In order to support our economy and American industries, we must have easily accessible, clearly communicated, and truthful information about a product’s entire origins.”

Uke recommends that consumers be provided the country of origin information they need at the point of sale whether at a store or online and presents a proposal for the U. S. government to require detailed country-of-origin labels for all manufactured products similar to the nutritional information labels now required on packaged food products.

He feels that it is important for consumers to “see the last place where the product was manufactured” and “to discern what portion of its components came from other places” by use of what he calls a “Transparent Label.” It would include the cost by country of origin by both percentage and trade ratio, as well as the location of the company’s headquarters. The percentage is the total cost of the product that is produced or transformed in a particular country. The trade ratio describes the amount of exports vs. imports for a country in relation to the United States. This label would enable consumers to make better decisions when they buy manufactured goods.

The second reason we need to know where products are manufactured is to protect ourselves from unsafe, defective, toxic, and counterfeit products. The U. S. Consumer Protection Safety Commission’s website provides a monthly list of products that have been recalled, and month after month, more than 90% are made in China.

A label similar to Mr. Uke’s recommendation would help companies comply with the new product safety standard (ISO 10377) recently released by the International Standards Organization (ISO):  The “Consumer Product Safety — Guidelines for Suppliers” standard (ISO 10377). The summarywritten by Dr.Elizabeth Nielsen, Chair of ISO/PC 243, Consumer product safety and a Canadian government Scientist, Regulator and Policy Analyst, states, “Regardless of company structure and organization, ISO 10377 will affect all suppliers irrespective of their role in the supply chain and all types of products whatever the origin.”

“Products should be traceable and carry a unique identifier that is labelled, marked or tagged at the source. This also goes for raw materials, components and subassemblies. Suppliers should insist on properly identified products from vendors and be able to trace products back to their direct source and identify the next direct recipient of the product in the supply chain.”

This standard has a different purpose for labeling than Uke’s label:  to protect consumers from unsafe, defective, toxic, and counterfeit products. “Products are safer when they carry documentation about the product, its design, its production and its management in the market...Suppliers should be able to recognize a product’s development through its documentation and trace its design, risk assessment, hazard analysis and testing decisions back to its conception.”

ISO 10377 is “aimed at small and medium sized enterprises (SMEs) as well as larger firms and offers risk assessment and management techniques for safer consumer products. This standard will allow retailers and OEMs to trace every part and component of a product through the supply chain to determine exactly where a defect or a counterfeit has occurred.” The standard is divided into four main sections outlining general principles that promote a product safety culture in a company, safety in design, safety in production and safety in the retail marketplace.

Either Uke’s “Transparent Label” or the label required by ISO 10377 would satisfy both reasons for wanting to know where products are manufactured. This type of label would provide protection for consumers from unsafe, defective, toxic, and counterfeit products and would help us to recognize the main cause of the loss of manufacturing jobs in the United States.

We need to face up to the true cause of the loss of manufacturing jobs before we can get any consensus of what to do about it by means of our national policies. We need to oppose reclassifying “wholesale traders” as domestic manufacturers and support “country of origin” labeling by contacting our Congressional representatives.

Michele Nash-Hoff is president of ElectroFab Sales. She is the author of "Can American Manufacturing Be Saved?"