Federal Trade Commission (FTC) Chair Andrew Ferguson has declared July “Made in America” month. One of Chair Ferguson’s goals for the month is to “help companies showcase to consumers that American workers and manufacturing is an engine of American innovation, business creation, and economic growth," as well as highlighting the FTC’s efforts to prevent fraudulent ”Made in the USA” claims.
Section 5 of the Federal Trade Commission Act, which forbids “false or deceptive” advertising, is the statutory justification for the 2021 Made in the USA rule. Under the rule, the FTC uses a three-pronged test to determine whether a product can legally be labeled “Made in USA”:
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The product was assembled or processed in the United Stated
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All significant processing took place in the United States
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The product was made from "all or virtually all" U.S.-sourced components
The first two prongs seem reasonable but the third disqualifies the many products made in America by Americans, but using components imported from other countries. This rule applies even if one or more of the imported parts are unavailable in the U.S.!
Instead, companies that use imported parts to manufacture their products must use phrases like:
“Made in USA of U.S. and imported parts,” or “Assembled in USA,” or “Contains 60% U.S. content.”
This phrasing may be technically accurate, but lacks the appeal of products bearing the “Made in the USA” label.
The FTC’s response to these concerns is that it would be fraud to allow companies that use foreign parts to say their product was Made in the USA. But is it really? When most consumers see the phrase “Made in the USA” on a package or hear it in an ad they think that the manufacturing takes place in an American plant by American workers, even if some of the parts used are imported. If the use of foreign parts disqualifies a product from being made in the USA, than why should the same standard not apply to the use of foreign-made tools? A consistent application of this logic would mean that virtually no product could carry the Made in the USA label.
Those found guilty of violating the Made in the USA rule can face fines of over $50,000 per violation, or even per day if the violation is ongoing.
The FTC’s Made in the USA rule is particularly hard on small businesses that cannot afford to hire staff to ensure compliance.
An example of such a small business is Bunch Bikes. Bunch Bikes is a small (eight employees) electric cargo bike manufacturer in Denton, Texas. Bunch Bikes relies on overseas suppliers for the 120 components used in constructing their bikes. This is necessary because there are no domestic supply chains capable of supplying the parts Bunch Bikes needs to make its products.
Some of Bunch Bikes’ components come from China. While it might be possible for Bunch Bikes to get these products from other sources, there is no guarantee another supplier would be as reliable or meet the same standard of craftsmanship. Besides, Bunch Bikes’ eight-person staff does not have the time or resources to locate alternative suppliers. The FTC’s Made in America rule refuses to recognize these realities. Instead it prevents Bunch Bikes from making what most people would say is a true claim (because it is true) that their product is made in America.
The success of Bunch Bikes may not make a great difference to the health of the US economy, but how many other small businesses could get a competitive edge if the FTC allowed them to market their products as Made in America?
Since almost half of U.S. imports are used to make other products in the United States, it seems likely that most American manufacturers rely on imports either for their parts or their tools.
According to Chair Ferguson, “Research shows that 61% of Americans consider a product's U.S. origin when purchasing a good” These consumers need to know that when they pick a product claiming to be Made in the USA, it really is made in the USA. However, the FTC should recognize that most Americans still consider a product assembled or manufactured in America by Americans to be American made, even if some (or all) of its components are imported. Consumers looking to support American business do not want the FTC to make it harder for small and new companies. The FTC needs to modify its Made in America rule so as not to exclude smaller businesses from being able to say that their goods are Made in America.
