$99B in Stimulus at Stake: The Reason to Explore What “Made in the USA” Means–and Whether It’s Even Important

Recently, I've seen a lot of articles debating what the actual manufacturing requirements will be in order to take advantage of tax credits and bonuses. For example, a recent article in The Wall Street Journal explained that solar projects could receive 10% in bonus tax credits if enough of their equipment was made domestically. Solar companies are arguing that panels, which may make up 40% of the total equipment cost, should be considered US-made if they are assembled domestically. However, the reality is that nearly all panel components such as solar grade silicon, glass, steel and aluminum are made in either China or Southeast Asia.

The whole debate has piqued my curiosity about what the label “made in America” really means and why we should care about it.

Feelings vs. facts: Why the emotional response doesn't necessarily jive with the legal requirements 

I think many people have a positive emotional response when they buy something made in the  USA. It tends to elicit a feeling of national pride, a belief of higher quality, and a feeling that you're supporting the jobs of your neighbors.

However, when we take a look at the actual legal requirements for claiming a product is made in the USA, quality and the number of domestic jobs created are nowhere to be found In fact, according to the Federal Trade commission, products carrying this label must simply be fully assembled in the United States and have negligible foreign parts. 

Yet Investopedia notes that the “FTC also considers other factors, including how much of the product's total manufacturing costs can be assigned to U.S. parts and processing, and how far removed any foreign content is from the finished product. In some instances, only a small portion of the total manufacturing costs are attributable to foreign processing, but that processing represents a significant amount of the product's overall processing.”

Although it is generally believed that American made products are higher quality, often due to more stringent federal regulations and industry requirements, it is not directly related to “made in American” labeling.

A tangled web: The history, purpose, and application of country of origin labels

The counterpart to “Made in the USA” labels are country of origin labels such as “Made in China.” Once I started diving into the history and purpose of labels on a global basis, I realized how complicated the entire labeling system can be.

Country-of-origin labels started in Germany when the country began industrialization and wanted its citizens to know which products were imported. In the United States, the Tariff Act of 1890 was expanded to the Tariff Act of 1930, which began requiring country of origin labels.

As globalization continues to increase, details, exceptions, and actual applications have multiplied, resulting in an extremely complex labeling system depending upon industry as well as states and federal regulations. For example, most food must be labeled with country-of-origin designations. However, beef can be labeled as a “Product of the US” as long as slaughtering or packaging occurred domestically due to competitive trade concerns. We are starting to see more detailed labels such as “Assembled in the United States with components from Mexico” on other items, and I think that will continue with further globalization.

Complex manufacturing processes complicate rebate distribution

Not only does the globalization of manufacturing make labeling difficult, it’s throwing an interesting wrench in the rebate program for electric vehicles. Besides model types and price caps, only vehicles made in the USA qualify for the federal $7,500 credit that’s part of President Biden’s climate bill.

An article by NPR notes that vehicles such as the Volkswagen ID.4 “require some detective work. Some ID.4s were made in Germany and don't qualify for a credit. But if you're looking at one built in Chattanooga, Tenn., it qualifies.”

And as of March 2023, LeafScore reports that “new EVs not only have to be assembled in the U.S. to qualify at all, they also have to meet criteria for battery components and critical minerals to get the full tax credit.” Meeting only one of these requirements cuts the tax credit in half.

Theoretically, these requirements should stimulate greater U.S. manufacturing of both electric vehicles and their components, but at a cost of some confusion and inconvenience.

“Made in the USA” should represent higher quality and better reliability

Unfortunately, I think that much of the historic and current debate regarding “Made in the USA” and country of origin labeling simply revolves around money. When I step back and consider whether I would buy a product simply because it was made in the USA yet identical in terms of quality and reliability to a less expensive foreign-made product, I honestly don't think I would. Would you?

That begs the question of whether all of the stimulus money focused on just bringing manufacturing back to the United States is the right approach. I don't think that consumers want to pay more for comparable, low quality products that are simply made in the United States. Instead, consumers must trust the quality and reliability of US manufacturing is actually better and appreciate that our stringent laws, regulations and testing requirements are worth something important when it comes to the final product.

Perhaps it's time to stop debating the nitpicky details of what it means to be made in the USA and instead find a way to incentivize exceptional manufacturing processes so that our domestic products are seen as truly more reliable, safer, and of the highest quality.