View All | May 2016 Newsletter Edition

This election season, Republicans and Democrats don’t seem to agree on much. But 95% of voters — regardless of which U.S. presidential candidate they favor — support American-made products. The vast majority of Americans also favor training programs, trade enforcement, tax incentives and a national strategy to support U.S. manufacturing, according to the Alliance for American Manufacturing. This organization is a not-for-profit, nonpartisan partnership of leading domestic manufacturers and the United Steelworkers labor union.

With the momentum that’s building behind the Made-in-America label, it may be time for your business to rethink its supply chain partners and marketing strategy.

Assessing the Current State of U.S. Manufacturing

Manufacturing is by far the most important sector of the domestic economy in terms of total output and employment. It represents a significant portion of the total jobs in many southern and midwestern states, including:

  • Indiana,
  • Wisconsin,
  • Michigan,
  • Alabama,
  • Arkansas,
  • Ohio,
  • Kentucky,
  • Mississippi, and
  • Kansas.

In turn, the manufacturing sector also impacts the demand for goods and services from other sectors, such as energy, construction, accounting, engineering, software, and temporary help firms.

Over the last few decades, millions of manufacturing jobs have been lost in the United States. The primary culprit has been outsourcing to nations with lower wages and fewer regulations, such as China and Mexico. The United States has also been slow to recover from the recession that spanned from 2007 to 2009. Other reasons for manufacturing job loss include reduced spending on infrastructure by state and federal governments, as well as inadequate public policies on taxes, education and energy.

States that have lost more than 200,000 manufacturing jobs since 1998 include:

  • California,
  • Ohio,
  • North Carolina,
  • New York,
  • Michigan,
  • Illinois,
  • Pennsylvania, and
  • Texas.

That trend may slowly be reversing, however. Negative publicity related to quality control issues, shipping delays caused by natural disasters, high international shipping costs and increasing foreign wage rates have led to resurgence in the reshoring movement. Additionally, outsourcing and the U.S. trade deficit are currently political hot buttons, especially in parts of the country dealing with significant manufacturing job loss.

The Reshoring Initiative — a not-for-profit group committed to bringing back U.S. manufacturing jobs — reports that more than 249,000 jobs were reshored from 2010 to 2015. Last year was the second consecutive year that the number of jobs returning to the United States was slightly higher than the number of jobs leaving. (By comparison, our net loss of manufacturing jobs to offshore locales was about 220,000 per year from 2000 to 2007.)

But there’s a long way to go before we break even. The Reshoring Initiative estimates that there are currently 3 million to 4 million manufacturing jobs still offshore.

Retooling Your Strategy

Regardless of your political affiliation, you might want to jump on the reshoring bandwagon. Many U.S. consumers are willing to spend more for products that are made domestically to support the U.S. economy. So, the Made-in-America label can add value by creating goodwill and bolstering your company’s perceived brand image.

According to the Reshoring Initiative’s 2015 Data Report, there are many other benefits to bringing manufacturing operations back into the United States, including:

  • Increased control over suppliers
  • Fewer communication obstacles with local suppliers
  • Reduced risk of intellectual property theft
  • Higher product quality, leading to fewer product liability concerns and recalls
  • Closer IRS scrutiny of foreign sources of income
  • Closer proximity to customers, leading to lower shipping costs
  • Fewer shipping delays
  • Access to a more skilled, diverse labor pool

The reshoring trend shows no sign of slowing as the reasons for doing business domestically continue to grow — and the financial incentives to seek greener pastures offshore continue to diminish. Many of these companies are choosing to reshore to southern states, which tend to offer comparatively low state tax rates and employer-friendly right-to-work laws, which reduce the bargaining power of unions.

Labeling for Success

Before you redesign your packaging to include the American flag or launch a Made-in-America advertising campaign, however, it’s important to review relevant Federal Trade Commission (FTC) standards with your legal advisers. In a nutshell, you can’t legally claim that a product is American-made unless final assembly takes place here and the majority of total manufacturing costs are spent on domestic parts and processing. This may require you to revise where your plant operates and which suppliers you use.

Compliance with these rules is more complicated when a product’s various components are manufactured in multiple locations. The FTC allows qualified claims when a product is made in several countries. For example, a company can spell out clearly the percentage of a product’s content that’s made in the United States. Or manufacturers can use qualified phrases such as an appliance that is “assembled in the USA from imported parts,” or a pillow that is “made in China, filled in the USA.”

A Made-in-America claim can also be implied. For example, images of an American flag or an outline of a U.S. map may convey domestic origin. The same may be true of a company ad in which a manager describes the “true American quality” of products that come from its factories.

Think It Through

For some businesses, using offshore manufacturing sites and suppliers continues to make sense financially or strategically, especially for businesses that rely primarily on less-skilled workers; offer low-tech, commoditized products; or sell to customers overseas. Deciding which countries to operate in is complex and involves numerous quantitative and qualitative factors. Relying on gut instinct or simply “following the industry leader” can be risky business.

Contact your legal, financial and tax advisers to help determine whether reshoring makes sense for your specific business. If so, your team of advisers can also explore state economic development incentives to find the most advantageous place for you to resume business in the United States.

Copyright 2016