Globalization has had such a dramatic impact on manufacturing in the United States that federal agencies are considering changing the way they define and measure U.S. output and production.
A new manufacturing classification, which may be implemented as early as 2017, according to the August 20 edition of Manufacturing and Technology News, could mean wholesalers that outsource their production are categorized as domestic manufacturers.
The proposal, put forward by the U.S. Economic Classification Policy Committee (ECPC), is an attempt by the federal government to track just how much production is being offshored and which American companies are linked to manufacturing, even though they don’t make the products they design and sell.
The new classification comes in response to the vast number of American businesses that outsource their manufacturing to countries like China and Bangladesh, and the somewhat outdated way economists measure U.S. output. Under the new definition, factoryless goods producers like Nike and Apple, as well as garment and apparel companies, will have their sales counted as U.S. production.
The way we understand exports and imports could also change. Goods that are manufactured overseas for American companies and then brought back into the U.S. will no longer be considered imports because, the ECPC argues, there is typically no change of ownership during the outsourcing and import process.
The question of ownership could have far-reaching consequences.
For one, it’s still unclear which companies can truly be defined as factoryless producers. A company like Apple may own the design, production and sale of its product, but it may not have full ownership of the materials, equipment or processes used in the making of that product.
The ECPC wants to paint a broad stroke, defining any company that offshores manufacturing while retaining economic ownership and intellectual property rights over the finished product as a factoryless producer. A wholesaler outsourcing to China who fits the ownership model will be considered a U.S. producer and its foreign counterparts could potentially be subject to U.S. regulators like the FDA, the EPA and OSHA.
This in turn could place a huge burden of factoryless producers to record and document their outsourced manufacturing and supply chain activities, and in the event of another Foxconn, U.S. companies will have to face legal ramifications along with the public flogging.
The recommendations of the ECPC have provoked nationalist sentiment among some groups who claim that it’s an attempt to fudge the numbers, making it appear that American manufacturing is thriving. Whatever the motives, it’s likely that the reclassification will provide new ways to examine the nature of offshoring and its impact on the U.S. economy.
What do you think? Should America’s outsourcers be classified as domestic manufacturers?