Defining "American-Made"

February 18, 2009

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"Buy American" is back on the agenda in Washington. Yet buying American-made products, particularly automobiles, has become an ambiguous, complicated challenge.

The United States House of Representatives and the U.S. Senate both included provisions in recent economic recovery legislation that would require the use of U.S. goods in public projects financed by the plans. The bill that passed the House late last month contained specific language requiring the use of American-made iron and steel for any infrastructure projects.

The bill, signed into law yesterday, includes the controversial "buy American" provision that, despite being softened, has angered U.S. trading partners.

According to a 2009 poll by Harris Interactive on behalf of the Alliance for American Manufacturing (AAM), Americans overwhelmingly support federal requirements for American-made materials in all federally funded infrastructure investment in the 2009 economic recovery bill: 84 percent of the public surveyed support "buy American" requirements.

The national poll found that only 4 percent strongly oppose the requirement and 7 percent somewhat oppose it. "The overwhelming support was consistent regardless of gender, age, income level, education or region," according to a statement from the AAM.

Today, a fundamental fact about the integration of the world has consumers, not to mention Congress, confronting a tricky question: Just what is an "American-made" product?

What Does it Mean to be "Made in America" Today? "Today, steel, cement, automobile and machinery companies exist in a borderless world. Mexican cement companies own U.S. plants," notes Americas Quarterly, a journal from the Americas Society and Council of the Americas.

Take automobiles, for example.

"How you define an American car is one of the great conundrums of this world," Dutch Mandel, the editor and associate publisher of AutoWeek, recently told CNN.

"Automobiles 'manufactured' in the U.S. have crossed borders numerous times during their assembly," Americas Quarterly points out. "Today in terms of ownership, production and inputs, we are too intertwined to define what is 'U.S.' and what is 'other.'"

In a 2007 paper, economists at the Federal Reserve Bank of Chicago wrote:

The U.S. federal government uses three different methods to measure domestic content for a particular vehicle. In addition, determining domestic content of vehicles ... requires an understanding of the behavior of a large number of parts suppliers, as the Detroit Three and foreign-owned carmakers have turned over responsibility for producing many auto parts to independent suppliers. Typically, parts suppliers contribute about 70 percent of the value added to a vehicle. Therefore, the decision about where to produce parts for a vehicle often lies with the parts producer.

"Once you put down the flags and shut off all the television ads with their Heartland, apple-pie America imagery, the truth of the car business is that it transcends national boundaries," the Wall Street Journal recently noted. "A car or truck sold by a 'Detroit' automaker such as General Motors Corp., Ford Motor Co. or Chrysler Group could be less American — as defined by the government's standards for 'domestic content' — than a car sold by Toyota, Honda or Nissan — all of which have substantial assembly and components operations in the U.S."

In their Chicago Fed paper, titled Whose Part is it? Measuring Domestic Content of Vehicles, economists Thomas H. Klier and James M. Rubenstein wrote that, as of the year prior, "about 25 percent of parts used in the U.S. were imported, and approximately another 25 percent were produced by U.S.-based operations of foreign parts makers.

Consider the Jeep Patriot. According to the National Highway Traffic Safety Administration (NHTSA), which measures domestic-parts content ratings across the industry, the Toyota Sienna is more "American" than the Jeep Patriot — the Sienna is 85 percent "domestic," while the Jeep Patriot is only 66 percent.

The Toyota Sequoia and Tundra are also among high-content U.S.-built vehicles from foreign nameplates: both have 80 percent domestic content.

"Meanwhile, hot sellers like the Ford Escape and Edge have seen their domestic content spiral downward: The Escape fell from 90 percent for '07 to 65 percent for '08, while the Edge dropped from 95 percent for '07 to 70 percent for '08," Cars.com continued.

"In such a context, the distinction between 'American' and 'foreign' vehicles has become blurred," Klier and Rubenstein said in their Chicago Fed paper.

However, among the 58 models with NHTSA ratings of 75 percent or higher, foreign-based automakers produce only eight, Cars.com pointed out. Detroit automakers, on the other hand, produce a mere 24 of the 140 models with domestic content ratings of 10 percent or less. (Cars.com grouped Mazda and Volvo under Ford, as Ford owns major stakes in both brands.)

Are Jobs Driving the Difference? A 2006 study by the Level Field Institute, a group established by Big Three retirees in Washington, estimated the number of jobs each automaker's domestic parts purchases supported. Level Field found that domestic manufacturers' share of total automaker jobs in 2006 was 76 percent, and that every 1,000 vehicles sold by the Detroit Three in the U.S. supported more than twice as many jobs as 1,000 vehicles sold by foreign nameplates.

According to the Center for Automotive Research (CAR), the Detroit automakers directly employed 239,341 people in the U.S. at the end of 2007. At the same time, foreign producers employed about 113,000 U.S. employees.

Foreign car manufacturers generate billions of dollars in jobs, not to mention community infrastructure, in the U.S., but there is a difference between Detroit's economic footprint and that of its foreign rivals.

Level Field has said that investment in research, design, engineering and management is what's driving the difference in jobs.

"When you think of buying American, you should focus on three points — its engine, transmission and where it was assembled," Klier tells CNN. "To get that information, read a vehicle's window sticker. U.S. automakers are legally required to detail the origin of a car's parts and its final assembly point."

Now, as proponents argue that the "buy American" purchasing restrictions in the economic stimulus package are essential — to ensure that the billions spent by the U.S. government to revive the economy and boost employment actually go to U.S. companies — and as critics respond — saying the restrictions would only delay crucial work and impose onerous layers of bureaucracy on what is already likely to be a cumbersome contracting process — it's worth noting that similar measures "have been adopted or considered in Argentina, China, Indonesia, Ecuador, India, Russia and Vietnam," says TIME.

"Most of the manufacturers today look at the world as a contiguous global world," the chairman of the Center for Automotive Research (CAR) told Cars.com last July. "Because of that, it's just a hugely different world from what we've seen in the past, and you make your decisions now on global rules instead of just domestic rules."

Related: U.S. Protectionist Clause Sparks Loud Protest

Resources

Congress Nears Passage of $789 Billion Stimulus Plan (Update7) by Brian Faler and Ryan J. Donmoyer Bloomberg News, Feb. 12, 2009

"Buy American" Survey - Results (Jan. 29-Feb. 1, 2009) Alliance for American Manufacturing, Feb. 6, 2009

Americans Overwhelmingly Support 'Buy American' Alliance for American Manufacturing, Feb. 6, 2009

The Facts on 'Buy America' and Domestic Sourcing Alliance for American Manufacturing, Feb. 2, 2009

The Costs of Economic Nationalism by Christopher Sabatini Americas Quarterly, Feb. 6, 2009

What Makes a Car American? by Ashley Fantz CNN, Dec. 12, 2008

Whose Part is it? Measuring Domestic Content of Vehicles by Thomas H. Klier and James M. Rubenstein The Federal Reserve Bank of Chicago, October 2007

What Is an American Car? by Joseph B. White The Wall Street Journal, Jan. 26, 2009

AALA 2008 Submission Alphabetical National Highway Traffic Safety Administration, April 4, 2008

A Closer Look at Domestic-Parts Content by Kelsey Mays Cars.com, July 1, 2008

The Cars.com American-Made Index by Kelsey Mays Cars.com, July 1, 2008

$83 Billion in Auto Parts Sales - and 232,000 U.S. Jobs - Could Depend on Differences in Domestic Auto Parts Content Level Field Institute / Auto Channel, Aug. 31, 2006

...Despite Cuts, Domestic Automakers Should Remain Far Ahead of Foreign Automakers in Supporting U.S. Jobs & Economic Investment Through 2010 Level Field Institute, July 12, 2006

The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers by David Cole, Sean McAlinden, Kristin Dziczek and Debra Maranger Menk Center for Automotive Research, Nov. 4, 2008

Why Europe Is Fuming About the Stimulus Package by Leo Cendrowicz TIME, Feb. 5, 2009

Putting a Premium on American-Made Products by Lydia Saad Gallup, Oct. 18, 2007

Cars: If "Buy American" Were History by Marcia DeSanctis Huffington Post, Dec. 14, 2008

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