Opinion

Factoryless goods help make manufacturing

A decade ago, as the United States hemorrhaged manufacturing jobs, the federal government considered reclassifying fast food as a manufacturing industry. Sound ludicrous? Today, with the manufacturing sector still ailing, the federal government wants to take something called "factoryless goods" and categorize the firms that make them as manufacturers. As part of the plan, the government could also classify some foreign-manufactured goods as U.S. exports. The change would help politicians make the case that domestic manufacturing is recovering, even if the assertion isn't true.

The Bureau of Economic Analysis already defines "factoryless goods producers" as "business units that control the entire manufacturing process, including intellectual property, but that outsource all manufacturing transformation activities" to other nations. Firms fitting that description include tech giants such Apple, which shuttered many of its U.S. manufacturing facilities years ago.

Now, as the White House seeks to portray its domestic manufacturing initiatives as successful, the administration has proposed a rule change to classify "factoryless goods producers" as domestic manufacturers, even if the manufacturing jobs associated with those producers are offshore. A 2013 study by Dartmouth Business School researchers found that had that rule been in place, it would have officially increased U.S. manufacturing employment figures by 595,000 jobs in 2002 and 431,000 jobs in 2007.

In response, labor unions and consumer groups last month announced that they organized more than 26,000 public comments against the proposed change. They charge that the reclassification could undermine the Buy American Act, which requires government purchasers to give preference to U.S.-made goods. They also argue that such a reclassification would artificially and inaccurately inflate the number of domestic manufacturing jobs reported by the government and would hide the true economic cost of trade proposals, such as the pending Trans-Pacific Partnership.

"These Orwellian data rebranding proposals would hide the damage wrought by past trade pacts like the North American Free Trade Agreement, greasing the way for more of the same job-killing, deficit-boosting trade deals," said Lori Wallach, director of Public Citizen's Global Trade Watch.

As one example, Public Citizen says that when an Apple iPhone is brought into the United States, the change would reclassify it from a "manufacturing" import to a "service" import. If that iPhone was sold in another country, it would be classified as a U.S. manufacturing export. But the iPhone is assembled in China, with component parts from around the globe.

The issue of factoryless goods doesn't involve just China. In a recent New York Times essay, Wired editor-turned-electronics-executive Chris Anderson said manufacturing firms still in the United States should consider outsourcing production to Mexico as a "long-sought answer for how American manufacturers can compete with those in China, India and the next generation of economic powerhouses."

Anderson suggested calling the cross-border practice "quicksourcing." Under the Obama administration's new proposal, the feds could portray such operations as domestic.

The proposed change could be politically useful for lawmakers, but potentially detrimental for labor advocates. However, some economists support the initiative on the grounds that it provides more precise data. As the Dartmouth researchers argue, such reclassification may be necessary because "factoryless goods" are "a new type of production function in the global economy."

That may be true, but this feels more like what the television show "The Wire" famously called "juking the stats." Indeed, pretending foreign-made goods are actually U.S. exports seems less like an initiative for more precise data than a ploy to hide what's really happening in the economy.

The newly manipulated data may generate some cheery headlines, but a country still struggling through tough times probably won't be fooled - at least not for long.

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