When you buy a product with the words “Made in USA” splashed on it, how do you know the brand is telling the truth about where it was really manufactured?
That’s the crux of a new class action lawsuit against New Balance. The case, filed by five consumers, argues that the sneaker brand misleads customers by marketing many of its shoes as locally manufactured when, in fact, as much as 30% of the content of these shoes are actually produced overseas using foreign labor. Beyond misleading customers, this goes against the regulations established by the Federal Trade Commission (FTC) that companies can only label their products as “Made in USA” if they contain “no—or negligible—foreign content.”
This case raises broader questions about whether consumers can really trust the “Made in USA” label and if they’ll continue to pay a premium for goods that claim to be American-made. It’s an issue that could be a growing concern as some companies consider shifting their manufacturing back to the U.S. in an effort to avoid the disruptions that are currently paralyzing the supply chain.
Policing “Made in America”
For decades, New Balance has branded itself an American-made footwear company. On its shoe boxes, it proudly asserts that it has been “made in the U.S. for over 75 years.” But over the last three decades, it has repeatedly come under fire for misrepresenting its products. A Wall Street Journal investigation from 2014 revealed that only about 70% of New Balance shoes reflected domestic content and labor. And in the 1990s, the FTC brought an enforcement action against New Balance for making these claims about domestic manufacturing, but eventually dropped it after a contentious legal battle.
The latest class action lawsuit, which was filed in December, continues this fight. The five plaintiffs argue that New Balance sells several shoe styles that feature an American flag and the word USA on the tongue of the shoe, meant to suggest that the shoes are made domestically. But the suit argues that these shoes contain as much as 30% of materials made overseas. This is a problem, the plaintiffs say, because consumers are willing to pay more for products they believe are made in the U.S.
This is backed up by 2019 research from the Alliance for American Manufacturing and the FTC, which found that consumers, when given a choice, overwhelmingly prefer domestically made products to those that are imported. And 60% of consumers are willing to pay up to 10% more for an American-made product. “There is a tangible value associated with the ‘Made in the USA’ label,” says Scott Paul, president of the Alliance for American Manufacturing. “Making sure the label is safeguarded, protected, and well-enforced is very important.”
In the past, New Balance has argued that it’s not misleading consumers because it includes tags that make it clear that it considers a product to be made in the USA if 70% of the product is made locally. It also points out that it has four factories in New England where it hires around a thousand American workers to make its shoes. (We reached out to the company for comment on this story but did not receive a response by the time of publication.) The fact remains, however, that New Balance’s internal definition of what it means to be American-made goes against the legal definition established by the FTC. (While the FTC isn’t directly involved with this case, it has the potential to bring New Balance back on the FTC’s radar.)
Paul says that the FTC has become increasingly more aggressive in policing brands that claim to make products domestically. In 2016, the FTC forced the Detroit-based watch and bicycle brand Shinola to drop its slogan “Where American is Made” after it found that the company relies heavily on overseas parts to manufacture its products. In 2018, the FTC went after Williams-Sonoma—the parent company of Pottery Barn, West Elm, and other brands—for making misleading claims that its home goods and furniture were “made in the USA,” ultimately requiring the company to pay $1 million in penalties. And last year, it established new penalties for cracking down on brands that falsely market their products as American-made, seeking fines of up to $43,280 every time they falsely label a product.
Paul says these crackdowns are good for U.S. manufacturing. “Consumers should feel more confident today than they did a couple of years ago, though we still have to be vigilant, and the FTC needs to put more resources into enforcement,” he says.
Willy Shih, a Harvard Business School professor who specializes in manufacturing and supply chain issues, says the market is likely full of brands making false claims about where their products are made, but many are small manufacturers selling on marketplaces like Amazon. While the FTC can’t go after every violation, it has pursued bigger brands like New Balance in the past, which sends a signal to other potential violators. “Most brands realize that if they don’t live up to these labeling requirements, they expose themselves to fraud suits, not to mention PR disasters,” he says.
The Future of American-Made
Both Paul and Shih say many companies that had never considered making products domestically are now open to the possibility. Over the past two years, the pandemic has caused major disruptions in the global supply chain and led to skyrocketing shipping costs. According to Shih’s research, the price of shipping a 40-foot container from South China to the West Coast has gone from $2,600 to $25,000 just over the past few months.
For decades, most American companies had been focused on finding the lowest possible labor costs, which drove them to seek out factories in low-wage countries like China and Bangladesh. But now, there are new costs to consider. “They are wrestling with many other production costs, from shipping to disruptions to delayed inventory,” Shih says. “Brands are saying ‘Wait a minute, why am I making this thing so far away?\’”
Some fashion brands are exploring options that once seemed radical. As I recently reported, designer Tracy Reese has set up her headquarters and a small factory in Detroit, where she’s encouraging other fashion brands to help her make the city a manufacturing hub.
It will take time for companies to set up domestic supply chains, Paul says. But eventually, we could see more brands making products locally, and the FTC’s stringent rules about what can be labeled “Made in USA” could have a range of ramifications. On the one hand, it will allow consumers to confidently seek out domestically produced goods and even pay a premium for them.
However, Paul points out that even when brands use American factories and labor, it can be very hard to make a product entirely in the U.S. because so many components need to be imported. Indeed, the New Balance case is a perfect example of a company that has invested in American manufacturing, but still can’t make the entire shoe in the U.S. This is partly because there is no domestic supply chain for making certain components, like soles, and the company hasn’t been able to build out such manufacturing capabilities from scratch. If brands do begin manufacturing in the U.S., they will have to carefully navigate how they market their products, particularly if a portion of their goods are manufactured overseas.
That said, while Shih thinks companies are reconsidering making products domestically, he doubts we’re about to have a sudden resurgence in American manufacturing. For one thing, labor costs are currently at an all-time high in the U.S. due to labor shortages. He says the hourly wage for a good manufacturing job has spiked from $15 two years ago to $25 now. And more broadly, it will take a long time to develop the kind of complex supply chain and ecosystem that would be necessary. “Manufacturing capabilities in Asia didn’t get built overnight either,” he says. “It took 10 years to develop that infrastructure. If you’re going to bring it back to the U.S., we’ll need time to develop competency.”