Deep Dive
Shownotes Transcript
This message comes from Discover, accepted at 99% of places that take credit cards nationwide. If you don't think so, maybe it's time to face facts. You're stuck in the past. Based on the February 2024 Nielsen Report. More at discover.com slash credit card.
This message comes from DSW. Where'd you get those shoes? Easy, they're from DSW. Because DSW has the exact right shoes for whatever you're into right now. You know, like the sneakers that make office hours feel like happy hour, the boots that turn grocery aisles into runways, and all the styles that show off the many sides of you. From daydreamer to multitasker and everything in between, because you do it all in really great shoes.
Find a shoe for every you at your DSW store or DSW.com. A quick note before we start today's show. You may have heard that President Trump has issued an executive order seeking to block all federal funding to NPR. Whatever changes this action brings, NPR's commitment to reporting the news will never change. Even as paywalls rise elsewhere, we offer this vital resource to everyone.
Support the news and programming that you and millions rely on by visiting donate.npr.org. And if you already support us via NPR Plus or Planet Money Plus or any other way, thank you. Your support means so much to us now more than ever. This is Planet Money from NPR.
Maureen Thorson is a poet. She's published three books of poems. She's been featured in fancy literary journals from The Horseless Review to Plowshares. If you ask poets if they're having fun writing poetry, I think you would get very mixed reactions. I'm not sure we do it for fun in the typical sense of fun.
As a poet, Maureen often finds herself puzzling over, you know, the fundamental nature of things. Like, what makes a chair a chair? Or a hat a hat? What makes this, this, and that, that? And asking those questions is kind of her job. But not just because she's a poet. You see, Maureen also happens to be one of the top international trade lawyers in America.
Sort of poet by night, trade lawyer by day. So you're like Hannah Montana, basically. But I don't know which part is Miley Cyrus. I don't know either. Is the trade lawyer part the Hannah Montana part? And then the poet part is one or the other? Yeah, I'm not sure. As an international trade lawyer, Maureen helps companies navigate the complicated world of tariffs. A world that is also full of questions about what makes this this. Or that that. Pretty.
Pretty famous ones are our X-Men dolls or toys. I think we did an episode on that. Our hockey pants, clothing or equipment. Yeah.
Are certain cough drops, are they candy? Okay, so the answers, by the way, are that most X-Men are toys. Hockey pants are considered sports equipment. And cough drops, well, it actually depends on the ingredients. Some of these questions really get, I mean, you can, it kind of feels like you're staring into the void and it's staring back and whispering at you.
Is it? Recently, the questions vexing Maureen have taken an even stranger and more philosophical turn. Maureen's clients, CEOs at companies big and small, have been asking her about where things come from, their national identity, their country of origin.
Like, what makes a Canadian product Canadian? Or a German product German? Or especially, what makes a Chinese product Chinese? And when does it stop being Chinese? For Maureen's clients, those questions matter now more than ever. On April 2nd, President Donald Trump announced his plan to put big new tariffs on dozens of countries. And we caught up with Maureen just a couple days later. Oh, man.
The past 48 hours have been completely bonkers. I am the human equivalent of a computer with 90 browser tabs open. So if I seem a bit dazed...
I am dazed. That's why. Maureen's clients have been bombarding her with questions because millions of dollars are at stake. Whether something's a product of Canada or Germany or China could soon mean the difference between no tariffs or 20% tariffs or more than 145% tariffs. These tariffs all depend on a product's country of origin. But figuring out something's country of origin is far from simple.
So U.S. law is very unique in its approach to country of origin. What's the part that is shocking to people? That there's not a nice, bright line, one-size-fits-all origin test. For example, imagine you take peanuts that were grown in China, ship them to a factory in Brazil, and grind them into peanut butter. Is that peanut butter a product of China, or has it become a product of Brazil? Right.
Marine says people often assume that there must be some logical method, like maybe just compare the costs of the ingredients and the labor that come from each different country or something. And she has to tell them, oh, no, the way we do it in the United States is a lot weirder, a lot more confusing and a lot more unpredictable.
Hello and welcome to Planet Money. I'm Jeff Guo. And I'm Alexi Horowitz-Ghazi. Virtually everything that's imported into the United States, by law, must have a so-called country of origin, the place where it officially came from.
And figuring out that country of origin matters because that's what customs goes by when it's enforcing tariffs. Today on the show, when you buy something at the store and it says made in China or made in France or made in the USA, what does that actually mean? How much of it actually came from China or France or the USA? And in this age of supply chains that crisscross the world, does our system even make sense anymore?
Support for this podcast and the following message come from Robinhood. Missions to Mars, driverless cars, AI chatbots. Feels like the future has already arrived. Robinhood is built for the future of trading. Their intuitive design helps make trading more seamless. Spot opportunities and take control of your trades and even trade your favorite assets all in one place. The future of trading is fast, powerful, and precise. And if you're interested in learning more about Robinhood,
Experience it now on Robinhood. Sign up today. Investing is risky. Robinhood Financial LLC member SIPC is a registered broker dealer. This message comes from Capital One with the Venture X card. Earn unlimited double miles on everything you buy. Plus, get premium benefits at a collection of hotels when booking through Capital One Travel. What's in your wallet? Terms apply. Details at CapitalOne.com.
Take any object that might be around you. I mean it, like a pencil, a TV remote, a pair of earbuds. Hold it in your hand and look closely. Chances are you're going to see a little label. Maybe it's engraved, maybe it's printed, that says, made in China, or made in Malaysia, or made in USA.
Maureen says her clients are often surprised to find out that those words can mean very, very different things. There are actually two sets of rules here, one for American products and one for products from the rest of the world. So let's start with the rules for American products. When something says it's made in USA, that doesn't just mean that it's manufactured in the United States. It also means that virtually all of the parts and ingredients and labor came from the USA.
Made in USA means this is pretty much fully USA down to the soles of its little American shoes. And it doesn't have almost any foreign material in it.
There are some exceptions for things like clothing and some types of meat. But basically, if an American product isn't 100% American, it cannot say made in the USA. This is why you sometimes see things that say assembled in America with foreign parts. But for American products, there is also the option to just not have a label at all. So when you go to the store, you might notice some products that don't tell you where they come from.
I see it a lot with sort of cosmetic adjacent goods like shampoos. My assumption is they are actually making the shampoo in the United States, but they're probably importing, you know, fragrance from abroad and other things. Yeah, these are American products. They're just not 100 percent American. So they can't use the made in USA label.
The rules are very different for products that are not American. Basically, anything that's imported has to be labeled with the main country it came from, its so-called country of origin. That's been the law since 1890, when Congress wanted consumers to know where their imported products were coming from. So those labels that say product of China or product of France, they are not optional. You can think of country of origin as kind of like a product's citizenship.
But in the U.S., how we determine that country of origin can be wildly counterintuitive. It's not necessarily where that product got on the container ship to come here. It's not necessarily where most of its ingredients are from or even where most of the manufacturing happened. You can have products, including fairly sophisticated products, where most of the components and the assembly is all happening in China, but the product is not deemed Chinese under U.S. laws.
Maureen has helped companies import a lot of different products. She's not allowed to say exactly what she's worked on, but it's things like industrial engines and smartphones and also flowerpots. She helps companies figure out that product's country of origin, get it labeled right, and declare it to customs. This is something that a lot of importers are confused about.
U.S. Customs doesn't have some kind of giant list of all the products in the world with a big, you know, chart of their origins and their tariff classifications. Wait, they don't? No, they don't. It seems like that's their job. No, that's your job, Mr. Importer. So you have to self-declare. You do. And then Customs can come back and say, hey, so I noticed this particular product, you know, was shipped out of Thailand, but you claimed it as Japanese. Yeah.
Prove it. Now, we should say, for many years, companies didn't think too, too hard about country of origin.
Most of the time, what you labeled something or what you declared to customs didn't matter that much because for most countries, tariffs didn't really differ that much. But then, Donald Trump was elected president for his first term. And country of origin suddenly started to matter a lot. Because in 2018, Trump put big tariffs on lots of Chinese products. And how does customs determine what is a Chinese product? Well, it's anything whose country of origin is China.
That is when Maureen's phone started ringing off the hook. So suddenly companies were coming in and saying, well...
I do do some manufacturing in China, but a lot of my parts are coming from outside of China, or I'm really only sending this thing to China for packaging or testing. Do I still have to pay duties on this as a product of China? Even though, I mean, I'm exporting it from China, but am I really making it in China? Other companies were trying to switch up their manufacturing so their products wouldn't count as made in China anymore.
They're asking Maureen, how much can I bend the definition of made in China? If I move some or all of my manufacturing operations from China to Malaysia or China to Vietnam, how much do I have to move before the goods will no longer be considered Chinese by U.S. customs and I don't have to pay duties on Chinese products?
And whenever clients ask Maureen questions like this, which they are doing more and more these days, she has to take a deep breath, sit them down and say, okay, here is how we determine a product's country of origin. There's one main rule in the U.S. It is called the Substantial Transformation Test. And it says a product gets its country of origin from the last place where it went through a substantial transformation.
A substantial transformation is processing from which the article emerges with a new name, use, or character. Are you literally quoting this test? I believe I am. Sounds like you've memorized it, like word for word. I'm intimately familiar with this phrasing. A new name, use, or character. That is the entire rule. And
And the way it works is if you send something to, say, Vietnam, and there you change it enough that you're basically turning it into a new thing, you're giving it a new name, use, or character, then that thing now counts as a product of Vietnam. A new name, use, or character.
Wow, that's super easy to say. But as you try to apply it to everything in the universe, from lawn chairs to fruit salad to a bottle of aspirin, you get into some philosophical questions about the thinginess of things. Where is the fruit saladness of a fruit salad imparted to the fruit salad? Oh my God.
Oh, OK. Marine says to really understand the substantial transformation test, you have to understand where it came from and the history of how courts and customs officials have tried to apply it. For that, we called up someone who is an expert in this history. He's kind of a legend of trade law. His name is Larry Friedman, and Marine actually knows him pretty well.
Hey, Larry. I just had emails with Larry today. Did you really? Yeah. He's so nice about answering my emails, and I try to repay that kindness by not emailing him unless I am like, I am so genuinely stumped. Wait, so is Larry like your Yoda? I think he's kind of like a universal Yoda for the customs bar. That is a funny thing. I did tell her the other day, there is no try. There is only do. I did not say that.
Larry is a longtime trade lawyer. He's taught trade law at the University of Illinois, and he co-wrote the textbook on customs law. Larry says the origin of the substantial transformation test was this Supreme Court case from 1908 involving corks. A U.S. company was importing corks from Spain, cleaning them up a bit, stamping on a logo, and the Supreme Court said...
That is not a substantial transformation, because cleaning up the corks did not give them a new name, it didn't change how they were used, and it didn't really even change their characters.
They started out as quarks and they were still quarks here in the U.S. This Supreme Court quark case created the idea that in order for something to really be transformed, you have to give it a new character or name or use. Is that phrase new character name or use? Is that just like tattooed on your heart?
It is embedded in my brain. It'll probably be tattooed on me someplace sometime. Or just put it on your tombstone. I don't know. Put that in my will. Here lies Larry with a new name character in you. Oh, no. I'm sorry. I took us there.
To tell the story of how the thinking around name, character, and use has evolved over the decades, we're going to walk through three examples. The first one is from the 1940s, and it involves hairbrushes. A company in the U.S. made brushes. So they imported wooden handles from Japan. The handle had no bristle on it. In the United States, they put the bristles on, and it became a brush.
Now, customs wanted the company to call these hairbrushes Japanese because the majority of the brush was the wooden handle, which came from Japan. But the company disagreed. So the question for the court was, did this simple act of adding bristles to that wooden handle transform it into an American hairbrush?
That's going to be a big yes for me, Doug. Look, this thing's getting a new name, a character, and a new use. You can't just use some block of wood to brush your hair. Come on. Right. And that is exactly what the judge said. The judge said, there is a substantial transformation here. What you now have is an American hairbrush. And Larry says this hairbrush case shows you how even a basic manufacturing step, like gluing some bristles on, can change a product's country of origin. ♪
But by the 1980s, manufacturing was getting way more complicated. You could argue that any step in the process changed a product's name, character, or use. So where would Quartz draw the line? All of this came to a head in a fight over... Boat shoes. That's coming up after the break.
Support for NPR and the following message come from LinkedIn ads. One of the hardest parts about B2B marketing is reaching the right audience. When you want to reach the right professionals, use LinkedIn ads. LinkedIn has grown to a network of over 1 billion professionals.
Target buyers by job title, industry, company, role, seniority, skills, company revenue. All the professionals you need to reach in one place. Get a $100 credit on your next campaign. Just go to linkedin.com slash money. Terms and conditions apply only on LinkedIn ads.
This message comes from ADP. ADP knows any new technology, any old competitor, any trendy thing, even a trendy thing that everyone knows isn't a great idea but management just wants us to give it a try for a bit, can change the world of work.
So whether it's a last-minute policy change or adding a new company holiday, ADP designs forward-thinking solutions to help businesses take on the next anything. ADP. Always designing for people.
This message comes from BetterHelp. This Mental Health Awareness Month, BetterHelp is encouraging everyone to take care of their well-being and break the stigma associated with mental health. BetterHelp works to make people healthy and happy because when people are taken care of, everyone benefits, including families, colleagues, and communities. Visit betterhelp.com slash NPR to get 10% off your first month.
If you look at how modern manufacturing works these days, it's hard to pinpoint exactly where a thing even becomes a thing, because most things are manufactured in many different steps scattered across the world. Yeah, a smartphone might be made out of parts from dozens of countries, and those parts themselves are made up of other smaller parts from dozens of other countries, all of which makes the process of trying to figure out something's country of origin incredibly tricky. In the
In the 1980s, courts were just starting to confront this confusing new reality in a case about boat shoes, specifically Sperry top-siders. You know, those preppy-looking leather shoes with the rubber sole? The company making those shoes, they were getting the upper half from Indonesia. The upper included everything that you see basically above the sole of the shoe. So it was kind of like a
sturdy sock. Like it's a shoe, but without like the rubber part that makes you able to use the shoe as an implement to walk on, basically. The company would take those leather uppers and then in the United States, glue and stitch on the rubber soles. And the question was, did that count as a substantial transformation? Did the act of attaching soles onto those uppers turn them into American shoes or
Or was the finished shoe still a product of Indonesia? Well, based on the hairbrush case we talked about, it seems like you wouldn't have a functioning shoe here until you glued on that sole. Like, that's the step that would create a change in the name and use and character, right? Yes, right? But...
No. The court said what is happening here in the U.S. is just too simple. They were like, you're just assembling these pre-made parts. The real work to make the shoe, the complicated process of cutting and sewing all this leather, that happened in Indonesia.
So this shoe, even though you finished it in the U.S., has to be labeled as an Indonesian shoe. The name of this big boat shoes case was Uniroyal. And Larry says Uniroyal spread the idea that a substantial transformation involves more than just giving something a new name or character or use. You might have to change something's essence. According to the judge, the essence of the shoe was not substantially transformed and it remained a product of whatever country that upper came from.
I, I, maybe I misunderstand what a shoe really is. And if so, that's on me, that's my bad. But if the shoe doesn't have the soul, if it doesn't have the, the, the literal like rubber or whatever that protects your feet from the harsh realities of the ground, then it's not a shoe. Uh,
Yeah, you're right. I think Uniroyal is not a good decision. Yeah, Larry's not the only one who thinks this was not a good decision. But the Boat Shoes case set a really influential precedent. As manufacturing has gotten more complicated, courts and customs officials have focused more and more on what is the essence of a product and when does that change? And you could see this maybe as a more stringent way of looking at a product's character.
So it's no longer enough to just change a product's character. You have to change something essential about its character. These days, you can build an entire laptop in China where most of the parts and labor come from China. But if the motherboard is from Vietnam, customs might say that laptop is actually Vietnamese because the essence of the laptop is in the motherboard. So what is the essence of something?
What is the essence of anything? This is the new question at the heart of the substantial transformation test. And it's now creating all kinds of strange puzzles, like in our final example, which involves sticky notes. You know, like Post-its, those pads of paper you peel off a sheet and stick it to the wall, stick it to the fridge, stick it to your forehead.
Yes. And this sticky note situation happened back in 2020. This was shortly after Trump put a bunch of tariffs on products from China. And Staples, the office supply company, was trying to figure out what is the country of origin of our sticky notes?
Like, do we have to pay the tariffs on China? And Staples was wondering this because they had a whole multinational plan for manufacturing these sticky notes. First, they would start with the paper, a jumbo roll about three feet long, and this would come from either Japan or Indonesia.
Then the sticky stuff, a special patented glue, and this would come from Taiwan. Finally, the assembly. A machine would unspool that giant roll of paper, apply the glue, cut the paper into sheets, and out would come the Post-its. All these final steps would happen in China. And the decision that customs came to about where the sticky notes were last substantially transformed, it really threw us for a loop. So we asked Maureen Thorson to help us make sense of their logic.
I'd actually read that ruling before, so I was like, oh, the sticky note one. Okay, okay. Yeah, sticky notes. So in this ruling, customs wrestled with the question of what is the essence of a sticky note?
Is it the paper that you write on? Is it the glue that makes it sticky? Or is a sticky note not really a sticky note until you put the glue and the paper together? Yeah, I'm going to go out on an obvious limb here and say that it seems like the essence of a sticky note is like the meeting of paper and glue. It's like the moment where the paper and the glue come together. Right. I feel like that is what most people would say.
And yet, here is what customs decided. They said, when you get down to it, we think that the essence of a sticky note is really the paper. A sticky note kind of started its life as paper. It ends its life as paper. And it's not particularly heavily processed paper. And so the underlying material is really what's important here. And that's paper. And the paper is the jumbo roll. Okay, but Maureen...
Yeah. I have a piece of paper right here. Yes. I have a piece of paper right here. Okay. It's not a sticky note. It's just a piece of paper. And look, it's not sticking. It's not sticking. It's not sticking to the wall. Yeah. That's the goofy bit about the sticky notes ruling is I think it is a perfectly rational point of view to say the
Sticky note-ness of a sticky note is the sticky bit. So putting glue on it should be what's substantially transformative. But customs did not see it that way. And partly they were thinking, well, is it that big of a deal to just cut up some paper and add glue to it? We should be focused on the more complicated step of actually making the paper.
because the paper is the essence of a sticky note. So the sticky note ruling is a bit unusual, but if you dig into their logic...
I think they were persuaded by the fact that, what do you use a sticky note for? To write on, like paper, because it's made of paper. So it's the paper that is important here. The stickiness is a bell and whistle to the sticky note, not the essence of the sticky note, not the character of the sticky note, even as you're scratching your head and going, but it's sticky, sticky note.
So according to customs, the country of origin of these sticky notes would not be Taiwan, where the glue came from. It wouldn't be China, where the roll of paper would, you know, actually get chopped up and glued up and turned into sticky notes. No. Customs said these sticky notes would be considered products of the country where the original paper came from, either Japan or Indonesia. So Staples would not have to pay the tariff on Chinese products.
The sticky note case really shows you what has happened to the substantial transformation test, how unpredictable it can be nowadays. Because more than ever, courts and customs officials are asking these weird philosophical questions like, what is the essence of a sticky note? When does a sticky note become its true self? Questions that are hard to answer in any kind of consistent way, which can land you in some pretty absurd places.
places. And there is another way to do this. Whenever we sign individual free trade agreements with other countries, they will often insist on not using our weird loosey-goosey substantial transformation test. For our free trade deal with Canada and Mexico, we had to agree on a new system with a whole compendium of extremely specific rules for determining a product's country of origin.
Depending on the product, the rules might have to do with how much labor came from a country, or the value of the parts that came from a country, or even whether a key chemical reaction happened in a given country.
Now, there are a few reasons why the substantial transformation test is still, by and large, the law of the land in the U.S. For one, this is just the way we've always done it. And the test is really flexible. It doesn't require any complicated accounting or record keeping or compendiums of rules. But also, country of origin just didn't matter as much in the past. For decades, our tariffs treated most countries more or less the same.
But recently, that has all started to change. Since April, Maureen's been on the phone with her clients at all hours trying to explain to them our weird and wacky system of determining country of origin. What's the reaction from your clients when they're like, Maureen, can you just tell me what country of origin is this product? And you're like, oh, hold on. There's a whole. Yes. What is their reaction?
It really depends. Everything from stunned disbelief where the reaction was, it can't possibly work like that. That can't possibly be right. To, okay, okay.
Let's figure it out. Maureen figures it out by talking to the engineers, asking for design sketches, getting a whole list of materials. And then she sees if she can try to make an argument for whatever country she thinks the country of origin is.
For companies trying to avoid China as their country of origin, Marine might help them figure out how much of their manufacturing they actually have to move out of China. Or maybe they can keep making the product in China, they just have to get a key component, the essence of the product, from a different country.
That's kind of the game these days. And lawyers like Maureen are in high demand. Lawyers who can, you know, wax poetic about the real deep down essences of things.
This episode of Planet Money was produced by James Sneed with help from Sylvie Douglas. It was edited by Jess Jang, fact-checked by Sierra Juarez, and engineered by Kweisi Lee. Alex Goldmark is our executive producer. Special thanks to Bill Reinsch, Robert Shapiro, and Damon Pike. I'm Alexi Horowitz-Ghazi. And I'm Jeff Guo. This is NPR. Thanks for listening.
This message comes from Capital One. Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts. What's in your wallet? Terms apply. See CapitalOne.com slash bank for details. Capital One N.A., member FDIC.
This message comes from Mint Mobile. If you're tired of spending hundreds on big wireless bills, bogus fees, and free perks, Mint Mobile might be right for you with plans starting from $15 a month. Shop plans today at mintmobile.com slash switch. Upfront payment of $45 for 3-month 5GB plan required. New customer offer for first 3 months only. Then full price plan options available. Taxes and fees extra. See Mint Mobile for details.
This message comes from Capella University. At Capella, you'll learn relevant in-demand skills you can apply in the workplace right away. A different future is closer than you think with Capella University. Learn more at capella.edu.