STEVE INSKEEP, HOST:
Of all the tariffs the United States has imposed on products from around the world, the highest are for products made in China, which has forced companies to ask themselves - what really counts as made in China? Jeff Guo from NPR's Planet Money podcast says this is a simple question without a simple answer.
JEFF GUO, BYLINE: Imagine you're a company making sticky notes. You buy paper, which comes from either Japan or Indonesia. You buy glue, which comes from Taiwan. And then, in China, workers cut up the paper, apply the glue, and you've got yourself some sticky notes. Now, here is the million-dollar question these days - what is the country of origin of these sticky notes? Like, what is the official country they come from?
MAUREEN THORSON: So U.S. law is very unique in its approach to country of origin.
GUO: Maureen Thorson is an international trade lawyer. She says companies are often surprised when she explains just how it all works.
THORSON: 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.
GUO: U.S. law says that a product's country of origin is based on the place where its parts or ingredients were transformed into something new. The term for this is a substantial transformation. For example, if a company takes avocados from Mexico, brings them to China and then turns them into guacamole, that is a substantial transformation. Customs would say that company's guacamole is a product of China. But not every example is quite so simple. Over the years, questions about country of origin have gotten pretty confusing.
LARRY FRIEDMAN: The complexity of supply chains has grown over time, and that's really what drives the difficulties.
GUO: Larry Friedman is a longtime trade lawyer. He co-wrote the textbook on customs law. He says that as manufacturing has gotten more complicated, courts and customs officials have been raising the bar on what counts as a substantial transformation.
FRIEDMAN: Basically, the rule now is that simple assembly, as opposed to more complex assembly, is often not enough to result in a substantial transformation.
GUO: That brings us back to our sticky note example, which, by the way, is a real case that customs looked at several years ago. And what customs decided was that the final step of the manufacturing process, where the paper and the glue were combined in China - that was not a substantial transformation. So those sticky notes would not count as products of China.
THORSON: I think they were persuaded by the fact that, what do...
GUO: Yeah.
THORSON: ...You use a sticky note for? To write on like paper, 'cause 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.
GUO: The essence of a product is what tends to matter these days. Here, customs decided that a sticky note is basically paper, so its country of origin is where that paper was made - in this case, Japan or Indonesia. Recently, Maureen has been helping companies think about changing their manufacturing so their products are no longer considered made in China. And sometimes you don't have to move everything out of China, as long as another country is supplying the key component - the essence of the product. Whatever that means.
Jeff Guo, NPR News.
INSKEEP: To learn more about what the labels Made in China and Made in USA mean, listen to the latest episode of Planet Money.
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