Feature Story: President Trump’s First Year

January 4, 2018 No Comments
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Manufacturers Benefit From Policy Initiatives

by One Voice


toc_features50pxThe manufacturing sector has grown in 2017 with approximately 156,000 manufacturing jobs added to the payrolls over the past year. Capital investment has increased and growth forecasts continue to be optimistic. However, “cautiously optimistic” is the term manufacturers are using about the news out of Washington, D.C. one year after Donald Trump’s victory on Election Day 2016.

While no overarching manufacturing strategy has been announced by the Trump Administration, many manufacturers should benefit from several of the President’s policy initiatives, particularly the Administration’s goals of reducing regulations, implementing tax reform, and increasing infrastructure spending. On the other hand, the Administration’s statements on NAFTA renegotiation, and its initiation of a Section 232 national security investigation on steel imports, could create unintentional consequences for many U.S. manufacturers.

One of the first executive orders issued by President Trump was Executive Order 13771, which aims to “manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.” It requires that “for every new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.”

The Administration’s goal of reducing regulations could bring big relief to the U.S. manufacturing sector. Current regulations cost manufacturers $19,564 per employee, on average. And, for small manufacturers, the cost is $34,671 per employee.

The regulation rollback is also happening at the agency level. In recent months, the Environmental Protection Agency (EPA) has reversed a number of regulations, some that specifically targeted small manufacturers. For example, some small companies cannot send their scrap metal directly to a supplier and are required to use a third party. This process includes a form that takes, on average, 50 hours to complete. Regulations ranging from electronic recordkeeping to overtime exemptions are also under review and could reduce the administrative burdens on many manufacturers.

Congressional efforts to reform the U.S. tax code could also provide a shot in the arm to U.S. manufacturers. U.S. companies face a 17 – 20 percent global competitive disadvantage, and the U.S. tax rate is highest among all developed countries. The Trump Administration has supported the comprehensive tax reform effort that has been tackled by Congress. Many small manufacturers are organized as “S-corporations” or “pass-throughs” and currently pay taxes at the highest individual 39.6 percent income rate. The benefits of tax reform will really depend on how these entities are treated in the final bill.

Other provisions of the tax code under consideration for reform by Congress, especially those directed toward investing in domestic production and equipment, may also benefit manufacturing.

A focal point of President Trump’s election campaign was renegotiating “unfair” trade deals, particularly securing better trading terms with China and with our NAFTA partners, Canada, and Mexico. Within three months of President Trump’s inauguration, the Administration announced its intention to impose tariffs on imports of steel and aluminum and to renegotiate NAFTA. However, the Administration is learning that creating trade barriers can negatively impact another of the President’s goals – growing U.S. manufacturing jobs. The reality is that imposing tariffs on imported steel eliminates competition and raises the costs for steel-using manufacturers in the U.S., whether these manufacturers use imported or domestic steel. The result is that U.S. manufacturers are paying higher prices and are disadvantaged compared to manufacturers producing in other parts of the world. It is important to note that steel-using manufacturers employ far more American workers than U.S. steel companies. White House advisors remain divided on a recommendation on imposing trade restrictions on both steel and aluminum and a final decision has been postponed until early 2018.

NAFTA negotiations have followed a similarly difficult path. In October, the U.S., Canada, and Mexico announced a long pause for NAFTA negotiations because discussions have been contentious and difficult. One U.S. proposal strongly opposed by auto suppliers and manufacturers is increasing the Rules of Origin for North American content requirements (in order to qualify for duty-free treatment) from the current 62.5 percent levels to 85 percent. In addition, Washington negotiators are insisting on 50 percent U.S. content for vehicles as part of the 85 percent overall. U.S. manufacturers fear such a disruption to the established supply chain will cause auto manufacturers to simply pay the 2.5 percent import tariff instead of complying with NAFTA and shift production to lower cost countries.

Even without the long-anticipated announcement on a campaign promise to propose a large infrastructure package, the Trump Administration’s policies in the first year have been a net positive for U.S. manufacturers.

However, major policy decisions set for 2018, ranging from tax reform to trade, will likely have a profound impact on U.S. Stay tuned!pm_endmarkblue-e1320337140493

ONE VOICE is the combined government advocacy program of the National Tooling and Machining Association (NTMA) and the Precision Metalforming Association (PMA). Launched in 2008, One Voice represents small- and medium-sized manufacturing businesses and promotes policies that will ensure a strong manufacturing sector in the United States. For more information, contact caitlin.andrews@bracewell.com or 202-828-7637.

Copyright © 2018 Minnesota Precision Manufacturing Association. For permission to use or reprint this article please contact Nancy Huddleston, publications manager for Precision Manufacturing Journal.


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