Our nation will soon inaugurate our 45th president, Mr. Donald J. Trump. In a climate still raw from a heated and overcharged election cycle, it can be difficult to separate emotion and focus on forward-looking facts. As business owners, we are going to look to the future to understand what the policies proposed by President-Elect Trump could mean for manufacturing businesses across the nation.
The unpredictability of the incoming administration should be a cause of concern for manufacturers worldwide. Why? Because planning and modeling done by manufacturers – especially larger manufacturers – is based on the need for stability. Once that delicate balance is shifted by a radical agenda it impacts the plans of manufacturers and their bottom line.
Upstream in the production process, this uncertainty is felt by the OEMs (Original Equipment Manufacturers) and the longer the supply chain, the more the final product is subject to the whim of government policy. Take a car for example. Regardless of make and model, most often it is made up of raw materials sourced on a global scale and parts acquired from manufacturers often in other countries.
Trump’s quixotic and protectionist approach to tariffs could dramatically effect costs in the automotive supply chain, especially parts assembled in the United States. Charles Chesbrough, senior economist of the Original Equipment Suppliers Association, is quoted on Fortune.com as saying,
“His trade policies could add $5,000 or more to the price of a small car from Mexico.”
The hard truth, however, is that no matter what changes are made concerning trade laws, some people will benefit and others interests will be injured.
After this election upset had surprised the nation, Salena Zito of the Atlantic.com made this observation in an article titled, Taking Trump Seriously, Not Literally.
“The press takes him literally, but not seriously; his supporters take him seriously, but not literally.”
Ms. Zito put into words what many Trump supporters assumed – that his rallying cries were just that…rallying cries – not detailed, set-in-stone policy directives. However, and much to the chagrin of his supporters, his recent cabinet nominations (as well as speculative nominees) makes it abundantly clear that Trump intends to compromise on his rhetorical largess and fulfill his presidential vision based on more literal interpretations.
Let’s look together at five Trump campaign promises that will, if acted upon, have an impact on SMB Manufacturing.
The dismantling or “renegotiating” of some of the foreign trade deals (such as NAFTA) was a pillar of the Trump campaign. While many can find common ground with our new President Elect on this topic, the reality is that these trade deals are multi-national negotiations that will take time and serious bargaining to modify. In the end, free trade is good for our country as a whole, but it must be fair Politically, Trump may find support for making trade fairer for the American small to mid-size manufacturing business. This only helps those companies across our country who are seeing their margins get tighter in a race against goods manufactured offshore.
Looming in the background of this whole offshore goods conversation is the very real danger of China imposing retaliatory tariffs in response to protectionist policies being enacted in the United States. Even inflammatory rhetoric could signal harsh response from foreign trade powers. Some have even suggested that a trade war may ensue. However, the economics do not favor this frightening possibility. Here are two reasons:
- China owns 10% of U.S publicly held debt. This gives them some pull in our policy making – even if it is not direct pull.
- China sells more than 365.7 Billion dollars of goods into our country than we sell into China. So, a trade war would damage their economy more than our own.
Full repeals, moratoriums on new regulations, and a review of regulations enacted by the Obama administration are all likely actions taken by President-Elect Trump. According to the National Federation of Independent Business, 45% of company owners cite complicated and over-reaching regulations as detrimental to their business’ futures. Of course, the debate will continue to rage concerning the impact that rolling back regulations will have the positive effect on business (nevermind the dramatically negative effect on climate change, which stands as its own business challenge to manufacturers.) In the short term, manufacturers could potentially enjoy less bureaucratic red tape, need to spend less on compliance, and realize higher profit margins as the burden of regulations is eased. In the long term, business dynamics will be increasingly unstable and will require the need for agility from manufacturers.
Part of the regulation question is employment regulations. Here are some highlights:
- Overtime regulations are supposed to go into effect on December 1, 2016. It is unlikely that these regulations will be blocked during the lame-duck session of Congress or that President Trump will try to change the law once he gets into office.
UPDATE: Federal Court Blocks New DOL Overtime Exemption Rule from Taking Effect on December 1
- The recent directives regarding gender identification and LGBTQ rights in the workplace emanating from the EEOC during the Obama administration may be put on the back burner during a Trump administration. Trump does not seem to be willing to challenge the established law on these issues, but his cabinet appointments (and his selection of Mike Pence for Vice President) are much different harbingers.
- Paid maternity leave – a plank in the Trump campaign platform – may leverage the greatest immediate impact on business if the administration and Congress move quickly to enact the concept.
- The makeup and outlook of the National Labor Relations Board will almost certainly be affected by Trump appointments.
The rhetoric has subsided somewhat on this topic in the days following the Trump campaign victory (even to the point where he has hedged his staple “Build the Wall” policy.) Partially because of this reality: Moving some 11 million undocumented people out of the country would be quite expensive – estimates range from 400 to 600 billion according to the Business Insider. The other side of the immigration dilemma is that deporting these people will take an estimated 6.8 million people out of the small to mid-size business workforce (6.3% of that 6.8 million out of manufacturing) and may well lead to a private sector output (and profit) decline – at least temporarily. Again, the complexity of an issue is rarely addressed within a campaign slogan.
4) Tax Reform
This is one area that could be a positive thing for the SMB manufacturers across our nation. President Elect Trump’s vision for tax reform included a decrease of federal business taxes to 15%. Also, those larger corporations that have stashed cash overseas because of the high cost of paying taxes when the money comes home will have a one-time opportunity to repatriate that money at a modest 10% tax rate. What these two tax breaks mean for small to mid-size manufacturers is a lower corporate tax than they are currently paying and possibly more work as bigger companies reinvest the repatriated cash into the economy.
5) Health Care
No matter your opinion of the Affordable Care Act, once you get into the weeds of tearing apart and remaking a country’s entire health care system (again) it gets very complicated and messy quickly. Details of how the new administration would accomplish their campaign promise here are few and far between. However, after his recent meeting with President Obama, President-Elect Trump seemed to show some interest in keeping some of the provisions of the ACA intact, such as the ability to keep adult children on a policy until the age of twenty-six and the need for an insurance system that does not discriminate based on pre-existing conditions. At present, there are a number of issues for which soon-to-be President Trump will have House and Senate support. It is likely that he will tackle those things in which he can get done quickly and leave mucking about with the more challenging healthcare situation alone for a while. The short story, however, is that if Health Savings Accounts gain renewed interest, the cost of the paperwork will likely fall to the business owner – much as tax withholdings on employee’s pay does now.
6) Campaign vs Cabinet
With his pick of Reince Priebus as his Chief of Staff, as well as the cadre of announced and prospective cabinet nominees, President-Elect Trump has signaled a willingness to deviate sharply from his supporters and operate within the brain-trust of a Republican establishment that has been, in general, a friendly force for manufacturing concerns. However discerning to his supporters this may be, it is a sign for small to mid-size business that forecasts a more top-down business-first orientation.
We don’t believe that SMB manufacturers have to worry about getting pulled quickly from one set of policies to another. This would cause too much immediate disruption and market uncertainty. Time is on your side because it will afford your business to make adjustments and accommodations for the changes once they are fleshed out in actual legislation. If your pipeline is strong, now is the time to think about marketing, supply chain, and operational agility, and those are conversations we’d love to have with you!
As we look to 2017 and beyond, every American business, whether we’re making airplanes, precision materials or web solutions, will be well-served by informed advice and strong contact networks. Reach out to us and we’ll discuss the web technologies that we see driving opportunity for years to come.
Cornel is co-founder/partner and Chief Web Architect of 3PRIME, LLC. He believes in coalition, wise leadership, and rise tides raising all ships.