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Trump Administration’s Impact on Manufacturing in America

 

By Christian Hwang

 

 

Executive Summary

 

Donald Trump campaigned as a businessman first and a politician second. Despite much news outlet coverage about the Trump Administration’s actions specific to commerce, trade and manufacturing, a comprehensive survey isn’t available to glean the intent of the policies that may have material impact on Surface Mount Technology (SMT) and electronics manufacturing.  This paper looks at the Trump Administration’s efforts to promote efficiency and revitalized production/manufacturing in the United States.

Regulations

One of the first executive orders he signed was the Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs, also known as the two-for-one rule, because it requires that for every new regulation introduced two older ones must be eliminated [1]. When it was signed at the end of January 2017, the order also proclaimed that the total costs of new regulations for this fiscal year must be no greater than zero. The idea being that the funding for enacting new regulations must be less than or equal to the money saved by getting rid of old ones [2]. Initially Trump claimed that this rule would cut regulations by up to 75% [3], and while that estimate is severely optimistic, the two-for-one rule has been far from ineffectual. The spending cap of zero has stopped numerous regulations in their tracks and the additional cuts required have stalled future efforts for the time being [2].

Tax Code

In addition to this, Trump has taken action against the tax code which is, in his view, too full of complications and regulations to be productive. Trump wishes to reform the tax code to be, in his words “simple, fair, efficient, and pro-growth.” [4] This is all done with the greater purpose of reducing taxes overall, especially for businesses. In September, Trump spoke to the National Association of Manufacturers (NAM) about the tax cuts he proposes for manufacturing. He received overwhelmingly positive feedback from members of NAM, as his proposed plans would reduce the corporate tax rate by up to fifteen percent. The cap on pass-throughs would also be lowered by almost fifteen percent [5]. These plans are coming to fruition, as on November 16, 2017, the House of Representatives passed a version of the new tax code that will take effect in 2019. Corporate tax rates have been capped at 20% and the rates for pass-through businesses has been reduced to 25% [6]. If the GOP stays in power and continues to support Trump’s tax cuts, manufacturers stand to save a significant amount of money in the coming years.

NAFTA

Another key area of contention with the Trump Administration is trade deals.  Trump believes the deals the United States has been involved in put the country at an economic disadvantage. In particular, he has argued against the North American Free Trade Agreement (NAFTA) even going so far as to call it the worst trade deal in history during his campaign [7]. This has drawn criticisms from both companies here in the United States and our partners in this deal: Canada and Mexico. The American Automotive Policy Council (AAPC) has raised concerns about the renegotiation of NAFTA, in particular a suggested change to the rules of origin. Under current statutes, 62% of the parts in a car must be manufactured in the same region that the vehicle is being sold in or the manufacturer must pay import taxes. Trump’s negotiators have suggested raising the minimum required percentage to avoid import tax to 85%. They are concerned, because if this change were implemented they would be forced to either radically change their supply chain or simply pay the import tax. Unfortunately for many companies, paying this tax (which for cars is only 2.5%) would end up being cheaper than sourcing more labor in the United States [8]. The renegotiation of NAFTA is also going poorly on the international level. Mexico’s Economy Minister has said that the United States’ current proposal regarding the rules of origin for the auto industry is “not viable” [9]. Mexico has significant stake in renegotiating NAFTA as the country has seen its overall wages drop as a result of the deal which, much to Trump’s ire, has only resulted in more undocumented immigrants crossing the border looking for higher paying work [10]. Canadian ambassador David McNaughton expressed frustration at the negotiations as well; he says recent suggestions by the U.S. increase production in the States, but at the expense of Mexico and Canada. The U.S. Trade Representative Robert Lighthizer refuted these claims and has become increasingly frustrated as the negotiations have dragged on. The administration can ill afford these delays in the talks, as Trump has threatened to pull out of NAFTA entirely if a new agreement is not reached soon [11].

Conclusion

Companies both here and abroad are already responding to Trump’s pro-business stance. Manufacturing jobs that are typically outsourced overseas are moving back to the U.S. Early this year, the electronics company Foxconn, a major supplier for Apple, announced plans to open a new assembly plant in Wisconsin in 2018 [12]. The plant is expected to cost around $10 billion and will employ up to 13,000 people [12].  LG Electronics has also shown interest in increasing production stateside. The company broke ground this year on a new appliance plant located in Clarksville, Tennessee [13]. The plant, which is expected to open in early 2019, will employ upwards of six hundred people in the surrounding area. In addition the company is building a new North American headquarters in Englewood Cliffs, New Jersey. That facility is expected to have more than a thousand people employed by 2019 [13]. One of LG’s biggest competitors, Samsung, has also made plans to expand production in the United States. The company has invested $380 million to open up a new appliance manufacturing plant in South Carolina that is expected to create more than 900 new jobs. Samsung America CEO Tim Baxter promised that “With this investment, Samsung is reaffirming its commitment to expanding its U.S. operations,” [14]. The Trump Administration has sparked a trend of manufacturing jobs returning to the U.S. with its aggressive reform of regulations and taxes. If Trump stays committed to the success of American industry, then this trend will continue throughout his term in office.  Undeniably, he has, if nothing else, made the prosperity of American business a top priority.

 

 

Works Cited:

[1] https://www.whitehouse.gov/the-press-office/2017/01/30/presidential-executive-order-reducing-regulation-and-controlling

[2] http://yalejreg.com/nc/measuring-president-trumps-regulatory-reform-agenda-the-2-for-1-rule-by-roncevert-ganan-almond/

[3] http://www.politifact.com/truth-o-meter/promises/trumpometer/promise/1353/slash-federal-regulations/

[4] https://www.whitehouse.gov/the-press-office/2017/04/21/presidential-executive-order-identifying-and-reducing-tax-regulatory

[5] http://thehill.com/policy/finance/353107-trump-pitches-giant-beautiful-massive-tax-cut-to-manufacturers

[6] http://www.sharethiscontent.net/Actions/social_share_version.cfm?message_id=14970498&user_id=IPC%5F&recipient_id=2124906735&jobid=39340155&isRecip=1

[7] https://www.cnbc.com/video/2016/09/26/trump-nafta-is-worst-trade-deal-ever-signed.html

[8] http://money.cnn.com/2017/11/28/news/economy/trump-car-companies-nafta/index.html

[9] http://fortune.com/2017/11/29/mexico-nafta-autos-us-trade-cars/

[10] https://www.bloomberg.com/news/articles/2017-11-28/balance-of-power-the-short-end-of-nafta-stick-belongs-to-mexico?utm_campaign=pol&utm_medium=bd&utm_source=applenews

[11] https://www.politico.com/story/2017/11/30/david-macnaughton-trump-nafta-canada-mexico-197174

[12] https://www.jsonline.com/story/money/business/2017/12/01/foxconn-hiring-wisconsin-assembly-workers-2018-200-million-sales/911690001/

[13] https://www.usnews.com/news/best-states/tennessee/articles/2017-08-24/lg-to-break-ground-on-250m-appliance-plant-in-tennessee

[14] https://news.samsung.com/us/samsung-south-carolina-home-appliance-manufacturing-plant-investment-newberry/