Five ways Trump’s presidency affects the industrial sector

Aucto Blog | 2017-03-17 20:14:01 EST

Five ways Trump’s presidency affects the industrial sector

Published by Ryan Degen on: 2017-03-17 20:14:01 EST

With the support of a unified Republican Congress, President Trump is in a position to deliver profound and lasting change.

donald_trump31.jpg

With that said, any social or economic change Trump attempts to instate is met with vocal criticism. To date, the majority of this criticism has focused on his social policies. Examples include his highly criticized ‘Muslim ban,’ repealing the Affordable Care Act, revoking federal guidelines protecting transgender students, as well as establishing a ‘pro-life’ foreign abortion policy. However, little attention has been given to the Trump administration’s economic policies, and in particular, how such policies would affect the various industrial sectors.

While none of our predictions are certain, Trump’s ongoing actions, coupled with his 100 day plan, gives us key insights.

1. Immigration, travel and refugeesus-mex border 1.jpg

Policy: On January 25, Trump signed two executive orders to begin constructing the US-Mexico border, boost border patrol
forces and increase the number of immigration enforcement officers who carry out deportations.


On January 27, Trump issued an executive order banning citizens and refugees from Iraq,
Syria, Iran, Libya, Somalia, Sudan and Yemen entry into the United States for 90 days.

But after the ban was lifted by the courts, on March 6, Trump issued a new travel ban, set to take effect on March 16, that removed Iraq from the list of Muslim-majority countries affected by the travel ban. The new executive order came six weeks after the original order was unveiled, causing confusion and chaos at airports nationwide, before a federal court blocked it.

Impact: Beyond the immediate costs of hiring thousands of immigration agents, lawyers, and support staff to deport millions
of people, the
economic effects of suddenly removing millions of workers from the labor force would be crippling for the U.S. industrial sector and dependent industries. This could lead to additional job loss due to businesses looking to automation to reduce costs.

As well, there is a growing list of Fortune 500 CEOs that fear Trump’s travel ban will undermine the credibility of doing business in the United States and make it difficult to retain talent. Among those who have publicly spoken out against the order are Facebook CEO Mark Zuckerberg, Google CEO Sundar Pichai and Lloyd Blankfein, the chief executive at Goldman Sachs.

Further, since Trump’s inauguration, statistics show the United States is turning away visitors from Canada at an increasing rate. For companies that operate throughout the United States and Canada, this poses a number of potential problems for staff that need to travel across the border frequently.  

 

2. Trade Policyartcard-GoodTradeBadTrade-small.png

Policy: Trump has repeatedly mentioned renegotiating NAFTA and, on January 23, withdrew from the TPP (Trans Pacific Partnership). These actions are intended to bring back jobs to the United States, which was a significant part of his campaign.

Impact: Since Trump’s position toward NAFTA is still unfolding, it is difficult to determine the potential impact. We imagine materials prices, due to limited imports, may experience an increase in price.

It would also be more difficult for buyers in North America to buy and transport machinery and equipment within the continent. Currently, many American buyers participate in auctions and liquidations in Canada and Mexico. This may significantly be reduced. 

The effect of withdrawing from the TPP is yet to be fully realized as well.

With that disclaimer, prior to the 2016 election, the White House released a report on the economic consequences of not ratifying which estimates that 35 different industries—employing almost five million American workers, selling $5.3 billion worth of goods to Japan alone—“would see an erosion of their market access to Japan relative to Chinese firms due to tariff cuts under the Regional Comprehensive Economic Partnership (RCEP).

Further, the report estimates that “seventy-eight U.S. industries that each export over $1 billion a year in goods to TPP partners and employ nearly 12 million workers in 360,000 business establishments nationwide would fail to see improved market access if TPP is not passed.” 

3. Tax Reform6869765923_307afdd67c_b.jpg

Policy: Trump is proposed a Middle Class Tax Relief and Simplification Act that would include:

  • Reducing the current number of tax brackets from seven to three
  • Simplifying tax forms
  • A 35 per cent tax cut for middle-class families with two children
  • Lowering the business tax rate 15 per cent
  • A 10 per cent rate for American corporate money overseas

Impact: These measures would allow for individuals and businesses to retain more money, and in theory, participate in the economy more. For commercial and industrial businesses, it would increase the available capital for investments. With that said, reducing taxes could lead to a government deficit and cause a lack of confidence in the market.

 

4. InfrastructureCassidy-AnInfrastructureProposalThatGoesBeyondClintonandTrump-1200.jpg

Policy: Infrastructure continues to be a high priority for the Trump administration. In a February 28 speech to Congress, Trump said he wants legislation to support $1 trillion worth of investments rebuilding roads, bridges, tunnels, airports, and other crumbling infrastructure, putting millions of Americans to work in the process. 

Impact: While infrastructure spending typically benefits the industrial sector, Trump’s current infrastructure plan faces the same criticism as Obama’s 2009 stimulus package. Lining up environmental reviews, permits, and the other approvals required for a large-scale project can consume years—in some instances even decades.

5. Manufacturing and assemblyat-manufacturing-plants-across-scandinavia-operators-all-have-their-own-rollsroller.jpg

Policy:  The Trump administration has not presented or announced a specific plan or policy to retain domestic manufacturing and assembly jobs. However, part of Trump's plan to "make America great again" is to bring jobs back to the US. These are jobs that have been either moved abroad or cut altogether to save companies money. To date, his criticism and negotiation efforts prevented Ford and Carrier from closing domestic plants.

Impact: In February 2017, U.S. manufacturing output rose in February for a sixth consecutive month, underscoring a sustained rebound in the industry. However, this rebound isn’t due to the Trump administration’s policies. American manufacturing productivity is higher than ever due to automation and increased efficiency. For example, in 1980, “it took 25 jobs to generate $1 million in manufacturing output in the U.S. Today, it takes just 6.5 jobs to generate that amount.” Essentially, the Trump administration’s current method (negotiating and criticising companies interested in moving their facilities abroad) will ensure plants will remain in the U.S. – jobs are still at risk of being lost due to automation.

For industrial and heavy equipment buyers and sellers, this means plants will potentially be looking to upgrade their current facilities and sell unneeded equipment and surplus MRO parts. If companies are pressured to keep their manufacturing and assembly domestic, like Ford and Carrier, there may be an increase in demand for robotic equipment, such as robotic arms.

Conclusion

Trump’s proposed and ongoing policies, while positioned as pro-business, will have positive and negative outcomes for the industrial sector. Our main concerns is how Trump’s anti-immigration policies will affect individuals traveling throughout, and transporting used industrial equipment across, North America. This could lead to additional costs and a complete restructuring of the industrial sector's supply chains.

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