If there’s one thing the Trump administration has generated a lot of, it’s questions. Though questions surrounding the new administration are plentiful, the questions we focus on at Automation World are ones involving industry and their potential impact on automation.
From the campaign trail and into the early weeks of his presidency, Donald Trump has remained steadfast in his calls for reduced regulation and taxes and renegotiated trade deals in an effort to bring industrial jobs back to the United States. Of course, those who follow industry know that most of the manufacturing jobs lost over the past few decades will never reappear—even if large numbers of businesses open (or re-open) facilities in the U.S.—simply due to advancing automation technologies. Couple that with the fact that the number of open positions in U.S. manufacturing is currently the highest it’s been in 15 years due to a lack of skilled workers, according to the Wall Street Journal, and you get the sense that the Trump administration has set a high, and somewhat contradictory, bar when it comes to delivering on President Trump’s statement at his recent meeting with industry executives: “Everything’s going to be based on bringing our jobs back—the good jobs, the real jobs. They’ve left and they’re coming back. They have to come back.”
Considering these issues, I was interested to see a report from PwC about the potential impacts of the Trump administration on manufacturing. The report largely focuses on the House Republican Blueprint introduced this past summer and several proposals within it that President Trump will likely be in favor of passing. In particular, PwC’s report cites the Blueprint’s proposals to:
- Reduce the corporate tax rate from 35 percent to 20 percent, which is more in line with the 24 percent corporate tax rate imposed by countries in the Organisation for Economic Co-operation and Development.
- Replace the current U.S. worldwide tax with a territorial tax, which would end the double taxation U.S. companies face after paying taxes in the country where goods and services are sold and then paying taxes on them again when repatriating the revenues. PwC notes that many non-U.S. companies “operate under territorial tax systems and are able to repatriate foreign business earnings with little or no residual home-country tax.” Therefore, a territorial tax for U.S. companies would help level the playing field.
- Provide new plant equipment tax write-offs. Though this could have a detrimental impact once the expensing of the new investment is paired with the elimination of the deductibility of any interest expense that exceeds interest income, PwC says that if this can be combined with a territorial tax system, “many manufacturers have determined that the positives will more than offset any negatives from the new limits on interest deductibility.”
- Establish a border adjustment provision, which is designed to incentivize companies to source from supply chain partners in the U.S., as it prevents U.S. companies from taking a deduction for the cost of raw materials or finished products that they import into the United States. The impact of this proposal is far from clear—even in PwC’s analysis—because of the potential effects of U.S. product price inflation.
To find out more, I asked John Livingstone, PwC’s U.S. Industrial Products Tax Leader, about the tax offset effect of the proposed border adjustment provision. “If the dollar appreciates, as many economists predict, the tax benefit of a reduced tax on exports and the detriment of the elimination of the deduction for imports will be offset at least in part. If the dollar appreciates, exports priced in dollars will be more expensive in export markets and either lower dollar prices or reduced sales will result. On the import side, an appreciated dollar allows U.S. manufacturers to purchase foreign import costs more cheaply, resulting in a lower cost of goods sold. If exchange rates adjust fully to the border tax adjustment, the impact of the loss of the tax deduction on imports and the benefit from the tax exclusion for exports will be completely offset, leaving no change in net income compared to a reformed tax system without border adjustments.”
When asked about the likelihood of the Trump administration being favorable to passing the Blueprint as it stands, even though it was developed during the campaign and not directly connected to Donald Trump or his administration, Livingstone said: “The President and his team are studying the Blueprint in depth and we will have to see what their position is on the Blueprint when the administration unveils its tax plan. It would not be surprising if the President made some adjustments to the Blueprint even if he decides to support the framework.”
President Trump promised in early February that his new tax reform proposals would be released in two to three weeks. Though it’s been more than a month since that announcement, some are predicting that the release of the proposal could take even more time.
Looking beyond the prospect of beneficial tax proposals and promises to reduce regulation and bring more manufacturing back to the U.S., I also asked Livingstone if he could point to any specifics from the Trump administration that could positively impact industry. In response, he cited the launch of the Manufacturing Jobs Initiative, which held its first meeting in late February.
“In our discussions with business leaders in the manufacturing community, they have generally responded favorably to these initial initiatives and what is seen as a more pro-business environment and will work with the administration to identify roadblocks to the growth of U.S. manufacturing,” added Livingstone.
It’s still the early days yet for the Trump administration, so only time will tell how its proposals for industry will actually be developed and implemented. Even PwC notes that, at this point, the future is very open-ended in terms of what may or may not come to pass. Due to the lack of clarity at this point, PwC offers several recommendations for industrial companies, ranging from advising companies to not expect simple answers, model the scenarios and wait for clear indications before changing their footprint.
As for what it all means for automation, first we have to see what actually happens in terms of regulation and tax reform. Once that’s been made clear, the potential impacts on automation will be easier to determine. In its report, PwC notes that this is the first in a series of reports that will follow the progress of industrial regulation and tax reform initiatives enacted by the Trump administration.