Has Trump kept his supply chain promises? Let's review
Editor's Note: This article is part of a series on changes to supply chains, one year after President Donald Trump's election. Read expert opinions here, and the five key issues to follow to follow here.
Donald Trump made a lot of promises as a political candidate, and whether or not he keeps them as president, his words are enough to jumpstart supply chain managers into action.
“For supply chain professionals, change is the ultimate challenge,” Toby Brzoznowski, EVP and co-founder of LLamasoft, told Supply Chain Dive. “If everything stayed the same, running a supply chain would be very easy.”
The mix of variables supply chain managers have to consider includes taxes, border crossings, regulations, labor rates and supply sourcing, which are all affected by campaign promises. As President Trump threatens to change these conditions, industry professionals are working overtime, running new scenarios to evaluate every possible option.
“We saw this at an extreme level in the second week of November last year,” said Brzoznowski. “Coming out of the election, we realized there are some potential new policies that are significantly different than what we’re been operating under.”
Now, one year after Trump’s election, Supply Chain Dive went back through his campaign promises to evaluate what agenda items have been completed, what is left withstanding, and what was left behind. See the full report card, below:
Strengthening American manufacturing
XAllow U.S.-based manufacturers to fully expense the cost of new plants and equipment.
This has not happened yet.
The goal is to incentivize investment, which would be good for productivity and income, said Scott Miller, senior advisor at the Center for Strategic and International Studies, a bipartisan, nonprofit policy research organization. New plants and equipment are expensive, and fully expensing the costs would simplify the tax code and make it easier to invest.
Plus, “expensing of equipment would be a huge boon to small business,” he said.
? Reduce the business tax rate to 15%, while adding a 10% repatriation tax.
Unless you’ve been hiding under a rock, you’ll know that the House of Representatives introduced the new tax bill on November 2.
The administration hopes to pass it by the end of 2017. While 15% corporate business rate didn’t make the cut, the House proposed a corporate tax rate of 20%, still far below the current 35%. The repatriation rate of overseas assets for U.S. companies is 5% for illiquid assets, and 12% for cash and liquid assets.
“The most important thing to do is to get investors’ capital off the sidelines,” said Miller. “There’s a tremendous amount of investment not occurring,” said Miller, and one reason is the current high government taxation of income and profits.
Scale back federal regulations. Trump targets the "Waters of the U.S. Rule" and the "Clean Power Plan."
The Obama administration made several broad, sweeping environment regulations, including the Clean Power Plan and the Waters of the U.S. Rule. They were immediately stayed by litigation.
The Trump administration’s goal is to eliminate the Obama rules. In early October, EPA Administrator Scott Pruitt signed a proposed rule to withdraw the Clean Power Plan, which limits greenhouse gas emissions from the environment. The Waters of the U.S. Rule is currently in process of gathering public comments, through late November.
“There’s been effective use by Congress of the Congressional Review Act,” said Miller. It was signed into law in 1996, but only used once before this administration. It allows Congress to overrule regulations set forth by government agencies. Since Trump’s election, this Review Act has been used 14 times by Congress.
?Buy and hire American procurement rules.
On April 18, Trump signed an executive order to “buy and hire American.” The order specifies producing iron and steel entirely in the United States, and as well as buying U.S.-made manufactured goods, for federal purchases.
Trump subsequently exempted infrastructure projects like the Keystone XL pipeline from the order. Foreign-made steel imports increased 27% in 2017 as of August, and in September, Commerce Secretary Wilbur Ross said he was deferring the decision on whether to slap tariffs on imported steel until after a tax bill was signed.
The “buy and hire American” order also asks government staff to limit the use of waivers. With two procurement laws already in place, from 1933 and 1941, the military is already supposed to purchase domestic raw materials and textiles from U.S. sources. Enforcement has been difficult, especially with increasingly global supply chains, free trade and waiver use.
As for hiring Americans, the executive order asked the administration to reconsider guest worker programs, to ensure that H-1B visas are only awarded to the most-skilled beneficiaries and that the government should enforce laws for allowing in international workers. The order’s impact, however, has yet to be felt.
Stricter trade enforcement
As for trade policy, Trump has drawn some criticism for his views and statements.
Trump is “completely misguided when it comes to trade policy,” said Miller. That’s because Trump thinks of trade as a win/lose situation between countries. “Trade is actually voluntary, and mutually beneficial between countries. There’s no international exchange happening unless both parties think they’re better off. It’s a point of difference between traders and the president.”
Those engaging in trade want predictability. While no set of rules is perfectly fair for everybody, with some winners and losers, overall companies want fairness, transparency and stability. “The president is creating instability, ultimately,” Miller said.
Immediately renegotiate NAFTA, and if Mexico and Canada refuse, withdraw from the agreement.
“He’s decided to keep the promise he made on the campaign trail,” said Miller. “I considered NAFTA renegotiation a campaign promise that’s still searching for its constituency.”
So far, the countries completed four negotiating rounds. The last one ended in October, the next one is later this month. They’re scheduled to continue until March. The problem is that “the demands don’t have support in Congress,” said Miller. To become law, the terms have to pass Congress. “This is unusual because the administration has strongly held views not shared by the branch of government that ultimately needs to approve it. They’ve created a zombie. It’s not dead or alive at the moment. It’s kind of dangerous.”
While substance usually drives the talks, these talks are driven by a timetable, set by the political calendar. The Mexican presidential election will take place in July 2018 – just before the U.S. midterm elections in November.
XEnd sweatshops in Mexico and eliminate the country's value-added tax.
Mexico has modern manufacturing. “Their manufacturing is every bit as sophisticated as the United States,” Miller said. “I’m not sure what he’s talking about.”
As for value-added taxes (VAT), “It’s a domestic tax policy, not an international trade issue. I think the president is mistaken when he conflates VAT with trade issues,” said Miller. “If he feels strongly about it, he should work with Congress.”
The Trump administration sought to introduce a VAT-style border-adjustment tax as part of the GOP’s tax reform bill, but that proposal ultimately failed amid fervent corporate opposition.
Withdraw from the Trans-Pacific Partnership (TPP)
Shortly after inauguration, Trump withdrew from the TPP, a 12-nation trade deal brokered by Obama that had not yet been approved by Congress. “It was an unforced error, said Miller, as Congress wasn’t keen on passing it. “Compare what was in the TPP text with what was in the original administration’s presenting text for NAFTA. What the administration was asking for in NAFTA had been achieved by TPP. They were folding with a winning hand.”
?Replace TPP with bilateral trade deals
Trump promised to replace TPP with bilateral trade deals, instead of 12-party deals. “We knew what we had with TPP, but now there’s a void, nothing there to replace it with,” Miller said.
“If you look at the way the president has treated our number one and three trading partners, Canada and Mexico, you have to wonder why anyone would sign up to negotiate with these people.”
Other than a potential U.S./U.K. agreement once Brexit is complete, “I don’t see much appetite for bilateral agreements with the U.S. Not many businesses are making the case that this is a good idea.” A U.S.-China steel trade deal negotiated by Wilber Ross fell apart after Trump vetoed it.
?Appoint "tough and smart trade negotiators"
In January, Trump nominated Robert Lighthizer as United States Trade Representative, and he was confirmed in May. “There’s no question – he’s very tough and smart,” said Miller. “He’s a professional. He’s been at it a long time. I don’t always agree with the direction or priorities, but I would not question the skill of Bob Lighthizer.”
There are three deputy positions, two in Washington DC and one in Geneva. These spots are still empty. “I’m not familiar with the other nominees,” said Miller. They have not yet been confirmed by the Senate.
? Identify all current trade violations and use every tool available in national and international law to prosecute offenders.
Trump signed an executive order in April saying that the government would increase current enforcement efforts to block entry of inadmissible goods, and to require higher risk importers to provide security against anti-dumping and countervailing duties.
X Label China a currency manipulator.
In mid-April, Trump declared that China is not a currency manipulator.
X Bring trade cases against China in the U.S. and the World Trade Organization.
Lighthizer, the U.S. Trade Representative, said in September that the administration was going to pursue punishment of Chinese trade issues outside of the World Trade Organization purview.
There are a lot of trade actions against China, for products deemed to be unfairly traded and an injury to U.S. business, said Miller. They account for about 8-9% of total imports from China. One reason for avoiding the World Trade Organization is that the Trump administration is blocking the appointment process for new members of the appellate body.
“The president has deep concerns about the dispute settlement body, and seeks changes before reconfirming judges. Therefore, the WTO is not bringing more cases, but they need to handle the cases leftover from the Obama administration. They’re [the Trump administration] slowing the mechanism down,” said Miller.
? Resort to tariffs against China if necessary for their violations, which includes the theft of trade secrets.
Trump signed an executive memorandum on August 14, that may result in a U.S. investigation of whether China has stolen U.S. intellectual property. The memo directs U.S. Trade Representative Lighthizer to decide if an investigation is warranted.
Invest in U.S. infrastructure
?Lift restrictions on all sources of U.S. energy and use the revenues to "rebuild our roads, schools, bridges, and public infrastructure."
That’s still the Trump administration’s goal. They made some moves to increase energy production, greenlighting the revival of the Keystone XL and Dakota Access pipelines. Interior Secretary Ryan Zinke signed an order to speed up the permitting process to drill for oil and gas on federal land and auction off more drilling right leases. Coal production has increased in 2017, though additional increases in the next few years are expected to be minor.
XUse revenues from regulatory cutbacks and tax reforms to rebuild the country's infrastructure.
Regulatory cutbacks are either too new or are still in process, and are not yet providing revenues to use. Tax reforms have not yet been passed.
Streamline the permitting process for infrastructure projects
As part of his infrastructure proposal, in mid-August Trump rolled back the 2015 regulations for environmental reviews on federally-funded building projects in flood-prone areas.
This was done to streamline the process for infrastructure permits like bridges, highways and pipelines. The timing was auspicious, as in late August and early September, Hurricanes Harvey and Irma hit, flooding huge sections of Houston and parts of southern Florida.
Trump’s order also proposes assigning one federal agency as the contact for each infrastructure project seeking environmental permits.
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