With a tumultuous news cycle covering the Trump presidency, it can be difficult to keep track of the important issues effecting heavy-duty equipment manufacturers directly. Topics such as infrastructure, trade and taxes play an integral role in the future outlook of U.S. equipment manufacturing industry and its domestic and global strength.
In a recent interview with the Association of Equipment Manufacturers the industry group outlined the top three priorities of AEM regarding the Trump Administration’s impact for its OEM members as corporate tax reform, infrastructure, and protection of trade freedoms.
“Our big priorities [for tax reform] involve lowering the corporate tax rate for both C-Corporations and pass-through businesses (or S-Corporations). Right now, there’s a difference in how manufacturers’ profits are treated for tax purposes based on how they’re incorporated. We think that any plan should be permanent and should bring down topline tax rates to a low enough point before we consider revisiting pro-investment provisions like full and immediate expensing or interest deductibility,” the association says.
AEM works with a variety of different coalitions and industry groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers, and Americans for Tax Reform, to amplify its tax reform priorities and interface directly with the Trump Administration.
Considering the breadth in sizes of equipment manufacturing businesses — from a couple dozen pieces of extremely specialized equipment to thousands of units — each manufacturer will have different considerations and provisions that drive its individual approach to tax reform. But, “the one thing that unites the equipment manufacturing industry is the fact that it’s time for tax relief,” an industry spokesperson says.
Through an executive member survey conducted by AEM earlier this year, the association found that lowering he top corporate tax rate for companies and simplifying the tax code are the most important industry priorities for tax reform and would benefit small and large equipment manufacturers alike.
Beyond top level tax reform, AEM is also monitoring how specific provisions might affect subsets of its membership, such as how Congress might modify interest deductibility or the ability to fully and immediately expense equipment purchases, along with provisions regarding estate taxes or potential “minimum” taxes on international income.
For the agricultural industry and rural farmers, the proposed elimination of the estate tax and reforming how small business owners file their taxes could offer them significant benefits, as well.
Admittedly, there is always a period of transition when a new president or Congress takes office, especially as the campaign promises turn into actual legislative reform. Congress is obviously burdened with a busy fall agenda, but AEM is continuing to convey the need for a lower tax rate and simpler tax code. “Since the beginning of the year, the conversation has shifted from the general aspects of tax reform to the specific elements of legislation, and that represents progress,” AEM says. “Both the President and members of Congress campaigned on the promise to reform our outdated tax code, and it is time that they honor that promise.”
One of the biggest proposals of Candidate Trump was the promise of a $1 trillion infrastructure bill. This was and is strongly supported by many Americans, and especially those in rural communities. According to a recent Washington Post/Kaiser Family Foundation poll, a majority (53%) of rural Americans surveyed said that the area in which they live had experienced some sort of job loss in farming, manufacturing or other factory settings over the last decade. The solution to rural America’s job loss to 93% of those surveyed was starting with investing in infrastructure projects.
An interesting point made by AEM Director of Public Affairs Michael O’Brien in a recent article, “Trump’s Policies and Rural America,” (oemoh.com/AEM-Trump-rural) reminds readers that infrastructure is not just the development and repair of roads and bridges. “It involves priorities like expanding rural broadband, as well. That type of comprehensive infrastructure plan could further enable how customer use farm equipment in their work,” he writes.
Considering a big push for advanced farming equipment technology solutions involve GPS accuracy and telematics, the expansion of broadband could bring many farmers into a more profitable and efficient farming practice leveraging precision systems that could save them time and money.
Back in late May, when President Trump first laid out his vision for the $1 trillion infrastructure package, the spending proposal included injecting $200 billion into transportation projects over the next 10 years with the goal of creating $1 trillion worth of overall investment. According to a report on the budget plan by The Hill (oemoh.com/infrastructure-hill), “the spending document said the administration would meet its $1 trillion target through a mix of new federal funding, incentives for private sector investment, and expedited projects.”
The Hill report continues by citing the proposal’s four key approaches: “leveraging private sector investment, ensuring federal dollars are targeted toward transformative projects, shifting more services and underused capital assets to the private sector, and giving states and localities more flexibility.” The package also focuses on reforming the regulations that have been known to slow down infrastructure projects in order to speed up project delivery.
An interesting segment of the proposed infrastructure plan includes a work-force training initiative focused on skill-based apprenticeship education, according to the official White House website. If there is one thing the off-highway equipment manufacturing industry understands, it’s a shortage of young people entering the industry. Several associations including AEM are working diligently to get youth engaged with STEM programs and interested in manufacturing.
AEM’s ideal infrastructure bill would “reaffirm the federal government’s strong role in supporting U.S. infrastructure, along with reforms that allow for a long-term, sustainable source of funding to meet our nation’s infrastructure needs. We also hope that any infrastructure bill provides for a long-term vision for America’s infrastructure that takes into account emerging technologies that are revolutionizing infrastructure systems.”
Emerging technologies such as GPS which will aid in enhancing vehicle connectivity and circumstantial awareness. As the prevalence and adoption of autonomous vehicles, precision farming and automated work tools become more widespread, the need for a connected infrastructure will be even greater. “U.S. infrastructure will need to provide extended utility by actively interacting with the other elements that increase productivity, improve safety, or enhance quality of life – whether they are our personal devices, our vehicles, or our tools and machines. The end result will be an infrastructure that is smarter both in terms of performance but also its upkeep,” the association says.
AEM’s own The U.S. Infrastructure Advantage report outlines steps lawmakers should take to reclaim the country’s infrastructure advantage. The report makes the case for a U.S. infrastructure system that supports the safe and efficient movement of people and goods, provides connectivity between and within rural and urban America, and fosters strong economic growth and job creation. Download the report at oemoh.com/infrastructure-advantage.
One area where AEM has kept a very close eye on is the various trade deals President Trump has insisted need to be renegotiated. “Regardless of whether [the rhetoric] is a negotiating tactic, make no mistake: Terminating the North American Free Trade Agreement (NAFTA) would have immediate and negative consequences for the equipment manufacturing industry. Our industry has adapted, over the past 30 years, to business practices and supply chains that depend on the economic integration fostered by NAFTA,” says AEM.
Canada and Mexico are the biggest markets for U.S. equipment exports, and last year that broader trade relationship amounted to over $525 billion in U.S. trade with Mexico and nearly $545 billion in U.S. trade with Canada, according to a May report by AEM. “Moreover, Canada and Mexico represent the two largest export markets for equipment manufacturers in the United States. That is why we have worked to encourage the Trump administration to update, not end, NAFTA. Walking away from the agreement altogether would be a short-sighted step that puts at risk equipment manufacturers’ goal of updating NAFTA to serve our modern economy.”
It is still yet unclear as to how the Trump administration’s potential actions on trade would immediately affect equipment manufacturers, but regardless, the equipment industry is global. Equipment manufacturers in Canada alone support 149,000 jobs there and added $15 billion to that country’s economy last year—much of that output a result of cross-border trade with the U.S.
NAFTA does need to be modernized, and AEM has submitted a variety of proposed steps to accomplish that including updating and expanding the rules that govern remanufacturing and rules of origin. “It’s also essential that an updated NAFTA take technological change into account, and establish a practical e-commerce trade policy that also digitizes customs documentation,” the industry says.
It may be too early to judge the effectiveness of the current administration, but the drama entangled with this constantly covered and analyzed presidency can dilute the core messages that OEMs really care about. Hopefully in the coming several months, a clearer plan and timeline become apparent for the critical issues facing manufacturers including, but not limited to taxes, infrastructure and trade deals.