21 Oct 2020 2020 Election Preview: Manufacturing
Authored by RSM US LLP
With the election approaching, RSM is looking at the economic stakes and the key issues for various industries. To view other industry-focused election previews visit our 2020 Election resource center here.
The top policy issue for manufacturing
The candidates’ approaches to international trade will play a significant role in the election, as many crucial states consider trade a key determinant of manufacturing job creation or loss. Manufacturing has been adversely impacted in the recent past by trade policies that prioritize protectionism over globalization and free trade. President Donald Trump’s administration has imposed tariffs in an effort to dissuade anti-U.S. trade practices and also to gain advantages in trade negotiations with allies. This has resulted in overall uncertainty for manufacturers, increased costs and reduced U.S. competitiveness.
If trump wins
We anticipate the current approach on trade and tariffs to continue, with Trump’s administration likely to adopt aggressive, protectionist and sometimes unilateral measures to combat international trade arrangements that the administration views as unfavorable to the United States. The current administration’s stated focus has been to increase the competitiveness of U.S. manufacturing, but the measures it has taken thus far to do so have not supported that objective. Tariffs have not been effective in that regard and have increased costs for manufacturing companies and their customers. We also expect the Trump administration to work outside the World Trade Organization, thereby undermining its role as an international dispute resolution body.
If Biden wins
While an administration under former Vice President Joe Biden may be relatively more supportive of free trade, his “Buy American” proposals, which would require the federal government to procure goods solely from domestic companies, reflect protectionism. Biden would also adopt a tough stance against China and may continue the existing tariffs for some time. However, Biden’s opposition to China may involve a more collaborative and measured approach, which could result in easing some recent uncertainty. Biden would also try to build a broader international coalition to deal with China and repair trade relations with allies.
Other industry issues:
Both candidates have similar objectives when it comes to bringing back manufacturing jobs, reinvesting in manufacturing and curtailing China’s unfair trade practices. The difference, however, is in their approaches: Trump has been more aggressive and unilateral, while Biden has indicated a more measured and collaborative approach. These approaches will respectively augment or ease the uncertainty around the issue. In addition, manufacturing and macroeconomic policies will affect the performance of the U.S. dollar: Reduced uncertainty would strengthen the dollar, but policies that increase deficits and debt loads would make the dollar weaker, ultimately increasing the competitiveness of U.S. exporters.
The Trump administration’s effect on the industry:
The Trump administration’s aggressive and protectionist trade policies have helped only a few sectors of the manufacturing industry. Generally, these policies have been disruptive, expensive and have created tremendous uncertainty, which has stalled capital investment. While the goal has been to increase jobs and reinvigorate manufacturing, these measures have not yielded the desired results.
By the numbers: $5.7 trillion
Total U.S. trade is more than $5.7 trillion, according to U.S. Census Bureau data, and trade with China comprises $557 billion of that total.
In preparation for the outcome of the election, manufacturing companies should consider:
Evaluating supply chains—i.e., where products are made, stored and sold—can help to ensure supply chain resilience in the face of trade policy changes and other disruptions. The pandemic and tariff wars highlighted the need for companies to enhance visibility into all aspects of their own operations—including suppliers, pricing, SKUs, locations and demand—and the ability to respond on an exigent basis. Manufacturers’ reliance on China goes further than their immediate suppliers, potentially extending to their suppliers’ suppliers. Going forward, companies will need to evaluate alternative supply chain models to either simplify complex supply chains or reduce their reliance on any one particular country or region.
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This article was written by Jason Alexander, Shruti Gupta and originally appeared on 2020-10-14.
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