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What Can Manufacturers Expect From the New Administration?

Changes in the tax code, regulations, and other government policy will affect manufacturers for better or worse.

Q2 2016
Doug Woods, president of the Association for Manufacturing Technology (AMT).
Doug Woods, president of the Association for Manufacturing Technology (AMT).
With a new administration in Washington and skilled labor requirements only increasing for manufacturers, Area Development’s editor posed some questions to Doug Woods, president of the Association for Manufacturing Technology (AMT), to get his organization’s latest take on manufacturers’ concerns. His responses follow:

AD: Has awareness of the importance of manufacturing’s role in the economy increased since you became president of AMT in 2009?

Woods: When I came to AMT, we were just coming out of a recession. It was necessary that our government, business and civic leaders focused on a jumpstart for manufacturing, as it is the industry that drives economic growth and job creation. Collaboration between those leaders helped lift manufacturing out of the downturn. At the same time, the landscape started changing at a dramatically rapid pace. Advanced manufacturing technologies like 3D printing, robotics, and digital factories captured the world’s attention when they introduced a whole new set of possibilities. The “maker movement” has drawn in an even more diverse audience — old and young, scientists and artists.

In part because of these exciting developments, the opportunities afforded by careers in manufacturing suddenly sparked a new interest among students, and perhaps more importantly among their parents and teachers. At a time when student loan debt is at a record high, technical and community college education is a great way to save on tuition costs. But even more importantly, demand is high for workers who have those technical skills.

AD: Has the Trump presidency intensified this awareness of manufacturing’s importance?

Woods: Over the last several years, there have been a number of public-private efforts that shine a light on the role manufacturing has in global competitiveness. Manufacturing jobs were the centerpiece of President Trump’s campaign to win the middle class, and his pledge to bring jobs back and create new jobs in the United States helped him win the election. ...the opportunities afforded by careers in manufacturing suddenly sparked a new interest among students, and perhaps more importantly among their parents and teachers.

So far, he’s maintained his focus on strengthening manufacturing jobs with quick action on regulatory reform. His budget was disappointing in its lack of support for manufacturing programs. We’re looking for some movement on infrastructure, trade, and tax reform to maintain momentum and to boost business confidence.

AD: What are the implications for the Trump administration’s proposed tax rate changes on manufacturers?

Woods: I think it’s important to note that President Trump has not formally released a proposal, and has offered conflicting statements on individual provisions. However, he has said repeatedly that one of his top priorities is tax reform and he would like a bill passed this year. The President is expected to release his tax proposal soon, but the details are unknown. What is known is that the United States has the third-highest corporate tax rate in the world and is the only country among the G-7 nations with a worldwide taxation system. Our current tax system puts us at a competitive disadvantage with the rest of the world.

The place to watch for tax reform is the House of Representatives. Although no bill has been formally introduced, the House leadership has a blueprint, developed by Speaker Paul Ryan, that would lower rates, eliminate deductions, and move the United States to a border-adjustable, territorial tax system in line with that of our trading partners. It is considered the vehicle for comprehensive reform.

Specifically, the Ryan plan would reduce the federal corporate rate to 20 percent and create a 25 percent maximum rate for pass-through entities. It would allow for full expensing, which would allow companies to immediately write off capital equipment purchases in the first year. It also moves us to a territorial system of taxation with an immediate deemed repatriation of offshore earnings. After that, there would be a full exemption on earnings from foreign subsidiaries.

Other highlights of the House’s tax plan include elimination of the corporate alternative minimum tax and estate tax, a repeal of almost every tax credit and deduction (with the exception of the permanent R&D tax credit), and a 20 percent border adjustability tax.

AD: What about the proposed “border adjustment” rules — the idea of taxing imports but not exports? Not surprisingly, in the globalized world, the BAT (border adjustment tax) is the most contentious part of proposed tax reform and may derail the effort for a comprehensive overhaul.

Woods: Not surprisingly, in the globalized world, the BAT is the most contentious part of proposed tax reform and may derail the effort for a comprehensive overhaul. The intent of the border adjustment is to bring U.S. tax policy in line with that of our trading partners with value-added tax systems. Import-heavy industries like retail have been lobbying hard against border adjustment, while companies like Boeing and GE have started a coalition to lobby in favor of it. The Senate is largely opposed to adding it, but eliminating it would be a non-starter in the House — especially since the revenue raised at the border would finance the lower rates and expensing provision. With the clock ticking, it may be more likely that we will see a less ambitious tax bill.

AD: How will the administration’s policies advance innovation in the manufacturing environment?

Woods: With the previous administration’s inception of the National Network for Manufacturing Innovation, we have seen the successful launch of technology-specific institutes to develop next-generation materials, processes, and more. Currently there are nine institutes in the network with six more set to come online in 2017.

While the President has promised to bring back manufacturing jobs, he has also been proposing major cuts to a number of government agencies that fund and execute research into new technologies, such as important programs at the departments of Energy and Commerce.

Like many industries, manufacturers are often hesitant to take risks on technology development that may not become profitable until the far future, or ever. Public-funded and academic research has been instrumental in discovering important technology breakthroughs, and eliminating the avenues for that would be detrimental to the industry’s ability to innovate.

AD: Which types of manufacturing jobs do you think will be reshored because of Trump’s policies?

Woods: To keep manufacturing jobs here, then President-elect Trump threatened a 35 percent tax on companies that move jobs abroad; but that likely won’t happen. Most agree that raising taxes is not the way to encourage investment in the United States. Rather, if you create an environment conducive to innovation and growth, companies will stay and companies will come. This is a global world. Companies should locate where they can best serve their customers. Public-funded and academic research has been instrumental in discovering important technology breakthroughs, and eliminating the avenues for that would be detrimental to the industry’s ability to innovate.

The hallmark of the industry in the United States is high-value, high-tech manufacturing. Because of its large consumer base, good infrastructure, entrepreneurial culture, and world-class education system, this country has become a leading destination for foreign direct investment. Foreign direct investment in the United States reached a record high in 2015, with 70 percent of the new investment in manufacturing.

The dollars are being spent on updated equipment and modern facilities that require a different type of workforce than the manufacturing jobs we lost. Automation has taken on most of the repetitive and lower-skill tasks on the shop floor. There’s a demand for new skills that can harness the power of advanced manufacturing technologies. As global manufacturers continue to have an appetite for setting up shop in the United States and the aging manufacturing workforce continues to retire, the number of available positions will grow.

I’d recommend Congress and the administration focus on programs to educate and train the new manufacturing worker or companies will have no choice but to go abroad to look for them. This time the offshoring won’t be for cheap labor.

AD: Has progress been made on the “Smartforce” initiative to fulfill manufacturers’ need for skilled (STEM) workers?

Woods: Our Smartforce initiative remains active and continues its tireless outreach toward students, educators, and parents. In September, we hosted the 10th edition of the Smartforce Student Summit at IMTS (International Manufacturing Technology Show) and welcomed more than 20,000 students, parents, and educators — a record turnout. We had a number of hands-on challenges for the attendees and a career fair for recent graduates or students nearing graduation.

The federal government has also pushed for a greater number of registered apprenticeships through its ApprenticeshipUSA program, and we’ve seen an increase in state and regional initiatives to train veterans, women, and older workers; all of these initiatives are vital components for closing the skills gap.

AD: Can you discuss the role of robotics and whether humans will still be needed on the factory floor?

Woods: It’s not surprising that factories are using more automation and robotics than ever. Just as we no longer use horse-drawn plows to tend to our agricultural fields, technology has advanced and made manufacturing more profitable and productive. The downside is that robots have gotten a bad rap as “job stealers,” when it’s actually been shown that countries that use more robots also have more manufacturing workers.

While it’s easy to imagine a dystopian future where businesses rely solely on machines, it’s been shown that organizations with the most automation aren’t necessarily the most successful. While automation is perfect for repetitive tasks, tasks that entail multiple options are still often out of reach for even the most capable robot. Consumer demand for customized products has made for more complexity in the manufacturing process. Likewise, manufacturing for things like small-batch luxury goods is unlikely to get handed off to the robots anytime soon.

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