As the second year of the Trump Administration is well underway, the President is well on his way in bringing back businesses to America. The Republican tax bill passed in December played a key role in making this promise a reality. It did so by cutting the U.S. corporate tax rate to 21 percent, making the United States one of the lower corporate tax rates in the world. It also included a number of other tax law changes that greatly incentivized American companies to bring back revenue to invest in the U.S. as well as encourage foreign companies to invest in the U.S. In fact the Trump Administration used the President’s recent trip to Davos to tout the new low tax regime to foreign investors. It is already making the United States a far more attractive location for new or expanded manufacturing plants, if recent announcements from major corporations are a sign.
The Administration’s new currency policy change, highlighted In Davos, is also making the U.S. a more attractive place to do business. Prior to this Administration, the U.S. has favored a strong dollar to keep inflation down. While promoting the lower tax rates in the U.S., the Secretary of Treasury announced a change in policy citing a weaker dollar is better for U.S. trade and will increase capital investments and exports. Even without Fed action, the dollar has already fallen by over 10 percent.
The aggressive deregulation policy begun last year, but kicked into high gear in 2018, is also a key enticement to companies to put more capital into the United States, by reducing their cost of doing business. To cite a few regulations they have modified or eliminated include the Waters of the U.S. regulation, the Clean Power Plan, new overtime pay rules, workplace safety rules and fuel economy standards.
The only seemingly discordant note for the U.S. economy is the President’s trade policy action he made on March 8. From the beginning, he has said new trade policies were an important part of his goal to make the U.S. the best place to have a business and grow jobs. This was one reason for his increasingly aggressive use of anti-dumping and countervailing duty laws to impose new tariffs on imports. Following the recommendation of his Commerce Secretary, Wilbur Ross, President Trump signed two proclamations imposing dramatic across-the-board tariffs on steel and aluminum imports. One major concern is that this strategy risks retaliation from foreign countries and multi-national trading partners, such as the European Union. A similar concern is the undue financial burden this action could put on many American companies that import these metals so the cost is lower to the American consumer.
How does this trade policy grow American business? Some business insiders have posed a possible answer—that these uncertainties over global trade have businesses making new investments in the U.S., rather than in trading partners like Canada, Mexico, or Asia. Without knowing what the outcome of new, renegotiated treaties, it should be safer to invest in the U.S.
Simply put, the Administration’s policy is that if you invest in the U.S., you will be provided all the incentives possible, but choose to invest outside the U.S. and you will face risks. The key is when the risks from the Administration’s trade policies are outweighed by the loss of business with our export trading partners. The President is clearly concerned with increased trade deficits, but it is important to consider the bigger picture: his tactic to put pressure on China to force them, and North Korea, to the negotiating table. Within hours of his proclamation, he seemed to have been successful in that endeavor.
U.S. trading partners do have some room to breathe. Within 10 days after the date of the proclamations, Secretary Ross shall issue procedures for the requests for exclusion, which are described in the clauses of the proclamations. On an important note, the issuance of such procedures is exempt from Executive Order 13771 of January 30, 2017 (Reducing Regulation and Controlling Regulatory Costs). Should the United States and any such country arrive at a satisfactory alternative means to address the threat to the national security such that the President determines that imports from that country no longer threaten to impair the national security, President Trump gave himself the authority to remove or modify the restriction on steel articles imports from that country and, if necessary, make any corresponding adjustments to the tariff as it applies to other countries as U.S. national security interests require.
Washington, D.C. is in for a busy time ahead as it should be assumed that any and every entity with a vested interest in being exempted from the tariffs will be flocking to the nation’s capital to request for an exemption. Timing is everything!