It was a simple question: ‘Do you think that the new US president will be good or bad for reman?’ Denise Rondini expected some strong and diverse opinions – what she didn’t expect was…silence.
New US president Donald Trump has been elected on a mission to shake up politics and boost the economy – and he has not been shy about making his opinions known. Naturally, ReMaTecNews is curious to see how remanufacturing industry executives think Trump’s policies are going to affect the reman industry. With this in mind, we asked 14 companies to answer the following:
Do you think that Donald Trump will be good or bad for reman? Why?
This turned out to be a more difficult task than we thought: ten out of the 14 firms we contacted declined to participate, citing the speculative and political nature of the article as the reason. We heard things like:
- “We will have to respectfully decline to participate on this one”
- “It’s a slippery situation to publish comments of a political nature”
- “We refrain from collaboration on speculative articles”
- “Corporate communications suggested that because of the political nature of the request, we will pass on this opportunity”
- “Because of the uncertainty and speculation involved, the company prefers not to take part in this discussion”
You get the idea. However, a couple of people did respond - so what can we say about Trump and reman? Let’s start with what we know for sure: one thing Trump has been very vocal about is the North American Free Trade Agreement (NAFTA). He has long criticised this as unfair to the US, even publicly calling it “the worst trade deal in history”. NAFTA eliminates almost all tariffs between the US, Canada and Mexico and as a result allows for the free flow of goods. Remanufacturing benefits from cores flowing freely across borders and - since cores are essential for reman - anything that limits the ability of remanufacturers to get cores will have a negative impact on the industry. Speaking in the last issue of ReMaTecNews, APRA president Joe Kripli warned: “If NAFTA goes, there will have to be a lot more bargaining with customs authorities. Taking that away would hurt.” Jonathan Starks, chief operating officer at FTR, a freight transportation intelligence company in Bloomington, Indiana, believes that NAFTA is firmly in Trump’s sights. “Since the president does control foreign policy, trade agreements with Mexico (and also with China, although that is not part of NAFTA) are likely to be addressed early in the new administration with the risk of an increase in inflation,” he predicts.
Economist Robert Dieli, president and founder of RDLB, an economic research and management consulting firm, agrees. Early changes to NAFTA are likely early because Trump “has managed to stir up three or four issues relating to Mexico that are more likely to surface sooner”. Diele also says: “Trade is certainly a divisive topic because the impact of tariffs on our side of the border potentially cuts both ways.” In addition to tariffs there are ways “to lean on the supply chain with things like customs inspections and other sorts of things that relate to how business is done. The next thing you know, people are getting complaints that goods are not moving”. Dieli points out that some in the reman industry might be saying they want higher tariffs, depending on what their trade flow is like. “But once you get into trade flow that is where the NAFTA problem becomes difficult,” he continues. “If reman people can keep this within the context of their own trade flow they might be able to succeed in negotiating something they prefer. Within the larger context, they may find themselves in the middle of a situation that has all kinds of twists and turns.” Part of Trump’s position on NAFTA is based on perceived loss of jobs as manufacturers and remanufacturers set up factories outside of US borders. However, a 2015 report from the Congressional Research Service found that the predicted huge loss of jobs did not occur. The report also said that the overall net effect of NAFTA on the US economy has been relatively small, primarily because total trade with both Mexico and Canada was equal to less than 5% of US trade. One important point to consider is that even if Trump wants to make changes to existing regulations it is a time-consuming process. “There is no part of the legislative or regulatory statute book that is not completely surrounded by lawyers,” Dieli says. “So it takes a while to get something on there and it can take even longer to get something off.” However the president’s ability to say ‘I don’t want to do this, or I do want to do this,’ can be a very strong motivation to start the process of repealing legislation or drafting new, he adds. While Trump might have been quiet on reman specifically, he has been very loud on the automotive industry – for instance tweeting that General Motors should manufacture some currently Mexican-made models in the US “or pay big border tax!” What we also know is that Trump is pro-business and during his campaign spoke of lowering taxes on business.
What we know
“If a major tax cut bill is in place by summer of 2017, it would likely stimulate the economy and add up to one percentage point to GDP growth for as much as a year,” according to Starks. “At the same time, trade negotiations could stimulate exports and raise the cost of imports, with an acceleration in inflation likely. That may force a significant raising of interest rates by the Federal Reserve, making recession in late 2018 or 2019 a distinct possibility.” Companies have been warned. But where might this leave reman? “Trump among all the candidates in recent history has probably been the least specific in terms of priorities,” Dieli concludes. “My first reaction is that [remanufacturing] would be relatively low on his list of priorities - not because it is not important, but because it does not have a terribly high profile. If someone asked me if [remanufacturing] was going to matter to the new president, I would say ‘not for a while.’” So for now it seems likely that reman is operating under the radar of the new president and so will not be targeted for regulatory changes. However, any changes to taxes or existing trade agreements will certainly have some impact on the reman industry. Only time will tell whether these are positive or negative – but it’s certainly worth talking about.