Trump’s tax and spending bill instituted tax cuts for US manufacturers

The Trump tax and spending law delivered the business tax relief that US manufacturers wanted. However, concerns over the Trump administration’s volatile trade stance limit capital investment.

Earlier, as Congress debated the sweeping tax and spending bill, many manufacturers paused their investment plans, awaiting clarity on the legislation and Trump’s tariff announcements.

With the tax bill signed into law, manufacturers have one less thing to worry about. Still, the prospect of further tariffs under the Trump administration continues to cloud investor confidence.

Crain says the new tax bill will encourage more capital investments

Under the new law, companies can once again claim 100% bonus depreciation in the first year for investments in machinery and factories. It also allows for reductions in R&D expenses and offers more favorable rules for interest deductions.

Charles Crain, managing vice president of policy at the National Association of Manufacturers, believed the tax provisions in the new bill could prompt some companies to invest in more projects. However, he claimed they could not project how much they would invest. Crain argued that tax was a huge impediment for businesses, and it’s “now off the table.” 

However, some experts anticipate that changes in capital spending will take time, primarily slowed by Trump’s erratic tariff announcements and the tariffs themselves.

Susan Spence, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee, commented, “If companies can’t price their product accurately because the input costs keep changing due to an ever-changing tariff environment, then I think their decisions will stay largely frozen.” 

Trump sent letters to multiple countries warning of more tariffs

Recently, Trump sent tariff notices to multiple countries, warning of additional levies, though he maintained that trade agreements were still on the table.  He sent letters to at least 20 countries, including Brazil, the Philippines, Japan, South Korea, Indonesia, and Bangladesh. He also pushed back the Wednesday deadline to August 1 to implement tariff measures.

The Trump administration also weighs a 50% levy on imported copper. Trump claimed the levies will build a “dominant copper industry” and reverse Biden’s policies. However, industry executives warned that constructing copper mines and smelters in the country isn’t a quick fix and could take years, and manufacturers would still need to depend on imported copper, hence disapproving of the proposed levies

The US has already implemented tariffs on steel and aluminum, raising metal prices and riling up criticism.

Nonetheless, Leigh Lytle, CEO of the Equipment Leasing and Finance Association, acknowledged that while tariffs remain a concern, the new tax provisions offer “long-term certainty” that businesses require. She believes these provisions will motivate companies to accelerate purchases and increase hiring. 

After the introduction of 100% bonus depreciation in the 2017 tax act, capital spending augmented, though at the time other factors were in play, including reductions on the corporate tax rate. 

Michael Hicks, an economics professor at Ball State University in Indiana and director of its Center for Business and Economic Research, made it clear that he thinks tax provisions alone will not encourage significant investments this time. He added, “In the end, the ‘best case’ likely tariff scenario adds far more costs to most capital investment than this legislation could possibly offset.”

Pantheon Macroeconomics economists also claimed that project firms will stall their investment plans until the tariff situation is resolved.

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