Impact of 2024 US Elections on the Manufacturing Industry

The results of the US 2024 elections have been announced. It was anticipated that the process would be prolonged, with the market and businesses expecting that a clear verdict would take more time. However, this wasn’t the case, and Americans delivered a decisive mandate to the Republicans.

This article examines the implications of the 2024 election on the manufacturing industry and how the new presidency will influence manufacturing in the US. The discussion begins with an analysis of the economy's development since COVID-19 and the role of manufacturing in economic recovery. Subsequently, we review the policies promoted by both Democrats and Republicans during their campaigns regarding manufacturing.

Finally, an evaluation of how manufacturing has been affected by various presidencies over the past three terms is provided. 

The US Economy Since COVID-19

The U.S. economy has faced significant challenges since the COVID-19 pandemic in 2020. 

According to the think tank Brookings, policymakers had two primary options regarding fiscal stimulus during the pandemic. One option was to implement aggressive fiscal stimulus to prevent long-term economic damage and sluggish growth, accepting elevated inflation due to unusual supply chain pressures. The second option was to offer less fiscal support, allowing for output gaps and slow growth in consumption, potentially mitigating the expected high inflation that would accompany the financial stimulus. The United States chose the former route. As a result, substantial economic growth has been observed. This approach may have been influenced by lessons learned from the Great Recession of 2008, leading to fairly aggressive fiscal measures. The macroeconomic environment also supported these measures. 

The Center for Budget and Policy Priorities (CBPP) views the policy response as strong and effective in promoting rapid economic recovery. By the end of 2023, from a jobs and growth perspective, the economy had essentially recovered. Groups that experienced significant losses during the recession recouped a substantial share or erased their losses entirely. The number of jobs rose above pre-pandemic levels, with June 2022 and December 2023 showing 5 million more jobs than in February 2020, indicating the effectiveness of the financial stimulus. However, new challenges emerged in maintaining ongoing economic expansion following high inflation in 2021 and tightening monetary policy in 2022. Despite these challenges, the economy ended 2023 with low unemployment and decreasing inflation. 

The year 2024 has presented a mixed scenario with an impending election, high inflation, and a confusing labor market. High inflation persisted despite tightening monetary policy due to a lag effect on its impact. The labor market exhibited inconsistent job growth, often bringing recession concerns into discussions. Nevertheless, the economy managed to avoid recession signals. As the year closes, the interest rates are decreasing, with the Federal Reserve recently announcing another cut—the second consecutive cut since September. It appears that the economy is poised for a soft landing.

The following image shows the US Economy at a glance since 2020, covering GDP, GDP growth, inflation, and unemployment rate.

Source: U.S. Bureau of Economic Analysis, fred.stlouisfed.org

Source: U.S. Bureau of Economic Analysis, fred.stlouisfed.org

Except for high inflation in recent years, the US economy did well to shake off the recession precipitated by Covid-19 and bounce back. 

How Has Manufacturing Fared?

Since the pandemic, the manufacturing sector has contributed approximately 10% to the US GDP. In 2023, the manufacturing sector contributed $2.8 trillion to the U.S. GDP (gross domestic product). 

FIGURE 1: Manufacturing as a % of US GDP

Source: U.S. Bureau of Economic Analysis, fred.stlouisfed.org

Figure 1. shows that the manufacturing sector has kept pace with nominal US GDP growth. The performance of the manufacturing sector is understood by many economists as essential for America’s growth. After all, the middle class in the US has been built on the back of the manufacturing sector. The situation does look encouraging. While offshoring continues, more goods are being made in the US. The US Bureau of Labour Statistics provides the following data points:

• 14 Million ~ the number of manufacturing workers
• $ 33 - Average hourly earnings in the manufacturing sector

In an earlier article written on the  Click Maint CMMS blog, we discussed the renaissance in US manufacturing based on digital transformation. McKinsey's research reported that, by effectively transforming (digital transformation) the US manufacturing sector, it could boost the GDP by $275 billion to $460 billion while adding up to 1.5 million jobs. Could the 2024 US elections provide the necessary tailwinds to manufacturing? 

How US Elections Were Meant to Impact the Manufacturing Industry?

We now know the final verdict of the American people in the US 2024 elections. However, in the following sections, we take a glance at how the Democrats and Republicans were expected to impact US manufacturing with their policies. The two parties’ campaign agendas were almost diametrically opposite, and here is why.

Democrats - Climate Protection, Labor Protection, and Corporate Accountability

Green Climate Initiatives

The Democrats were expected to continue with their existing policy priorities. Thus, focusing on climate action, worker protections, and increasing corporate taxation of which would have logically impacted the manufacturing industry.

• Sustainable Energy - First, climate change and environmental regulations will be prioritized. Democrats have been outspoken in their support of aggressive climate action, calling for an accelerated shift towards renewable energy, significant reductions in carbon emissions, and stronger environmental protections.
• Emission Cuts - Stricter regulations were expected to affect manufacturing, particularly in energy-intensive and fossil fuel-using industries. This would have included stricter emission regulations and potential carbon taxes, increasing compliance costs for industries relying on fossil fuels. 
• Green Incentives - Additionally, there were expected to be expanded federal incentives for green technology investment, benefiting manufacturers involved in renewable energy, electric vehicles, and other clean technologies. New regulations around supply chains to ensure sustainability and reduce environmental impact were also expected.

Increase Corporate Tax and Reduce Tax Incentives.

Democrats were expected to go ahead with corporate tax increases and not extend the Tax Cuts and Jobs Act (TCGA), which provided tax incentives once it expired. The following changes were expected.

• Increase in corporate tax rate and capital gains rate.
• Minimum tax on large companies that optimize for lower taxes.
• Ending of TCGA provisions that benefited manufacturing.

Labor Protectionism

Democrats were expected to continue supporting labor rights and worker protections. The following provisions were expected.

• Strengthening labor rights and worker protections for strengthening collective bargaining and union rights. 
• Increasing the federal minimum wage potentially to $15 an hour.
• Increasing paid family leave.
• Healthcare protection for workers

For manufacturers, these policies would have led to higher labor costs, causing lower margins. It could have also ushered in productivity initiatives leveraging AI, automation, or manufacturing best practices.

Republicans - Government Efficiency, Lower Taxes, Deregulation and Tariffs

The Republican agenda was a complete 180 compared to the Democrats. There was very little in which they saw eye-to-eye. The republican platform heavily emphasized government efficiency to drive out unproductive processes that encouraged inertia.

This Donald Trump term is likely to revive many of the business-friendly policies that defined his first term. The focus would center on deregulation, maintaining lower taxes, and reintroducing aggressive trade policies designed to protect American manufacturing.

Lower Taxes

Trump is expected to continue advocating for lower corporate taxes and other pro-business tax reforms. This includes making the tax provisions enacted under the TCJA permanent. Remember that the TCJA came into effect in 2017 during Trump’s first term.  The key proposals include reducing the corporate tax rate to 15% for domestic production to stimulate economic growth further. Expanding tax credits for domestic manufacturing and repatriating jobs could offer substantial benefits to companies moving operations back to the US. Additionally, it is anticipated that tax incentives for capital investments, such as 100% bonus depreciation on equipment and infrastructure upgrades, will be renewed. For manufacturers, these policies would likely result in higher after-tax profits, giving businesses more flexibility to invest in new technologies or expand production capacity.

Deregulation

Deregulation is a cornerstone of Trump's economic strategy. Under his administration, manufacturing sectors could see a rollback of environmental regulation, easing compliance burdens on businesses, particularly in fossil fuel-driven, energy-intensive industries. Loosening labor laws would provide employers with greater flexibility in hiring and workforce management. Streamlining permissions for new industrial projects would make it easier for manufacturers to expand or modernize facilities. This deregulatory environment would reduce costs for manufacturers, allowing them to operate more efficiently. However, critics argue that it could also reduce the emphasis on environmental sustainability and worker protection. This could have an adverse social impact. However, it remains to be seen whether the economic gains outweigh the social costs.

Tariffs

Tariffs have been a cornerstone of the Republican’s campaign. It is one of the key components driving Trump’s agenda to restore America’s leading position in the modern globalized world. Trump's trade policies are expected to focus on protecting American jobs and industries through significant tariffs and other trade barriers. This could include increasing or creating new tariffs on goods from countries like China to protect U.S. manufacturers from foreign competition. Proposals may include a 10% tariff on all imports and raising the tariff on Chinese goods to 60%, offering incentives for reshoring production to the U.S., encouraging manufacturers to move operations back home. While these protectionist policies could benefit certain manufacturers by reducing foreign competition, they could also raise costs for businesses that rely on imported materials or components, creating challenges in sectors with global supply chains.

It remains to be seen how US manufacturing fares under the new presidency. We could get a sense of how similar policies performed in previous presidencies, specifically the last two.

US Manufacturing Track Record of Republicans and Democrats

Looking at the most recent data, Democrats have performed relatively better than the Republicans in boosting manufacturing growth in terms of investments and jobs. A recent white paper published by BlueGreen Alliance titled “Then and now: U.S. manufacturing under the Trump and Biden-Harris administrations” presents two interesting graphs.

FIGURE 1: Construction Spending on Manufacturing Facilities  2010-2024

Source: U.S. Census Bureau, Total Construction Spending: Manufacturing in the 

United States [TLMFGCONS], retrieved from FRED, Federal Reserve Bank of St. 

Louis; https://fred.stlouisfed.org/series/TLMFGCONS, June 26, 2024.

FIGURE 2: Total Manufacturing Jobs (in Thousands) 2010-2024

Source: U.S. Bureau of Labor Statistics, Production and Nonsupervisory Employees, 

Manufacturing [CES3000000006], retrieved from FRED, Federal Reserve Bank of 

St. Louis; https://fred.stlouisfed.org/series/CES3000000006, June 28, 2024

Since Biden and Harris took office in January 2021, over 775,000 manufacturing jobs have been added, surpassing the losses during the COVID-19 pandemic (Figure 2). According to research from the University of Massachusetts Amherst, investments in the Inflation Reduction Act, Bipartisan Infrastructure Law, and CHIPS and Science Act are projected to add 336,000 manufacturing jobs annually. Early signs of growth are evident, with a significant increase in manufacturing construction trends during the current administration, leading to new facilities and jobs nationwide (Figure 1).

In President-elect Trump’s first term, more than 200,000 manufacturing jobs were lost, net. It was the presidency that saw the Covid-19 pandemic unleash panic on unemployment numbers. Construction spending on manufacturing facilities also did not grow under the Trump administration and remained flat. 

The Biden-Harris has supported U.S. manufacturing, leading to significant job gains and new facilities under construction. In contrast, former President Trump failed to spur significant growth in U.S. manufacturing. Will Trump’s administration take lessons from the first and do better for manufacturing? 

What Does the New US Presidency Hold for Manufacturing?

The decisive mandate given by the American public to the Republicans is unprecedented. The presidency, the House, the Senate, and the popular vote have clearly indicated their choice for the new administration. Consequently, the Republicans have a significant opportunity to steer the economy in a positive direction, including the manufacturing sector.

However, the policies promised by the Republicans may present fiscal challenges. The markets are attempting to factor in these potential challenges, as evidenced by the rising yields and the increase in the 10-year yield, which suggests that inflation might become an issue. Interestingly, the Federal Reserve has continued its interest rate softening stance.

While prospects appear promising, challenges remain. In manufacturing specifically, the advent of smart manufacturing and increased AI adoption to automate jobs and processes will play a crucial role. We already mentioned the renaissance occurring in U.S. manufacturing and the supportive tailwinds. Overall, while manufacturing shows promise, potential challenges must be acknowledged. This blog will continue to provide updates on future developments.