Manufacturing and Trump's Deregulation Agenda

Manufacturing and Trump's Deregulation Agenda

During Donald Trump’s campaign for the presidency, he made advancing American manufacturing a foundation of his economic platform and promised to reduce the sector’s federal regulatory burden. In 2014, the National Association of Manufacturers (NAM), the top industry association representing American manufacturers’ interests, estimated the direct cost of federal regulations on U.S. manufacturers to be $138.4 billion annually.

Based on the first 18 months of the Trump administration, the U.S. manufacturing sector appears satisfied with the president’s ongoing efforts at regulatory reform. In its quarterly Manufacturers’ Outlook Surveys, NAM reports that for June 2018 the level of “Manufacturers’ Optimism” averaged 95.1 percent, the highest in the survey’s 20-year history, up from 64.3 percent in 2016, or a 47.9 percent increase over the last 18 months. Moreover, NAM’s Manufacturing Outlook Index also rose to an all-time high of 63.8, the seventh straight quarter where the Outlook exceeded the survey’s historical average.

How much of this manufacturing optimism can be attributed to the Trump administration’s year-and-a-half long efforts at federal regulatory reform?

One positive indicator can be found in a deeper analysis of the past 24-month series of quarterly NAM Manufacturers’ Outlook surveys. In the 2016 third-quarter survey (the last quarter before the Presidential election), under the topic “Primary Current Business Challenges,” members ranked “unfavorable business climate, e.g., taxes, regulation” (73.6 percent) second behind the top ranked “rising health care/insurance costs” (74.8 percent).

In the most recent survey (second quarter 2018), the category of “unfavorable business climate” (19.1 percent) has plummeted in the rankings, declining by over 54 percent. “Attracting and retaining a quality workforce” (76.7 percent) rose to number one among business challenges, followed closely by “rising raw material costs for our products” (72.8 percent) and “rising health care/insurance costs” (65.3 percent). Remarkably, within the 20-month period since Donald Trump’s election, the category of “unfavorable business climate” has moved from a close number two position to a distant fourth (see figure 1 below).

This significant decline since Trump’s election reflects American manufacturers’ overall attitude. According to NAM, they “continue to be upbeat about regulatory reform and its economic impacts. Because of the regulatory moratorium last year, a dramatic shift has occurred in the federal rulemaking process, and manufacturers widely consider it a positive development.” In addition, manufacturers “continue to be upbeat following Washington’s passage of the comprehensive tax cuts” in December 2017, reports NAM.

In addition, in the first 18 months of the Trump administration, the results of regulatory reviews undertaken by the White House’s Office of Information and Regulatory Affairs (OIRA) show significantly fewer new “major” rules and dramatically fewer “minor” rules approved than during the previous three administrations over a comparative period (see figure 2). Compared to the Obama administration, during its first 18 months in office the Trump administration has approved 53.1 percent fewer new “major” rules (i.e., those having an economic impact of $100 million or more, or meeting other criteria specified by the OIRA administrator) and 64.4 percent fewer new “minor” ones.

Moreover, focusing on the four executive branch agencies which can significantly impact the manufacturing sector), Agriculture, Commerce, and the Environmental Protection Agency and Labor Department, the OIRA data reveal similar results for the first 18 months of regulatory review under Trump. For example, in these sectors, the Trump administration has approved 51.8 percent fewer “major” rules and 60.4 percent fewer “minor” rules than the Obama administration during its first 18 months in office.

There remains work to be done of course. Of particular interest to U.S. manufacturers in this regard is the Commerce Department’s October 2017 report “Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing.” One recommendation from the report is to create an annual, open forum for federal regulators and industry stakeholders to evaluate progress in reducing regulatory burdens. The administration should formally institute Commerce’s recommendation to evaluate progress in reducing regulatory burdens, and it should formally solicit input from industry stakeholders on what they view as unresolved manufacturing sector regulatory reforms.

For FY18, the focus of the OIRA will be on repealing outdated, duplicative, or overly prescriptive regulations that stifle technological innovation, as these types of administrative rules have the best chance of success — although, granted, these rule rescissions may take years to complete and some will subsequently be challenged in federal appeals court.

In any case, the Trump administration is delivering on promises to reduce the regulatory burden on the U.S. manufacturing sector, and the number and cost of new major and minor regulations will be, in comparison to recent administrations, significantly lower.

Thomas A. Hemphill is David M. French Distinguished professor of strategy, innovation, and public policy in the School of Management, University of Michigan-Flint and a policy analyst for the Heartland Institute in Chicago, IL.

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