(Editor's note: The following analysis was prepared by research firm Frost & Sullivan and presented in a report published Dec. 1, 2016)
By Sandeep Kar
MOUNTAIN VIEW, Calif. – After Donald Trump is sworn in as the 45th president of the United States in January, the global commercial vehicle industry will be watching his policy decisions over the first 100 days of his term and thereafter with great attention.
Few industries will face the impact — whether net positive or negative — of a Trump presidency as strongly as trucking, which is a leading indicator of economic activity and typically feels the effects of economic swings and fluctuations well before many other industries or sectors. While the effect of any Trump administration legislative actions will be experienced primarily by the U.S. commercial vehicle industry, global market participants and markets will have much to note and consider.
Most presidential transitions include reasonable certainties regarding upcoming policy priorities and changes that enable nations, markets and industries to prepare for their impact; over the past several decades, proposed policy changes generally have had narrow boundaries. This time it is different and, with the new administration, is going to be more different for trucking than ever before.
The following tectonic factors/areas are exposed to impending changes brought about by President-elect Trump's policies.
Economic, trade policy implications
One of the most important and powerful influences that North American on-highway and off-highway commercial vehicle markets will experience will relate to the new administration's economic and trade policies. Mr. Trump's publicly stated stand on lowering corporate taxes will definitely have cascading effects on all aspects of U.S. and global industries. Lower corporate taxes would likely result in businesses considering either establishing or reshoring U.S. operations.
While on the surface this would appear to be great news for the U.S. trucking industry, it may not be as great for either U.S. or global truck OEMs and suppliers. Lower corporate taxes will most likely drive service-based businesses to the U.S., which would be of less benefit to freight movement than a move of manufacturing operations. For manufacturers, lower corporate taxes are only one consideration; labor costs also must be kept globally competitive. This would prove much more difficult because lower corporate taxes could drive inflation and result in wage hikes, rendering the incentives much less effective.
Moreover, the U.S. and global economies are still unstable, with many nations skating dangerously close to recessionary boundaries. Economic and trade policy changes would most likely induce short-term recessionary spasms before a clearer and stable picture emerges.
The U.S. has been the single engine pulling global economies for several years now, especially after the recent slowdown in China's economy. Any recessionary pressures on the U.S. economy will create ripple effects globally – including on trucking and truck manufacturing. This makes it important for commercial vehicle executives to understand and strategize for economic and trade policy changes driven by the incoming Trump administration.
That said, expedited infrastructure refurbishment/enhancement projects and public-private partnerships focused on improving U.S. highways and freight movement infrastructure would have a net positive impact on freight and vehicle efficiencies, route congestion and sales of off-highway vehicles if the administration implements many such projects immediately. This could prove difficult, however, because their funding could trigger higher taxes since Mr. Trump has stated his opposition to increasing the deficit to pay for his infrastructure plans.
While modifications or rejections of trade treaties such as the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP) may adversely impact U.S. truck OEMs and their suppliers — many of whom manufacture or source from Mexico — there may be a silver lining: Several Asian OEMs in recent years have secured strong positions in light- and medium-duty truck markets; new trade policies could hurt them, forcing more U.S. localization and higher taxation for market access, both of which will favor U.S.-based OEMs.