A Tiptoe Through a Minefield: Four Policy Battles That Could Shape the Economy

Remember when people could discuss politics in a reasonable tone without resorting to vicious attacks? Neither do I. I generally steer clear of politics but when it comes to the economy that is nearly impossible as the two tend to influence each other profoundly. I will endeavor to keep my personal preferences to myself but by now alert readers know that I am a devotee of Milton Friedman and the Chicago School of economics. Basically, an advocate of free enterprise and pro-business.

Beyond that my usual position on Democrat and Republican is “a plague on both your houses” to quote William Shakespeare. So, what is likely to happen when the dust settles from this latest election? There are four key issues at stake as far as economics and politics are concerned – tax policy, regulatory policy, trade relations and government support.

Taxation is always top of mind and never more so than when deficits are running at these levels. Bringing down the $2 trillion deficit is not possible without two very unpopular political moves – raising taxes and cutting spending. For the first time ever,  the service on federal debt has climbed above $1 trillion and that makes debt service the second largest part of the federal budget (behind only Social Security).

There is nothing approaching consensus regarding where that tax money will come from. The Democrats favor taxing the wealthy (and nobody knows what that entails) while the Republicans seem to favor more “nickel and dime” taxes described as “user fees”. Most in politics seem to want to avoid the issue altogether. Spending cuts alone will not address the issue as the bulk of the Federal budget is devoted to Social Security, debt service, Medicare, Medicaid and the military and they are all considered “sacred cows”.

Next up is regulation and that is always a can of worms. Nobody objects to basic regulation that prohibits dangerous practices and outright cheating but it is often hard to clearly identify when these practices are taking place. The more consistent objection is when a regulation is clearly designed to give some group or sector an edge or is intended to punish a given set of businesses.

The Code of Federal Regulations is 188,000 pages long. Federal agencies publish about 4,000 new regulations every year and these numbers do not count the regulations that come from states and local communities. It has been estimated that over 40% of these regulations apply to the manufacturing sector and that compliance with them costs roughly $240 billion annually. Both Democrats and Republicans push regulations albeit different ones in different areas.

Trade relations and tariffs have been front and center for almost a decade although there has been a great deal of variety in terms of emphasis. Tariffs have long been deployed to protect some aspect of the domestic economy but the more common technique has been the non-tariff barriers (NTB) as these are regulatory and more permanent. Lately tariffs have been used primarily as negotiating tools. Efforts have been made to get nations to either do or not do something and the tariff is used as a threat. The problem from a business perspective is that these tariffs tend to be highly changeable and that creates havoc in a company’s supply chain. Most business objections to tariff policy comes down to the lack of permanence. There s no time to adjust or react to the changes before the tariff is ether accelerated or removed.

Finally, there is government support. The U.S. has never had an industrial policy on the same order as Japan or Europe but there have long been incentives such as tax breaks, research support and the like. There are ways that government support can accelerate economic growth. Traditionally that has been focused on infrastructure – everything from transportation to energy.

There have also been efforts to boost investment in everything from alternative energy to housing alternatives to education. What sectors will get that kind of help in the future? Support for EVs has faded and so has support for alternate energy. Will there be more attention paid to trade schools? Will there be efforts to increase access to rare earth minerals? There are many areas where government money could go.

Politics can be very messy and alienating during a campaign. The reality is that nearly 80% of likely voters made up their minds months ago; their preferences were established. The campaigns now focus on getting the core supporters to vote and on capturing that sliver of undecided voters. After this is over the members of Congress ostensibly settle down to business and start to work on the key issues.

Four Questions Worth Asking After Election Day

As policy priorities shift, these are four questions PHCP-PVF businesses should be considering.

1: How could tax changes affect our growth plans?

Consider capital investment, expansion, staffing and customer demand.

2: Which regulatory changes could affect our operations?

Evaluate compliance costs, product requirements and potential shifts in availability.

3: How prepared are we for changing trade policies?

Review sourcing flexibility, supplier relationships, pricing and inventory strategies.

4: Where could new government investment create opportunities?

Watch infrastructure, water systems, energy projects and workforce initiatives.

Four Policy Areas with Real-World Implications for Distributors, Manufacturers and Reps

TAX POLICY

Changes to corporate taxes, deductions and federal spending could influence business investment, hiring decisions and demand for construction projects.

REGULATORY POLICY

Evolving requirements could affect manufacturing costs, product specifications, compliance obligations and the availability of certain products.

TRADE & TARIFFS

Shifting tariffs and trade restrictions could create uncertainty around material costs, sourcing strategies, inventory planning and customer pricing.

GOVERNMENT SUPPORT

Federal investment priorities could influence demand for infrastructure, water systems, energy projects and workforce development.

By Dr. Chris Kuehl