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Conference Report: ASD Report

Kuehl: Big Changes Not Likely in Near Term

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Chris Kuehl, chief economist for the Fabricators and Manufacturers Association International, told attendees at the joint meeting of the Association of Steel Distributors and Association of Women in the Metal Industries to expect a lot of the same on the political and economic front in the coming months.

Major short-term changes to the economy and policy under the new presidential administration are not likely to materialize. The nature of our system of government, coupled with the power of bureaucracy and political disagreements, will limit how much the Trump team will accomplish on its stated goals, said FMA Economist Chris Kuehl.

Kuehl was the featured speaker at last month’s Chicago Regional meeting of the Association of Steel Distributors and the Chicago chapter of the Association of Women in the Metal Industries. The issues the Trump team faces are ones met by all new administrations. “The government was designed not to work,” he said.

Kuehl anticipates little movement on some of Trump’s key agenda items, most notably trade and taxation. That includes the ongoing Section 232 debate being undertaken in Washington.

Kuehl said trade conversations are ultimately more about politics than economics. He points to the strong campaign rhetoric against China, where the president promised to peg China as a currency manipulator and stanch many imports from the country.

But after the election, the Chinese government curtailed much of that talk by pointing to its crucial role in keeping North Korea, and its missiles pointed at the U.S., in line. “If you’d like us to control the little pipsqueak who lives over in Pyongyang, shut up about currency, shut up about trade,” he said, relating the Chinese side of the discussion.

A similar situation exists with Section 232. The primary motivator behind the investigation is cheap Chinese steel, but enacting tariffs solely against the Chinese is not workable, so the debate continues on how to enact a bulwark against imports without angering our many allies who sell much of the foreign steel in the U.S.

Tax reform is just as difficult to pull off, because of a lack of basic agreement on the best way to raise revenue. It often boils down to: “I should be taxed less, you should be taxed more,” he said.

The long-proposed Border Adjustment Tax is Exhibit A in the difficulty, and possible fruitlessness, of major changes. The idea to impose a tax on imports, and drop one on exports, as a means of goosing exported goods sounds appealing. However, economists have not been able to figure out how to manage that without raising the value of the dollar. “If you’re doing it to promote exporters, the very fact you do it makes exporting harder, because the dollar goes up,” he said.

Additionally, such a tax has a very powerful opponent – Wal-Mart. The country’s largest employer will fight any measure that raises the price on their goods.

The story is the same for healthcare, which continues to languish in Congress. While the Republican party wants to toss out the American Healthcare Act and replace it with something, there’s very little agreement on what the alternative should be. There may simply be too many factions within the GOP to deliver a bill that is acceptable to all.

Another key issue for the metals supply chain is infrastructure, which faces a challenge that’s somewhat unique to the Trump Administration. Whereas other new presidents arrived in Washington with fully formed transition teams, Trump’s unexpected victory left him scrambling to fill positions. He did so with individuals whose views on government often differed widely from others in the administration. Pro-trade voices such as Gary Cohn and, to a lesser extent Wilbur Ross, are in conflict with Trump himself and Peter Navarro.

Likewise, on the transportation front, Secretary Elaine Chao will be pushing for the strong infrastructure spend Trump campaigned upon. However, Trump’s Office of Management and Budget director is Mick Mulvaney, one of the leaders of the Tea Party movement and perpetually opposed to virtually all types of government spending.

The one area where some pro-business gains can be made is on regulatory reform, but even that is somewhat limited. In many cases there’s little opposition to reform from the bureaucracy, paving the way for some changes. However, some of the rollbacks must be made in the same courts that approved the rules in the first place.

Given all that, Kuehl sees little reason to believe the economy is poised to move much from its current low 2.0 percent growth rate. That’s pretty much where it’s been loitering for most of the recovery.

“The economy is in fairly decent shape, but it doesn’t have a lot of margin for error. It’s growing at a little above 2.0 percent, which is a step above mediocre. Growth of 3-4 percent is probably not realistic. Some fundamental things would have to change, not only here but globally,” he said.

The problem with the current growth rate is its precariousness. There isn’t a lot of wiggle room if things go south.

“This is a really good time for well-run companies, and a bad time for not-well run companies. During the recession, you’re going to get clobbered anyway – 2009 was miserable for everyone. Prior to that was a boom, and any idiot could make money,” he said.

There was one recent announcement from the Trump Administration that attracted little notice, but thrilled both Kuehl and the ASD and AWMI members in attendance. In late June, Trump signed an executive order promoting the development of a nationwide apprenticeship program to help deliver a better-trained class of employees to the manufacturing ranks.

“Manufacturers have continually said, ‘Yes, we’re concerned about regulations, we’re concerned about taxes. But our No. 1 concern is people. We can’t find anyone to hire. If you want to save us from decline, help us to find people to work,’” Kuehl related.

Under the apprenticeship program, modeled after a similar effort in Germany, companies that engage in apprenticeship efforts would be producing certified graduates, a problem under the current standard where employees who finish the program are only treated as certified by the employer who engaged in the training.

“Some of the details need to be worked out, but the government will collaborate with businesses to certify the training programs they’re already doing. If you recruit somebody into your company to work for you, they can walk away with a certification, to market their skills to anyone they want. It becomes an incentive to get people in the program,” Kuehl said.

ASD to Join FMA as Technical Affiliate

The board of directors of the Association of Steel Distributors voted last month to become a technical affiliate of the Fabricators and Manufacturers Association. The decision to invite the ASD into FMA has already been extended to the association, but its full acceptance is pending legal approval.

In 2016, the association entered into a management contract with FMA, though the ASD remained a separate organization. This decision would formally dissolve the 75-year-old ASD, which would then reform as the technical committee.

The move was spearheaded by ASD President Andy Gross, who called the decision “a transformational day for the association. We’ll hitch our wagon to FMA, which will be instrumental in allowing us to continue our mission.”

As with many other trade associations, the ASD’s membership rolls had fallen in recent years, from a high above 170 to about 140 currently.

Even the move to FMA management hadn’t triggered the hoped-for gains in active members. Gross says the digital age, with information previously supplied by trade groups now at every company’s fingertips, had lowered the value proposition of many trade organizations.

The FMA is an exception to that overall trend, with a population of more than 2,500 individual and company members within its group and existing technical affiliate. The appeal of its publications and popular trade shows, led by FABTECH, has left it much stronger financially than the struggling ASD.

Under the technical affiliate structure, ASD will retain its own board, but its finances will be handled by FMA. The ASD group will also be given a seat on the FMA board. The FMA already operates a similar group, the Tube and Pipe Association, for producers and fabricators of welded and seamless pipe and tube.

Affiliation with FMA will give the ASD membership access to the organization’s benefits, which include free attendance at its annual meeting, use of the new building in Elgin, training and certifications and others. For the FMA, the invitation to the ASD broadens its reach in the steel supply chain, giving its existing members greater access to its vendors and sometimes customers.