The Economic Implications of the Trump Tariffs on Manufacturers

Date January 22, 2025
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On November 25, 2024, President-elect Donald Trump announced his intention to impose tariffs on Canada, China, and Mexico. The President-elect stated these tariffs would be one of his first executive orders after being inaugurated, and he would impose a 25% tariff on all imports from Canada and Mexico, and up to a 100% tariff on all imports from China. This article will explain what a tariff is, examine what goods the U.S. imports from Canada, China, and Mexico, discuss the potential effects on manufacturers, and provide options to help manufacturers prepare.

What is a tariff?

A tariff is a tax imposed by a government on imported goods. This tax is paid by the American company importing foreign goods. When a country puts a tariff on an imported good, the intent is to protect domestic industry from international competition for a strategic purpose. The protection of the less competitive domestic industry causes an increase in the cost of that product making the foreign goods more expensive. The increased cost of protecting a domestic industry is paid for by all other consumers and businesses of the importing country.

What goods do the United States import from Canada, China, and Mexico?

Per the U.S. Census Bureau, Canada, China, and Mexico are the United States’ largest trading partners and account for about 40% of all imports. Major imports from Canada include crude oil and natural gas, machinery, lumber, and iron. The U.S. is greatly dependent on Canada to meet our energy needs. Additionally, about 25% of all lumber consumed in U.S. construction is imported from Canada. Major imports from China include electronics (smartphones, laptops, tablets, semiconductors, etc.), toys, and lithium batteries. Almost every single American has a smartphone, but no tech company manufactures them domestically. Major imports from Mexico include vehicles (including parts and equipment), electronics and appliances, crude oil, fruits and vegetables, and beer. Not only does the U.S. import a significant number of cars and trucks (and related parts) from Mexico, but many of the top U.S. automakers have production facilities in Mexico that ship into the U.S.

What will the effects be on manufacturers and how can you prepare?

With nearly half of all U.S. imports being affected, no industry will be immune from the impacts of the tariffs. Transportation, shipping, energy, construction, food, electronics, communications, and many other sectors will be impacted. The tariffs and supply chain restructuring that would follow will lead to many challenges for manufacturers including increased costs on both domestic and foreign goods at all stages of production. Manufacturers should review their supply chains to evaluate direct vulnerabilities to tariffs on imports from these countries. Manufacturers should also consider identifying domestic or alternative foreign suppliers for these goods. If stockpiling goods is an option, manufacturers should consider evaluating the cost/benefit of procuring goods from these countries now before the tariffs are put in place. Alternatively, manufacturers could consider increasing the safety stock of their most critical imported components in case of supply chain disruption or price volatility. To reduce price volatility, manufacturers could consider negotiating long-term contracts with fixed pricing or exploring bulk purchasing options with their suppliers.

The most immediate impact of the tariffs will be cost increases on nearly every good sold in the U.S. which will disrupt production and send ripples through the supply chain. Manufacturers will need to evaluate their options quickly as Trump has pledged that enacting tariffs would be one of his first executive orders upon taking office. This is before considering that Canada, China, and Mexico have all indicated they would retaliate with tariffs against U.S. exports if President-elect Trump followed through on his campaign pledge and recent announcements to impose tariffs. The situation is still developing and there will surely be more to follow.

To discuss the Trump tariffs and strategies for your company, contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.

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Top Manufacturing Challenges in 2025

Date January 22, 2025
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The manufacturing industry in the United States is a critical part of the nation’s economy. This industry is important due to job creation, increasing innovation, and exports. Despite this importance, manufacturers face complex issues, including skilled labor shortages, supply chain issues, technological advancements, new regulations, and changing global conditions.

Talent Shortages and Workforce Development

Manufacturers continue to face skilled labor shortages. Some predict that within the next decade, U.S. manufacturers could require nearly 4 million new team members but struggle to fill those positions due to an expanding talent gap. This is based on the number of baby boomers retiring and a shortage of individuals entering the industry.

Manufacturers will need to address this skills gap, likely with a multi-pronged approach. The first step will be to analyze current team members’ skills. Next, manufacturers must provide training to their team to continuously develop and upskill them. The development of higher-level skills will continue to be necessary. This includes technical, digital, and soft skills. Simultaneously, it will be imperative to implement new recruitment strategies that attract highly skilled team members.

Manufacturers should consider collaborating with high schools, local trade schools, and community colleges on curriculum options as well as internship and apprenticeship programs. This is an outstanding way to develop the talent channel but can also support current team members. For instance, offering current team members training in advanced manufacturing and Industry 4.0 technologies including automation, robotic and digital skills, as well as soft skills like leadership and management training can better prepare the workforce to contribute at a high level. Further, this can not only provide the company with a higher-skilled labor force but can also create a sense of loyalty and pride amongst team members who benefit from the company’s investment in them.
Manufacturers can also benefit from federal and state tax credits and incentives for training and hiring programs. One example is the Work Opportunity Tax Credit (WOTC), which incentivizes employers to hire and employ individuals from certain targeted groups.

For manufacturers looking for assistance, HBK can help. For instance, HBK can help with the federal and state tax credit and incentive programs. In addition, HBK has resources to help explore the competitiveness of a manufacturer’s compensation and benefits package to attract top talent. Another HBK company, HBK High Performance, can implement training in leadership and management to help your team members who could benefit from that training.

Supply Chain Issues

Supply chains will continue to remain complex throughout 2025. Material shortages, increased shipping costs, and geopolitical tensions are expected to persist into 2025. Supply chain disruptions that troubled many businesses during the COVID-19 pandemic have lessened but are still seen. Relying on just-in-time inventory strategies or certain foreign suppliers can cause considerable risk, as a single disruption can cease production and lower related revenue. That, coupled with the potential of looming tariffs, will continue to affect the supply chain. Also, the talent gap in the United States is not unique to the United States. Many other countries are experiencing the same issue, which can cause further delays and complications.

Manufacturers have been rethinking strategies related to their supply chain. Shipping delays related to the Longshoremen’s strike and labor shortages in the trucking industry will continue to plague the supply chain. Near-shoring and reshoring are items to options that may lessen the impact of some of these issues.

Technologies like artificial Intelligence, automation, robotics, and digital tools are becoming increasingly important to predict, analyze, and manage these challenges. This allows manufacturers to streamline their supply chain operations in real-time. Certain ERP systems can incorporate these technologies or provide other data to support inventory management and supply chain initiatives. Vertilocity, an HBK sister company, can help manufacturers with their ERP system and data analysis tools that can help you with these issues. HBK Manufacturing Solutions can also support forecasting and analysis needs.

Technological Advancements

There are many areas in which technology will affect manufacturing. Smart manufacturing, cybersecurity, the Internet of Things (IOT), and others will continue to be important to the manufacturing industry.

While technology will continue to play a critical role, it is not a magic bullet; instead, technology should be viewed as one of the critical tools necessary for transformation and growth. Manufacturers who embrace technology solutions will be better equipped to stay ahead of their competition.

However, as mentioned, technology alone will not solve the issues that manufacturers face. The human component continues to be important. Upskilling employees to better work with technology along with establishing a continuous improvement culture will determine how well manufacturers can thrive and meet the requirements of the future. Emphasizing the human element in leveraging technology and the strengths of the organization will help create opportunities for the team. The confluence of innovative technologies, skilled labor, and a forward-thinking strategy is what will allow manufacturers to flourish in 2025 and beyond. Those who can harness these elements effectively will be the ones leading the next phase of the manufacturing revolution.

As mentioned, Vertilocity can help with technology implementation including breaking down data silos, adopting cybersecurity processes, and implementing ERP software. Deploying the most recent innovative technologies is not always as effective as implementing high value pieces that align with your business strategy. This strategy will come from integrated programs that work together rather than single-point solutions.

New Regulations and Changing Global Conditions

The regulatory standards for manufacturers are constantly changing. Adhering to anticipated changes to tax laws, tariffs, and trade policies is becoming complex. Regulations are rapidly evolving. One must look no further than the recent changes with the Corporate Transparency Act to see this. Complying with regulatory requirements is a challenge for small to mid-sized manufacturers that do not have internal compliance teams.

The President-elect has discussed new global trade policies. Other countries have seen governmental changeover in the past year. Countries around the world are experiencing leadership changes and restructuring. The current U.S.-China trade frictions could intensify as a result of the proposed tariffs by the new administration. This would increase the cost of materials for manufacturers. As a result, some manufacturers both domestic and abroad are ordering supplies and materials currently to avoid possible price hikes later.

Conclusion

Manufacturers will face challenges in 2025 and beyond. Addressing work force development, supply chain resilience, innovative technologies and forward-thinking strategies will certainly help manufacturers to succeed. Manufacturers who address these elements effectively and efficiently will be the ones leading the next phase of the manufacturing revolution, or Industry 4.0. With our experienced insights and innovative strategies, HBK Manufacturing Solutions can assist manufacturers to overcome challenges and become the manufacturer of the future. To contact a member of HBK Manufacturing Solutions or one of the companies noted, please contact us at 330-758-8613 or manufacturing@hbkcpa.com.

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What to Expect for the Cannabis Industry in 2025 Under the New Administration

Date December 16, 2024
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The cannabis industry can expect significant changes in 2025 with the new administration, bringing a mix of potential opportunities and challenges. During his presidential campaign, Trump expressed support for states’ rights in deciding the issue of legalization. He indicated that states with legalized cannabis—whether recreational or medical—would not face federal intervention. However, he has historically not advocated for nationwide legalization. Since cannabis reform is not specifically addressed in Project 2025, it may not be a high-priority initiative.

On May 21, 2024, under the Biden Administration, the Department of Justice published a Notice of Proposed Rulemaking (NPRM) to transfer marijuana from Schedule I of the Controlled Substances Act (CSA) to Schedule III. This step aligns with the Department of Health and Human Services’ (HHS) position that marijuana has a currently accepted medical use, a lower potential for abuse than Schedule I and II substances, and that its abuse may lead to moderate or low physical dependence or high psychological dependence.

Reclassifying cannabis to Schedule III could expand access to banking, insurance, and other services for cannabis businesses. It may also ease the financial burden of IRS Code Section 280E, which prohibits cannabis companies from taking standard business deductions due to marijuana’s current Schedule I status. Businesses could see reduced tax burdens and more opportunities to reinvest in growth and innovation.

Trump has also shown support for the SAFE Banking Act, which would provide cannabis businesses with much-needed access to financial services. This could reduce the risks associated with cash-only operations and pave the way for more affordable lending options.

State-Level Reforms on the Rise

Support for states’ rights to pass marijuana laws could lead to broader adoption of legalization measures. Currently, 24 states, two territories, and the District of Columbia have legalized small amounts of cannabis for adult recreational use, according to the National Conference of State Legislatures (NCSL), while medical cannabis is legal in 40 states. Most recently, Delaware, Maryland, Minnesota, Missouri, Ohio, and Rhode Island passed legislation allowing individuals aged 21 or older to possess certain amounts of cannabis.

A consistent federal stance on respecting state-level decisions could encourage more states to legalize, helping create more uniform policies across the country. Additionally, federal reforms could open the door to interstate commerce, allowing businesses to expand their reach and operate more efficiently.

Challenges to Watch

Despite these potential opportunities, challenges remain. The appointment of key officials, such as the Attorney General and DEA leadership, could have a major impact on the pace and direction of cannabis reforms. Trump’s potential nomination of Pam Bondi for Attorney General raises concerns, as she has historically opposed cannabis legalization during her time as Florida’s Attorney General.

The fragmented regulatory landscape among states is another challenge. States like California have mature regulatory systems, while others are still ironing out inconsistencies. Aligning state and federal policies will be crucial for building a cohesive and sustainable national cannabis market.

Looking Ahead to 2025

While the cannabis industry has reasons for optimism, it must remain prepared for potential challenges. Federal reclassification, financial reforms, and state-level expansions could unlock significant growth, but success will depend on the administration’s priorities and how quickly these changes are implemented.

Businesses should stay informed about legislative developments, such as the final rulemaking process for reclassification and updates to the SAFE Banking Act. Advocacy efforts will also play a key role in shaping policies that support the industry’s growth and sustainability.

In summary, 2025 could bring transformative changes to the cannabis industry. By staying adaptable and proactive, businesses can navigate the evolving landscape and position themselves for long-term success.

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What Are Trump’s Plans for Taxes?

Date December 11, 2024
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Now that the November election is over and Trump and the Republicans will have control of the White House and Congress in 2025, what can we expect will happen with taxes? It is important to know that many of the Trump tax cuts from The Tax Cuts and Jobs Act of 2017 (TCJA) are scheduled to expire on January 1, 2026, reverting to the tax law before 2018. The expiration of TCJA may result in significantly higher taxes for many.

We expect Trump to push to extend many of the TCJA tax cuts beyond 2025. But first, let’s see how the legislation works. In order for legislation to be approved in the House, a simple majority vote is required. Republicans won 220 of the 435 House seats, but with certain House members being nominated to Trump administration positions, the number of Republican-held seats may be reduced. A majority vote requires 218 votes to approve any tax legislation.

The Senate is more complicated. Republicans hold 53 of the 100 Senate seats. While a majority vote in the Senate can approve legislation, most Senate decisions require 60 votes to avoid a filibuster. The filibuster is a Senator or group of senators exercising their right to unlimited debate. If pursued in earnest, it can keep a piece of Senate business off the floor indefinitely.

However, tax legislation can avoid a filibuster if it is part of a budget reconciliation bill. Budget reconciliation is a special procedure to expedite the passage of certain federal budget legislation in the Senate. The procedure overrides the Senate’s filibuster rules, limiting debate to 20 hours. Thereafter a simple majority of 51 or 50 votes plus the Vice President’s as the tiebreaker, can pass tax legislation. A reconciliation bill that increases the Federal deficit cannot extend past 10 years. TCJA was passed as a budget reconciliation bill, limited to 10 years.

We expect Trump will attempt to extend many of the TCJA tax cut provisions through a new budget reconciliation bill, though there may be some changes introduced as part of the negotiation process.

Individual Tax Provisions
  • Individual tax rates and brackets: The current top tax rate is 37% for income over $609,350 for single persons and $731,200 for married individuals filing jointly. When TCJA expires in 2026, the top tax rate would be 39.6%. Trump proposes to extend the lower tax rates and make them permanent.
  • Gift and estate tax exemption: For 2024 the gift and estate tax exemption is $13,610,000 and will increase to $13,990,000 in 2025. In 2026 the exemption is scheduled to be cut in half to about $7,200,000. Trump proposes to permanently retain the higher exemptions.
  • Standard deduction: The standard deduction for single persons is $14,600 and $29,200 for married individuals filing jointly. When TCJA expires, the standard deduction would be cut in half. Trump proposes to continue the higher standard deduction.
  • SALT deduction: The $10,000 deduction cap for state and local taxes would be eliminated by the Trump proposal.
  • Interest itemized deductions: Personal interest deductions have been eliminated by TCJA other than home mortgage interest for mortgages up to $750,000. Trump proposes to retain the same mortgage interest deduction and allow interest deductions for loans on cars built in the U.S.
  • Personal exemptions: The personal exemption was eliminated by TCJA. When TCJA expires personal exemptions would be back. If TCJA is extended, the personal exemptions would not be allowed.
  • Child Tax Credit: Today the maximum child credit is $2,000 and part of the credit is refundable. In 2026, the credit would go back to $1,000. Trump proposes to increase the child tax credit to $5,000 with no income limit.
  • 529 Tuition Savings Accounts: Trump proposes to expand qualified education expenses to homeschooling.
  • Social Security: Trump proposes to eliminate income taxes on social security.
  • Tips: Trump proposes to eliminate income tax and social security tax on tips.
  • Overtime pay: Trump proposes to eliminate income tax on overtime pay.
Business Tax Provisions
  • Bonus depreciation: TCJA allowed a 100% deduction for capital investments in new or used qualified property, including machinery, equipment, furnishings, and certain improvements to buildings. The 100% deduction has been phased down each year by 20 percentage points since 2022 and will be zero in 2027. Trump proposes to restore the 100% deduction.
  • Research and development costs: Beginning in 2022, TCJA required R&D expenses to be capitalized and amortized over 5 years. Trump proposes to allow R&D expenses to be fully deductible in the year incurred.
  • Tax on passthrough business income: Under TCJA, individuals, estates, and trusts can deduct up to 20% of qualified business income from passthrough businesses such as partnerships, LLCs S corporations, and proprietorships. Certain limitations apply. The deduction is set to expire in 2026 resulting in a significant increase in the tax on pass-through business income. Trump proposes to make the deduction permanent.
  • Corporate tax rate: TCJA permanently decreased the corporate income tax rate to 21%. Trump proposes to lower the corporate tax rate to 15% for companies that manufacture their products in the U.S.

How Trump plans on paying for these tax cuts will be the subject of much debate. Trump has talked about using tariffs on imported goods to cover the cost of his tax proposals. It will be interesting to see how the politics plays out.

We will keep you informed of developments. Stay tuned!

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