Reading the US regulatory tea leaves
A short guide for North American Manufacturers on the current and potential regulatory changes
** Our internal interactive regulatory tool is now available for free use here
The Manufacturing industry accounts for nearly $3T (10%+) of US GDP and employs more than 15 Million people in North America. With this size and importance to the US economy, it’s no wonder that a significant amount of policy and regulation directly impacts the manufacturing industry. US manufacturing has received bipartisan support, but translating this stance into policy has been difficult, creating confusion and concern for manufacturers.
In the latest 2024 NAM Manufacturing survey, the majority of the top concerns listed by manufacturers of all sizes were related to regulation and policy changes. We’ve been researching how current and upcoming regulation will impact the manufacturing sector - brought us to 4 main areas of highest impact:
Tax
Tariffs
Environmental regulations
Infrastructure spending
This article provides a high level overview of major forces in these 4 areas and how manufacturers can map the potential impact to their business, with resources for further exploration
Tax Policy
“Taxation” is a general topic, and manufacturers as capital intensive businesses can benefit disproportionately from leveraging a robust tax strategy. We break this into two parts:
Broader Corporate tax rates
Specific legislation e.g. TCJA (Tax cuts and Jobs Act) set to expire in 2025
What this means for manufacturers
Corporate tax rates: The TCJA reduced corporate tax rates from 35% to 21%, and the 21% rate is currently not set to expire (will require additional action by the next government)
Pass-through income deduction: allows pass-through businesses (sole proprietorship, S-corp, partnerships) to deduct 20% of income, favoring small business owners and family-owned manufacturers. This is set to expire in 2025.
R&D accelerated depreciation: TCJA allowed businesses to deduct full R&D expense in year 1 vs. a 5-year depreciation schedule, which effectively made R&D spending cheaper. This began to phase out in 2023 and will complete phase out by 2027
In isolation, these policies indicate that R&D investment may become less favorable and smaller businesses will benefit less from a direct tax break. There has not been clear indication on what new policy may be released as of yet.
Tariffs
Manufacturers find themselves exposed to increasing supply chain volatility due to the global nature of supply chains and instability in the last few years resulting from COVID, regional conflicts, and changes in US international trade stance.
Unfortunately it’s difficult to isolate the effects of Tariffs from these other factors (others have tried, we will not in this article), but we can state that the 2016 administration took up a more aggressive set of tariffs which was largely continued by the 2020 administration, particularly in trading with China where significant international subsidies are at play.
What this means for manufacturers
Immediate impacts:
Expect pricing impact on inputs from specific countries or product categories
Re-evaluate inventory for critical items, pulling up orders before additional policy
Longer-term impacts:
Re-evaluate product mix and procurement based on new cost structures
Shifts in competitive landscape as international competitors change focus
Potential for retaliatory tariffs for manufacturers selling internationally
Environmental Regulation
Background
Environmental regulation has traditionally hit the industry by increasing regulatory burden on manufacturers via reporting requirements, and shifting product mix with requirements to use more environmentally friendly materials.
While less widespread than infrastructure acts, steady implementation of environmental regulation has been impacting the HVAC and construction industry:
EPA HVAC Refrigerant regulation: Updating in Jan 2025 as part of the AIM act, this will require a shift to next generation materials that do not use HFCs like the common (R-410A)
“Buy clean concrete” act (NYC State) enacted in 2023, institutes reporting requirements on CO2 usage for concrete in State construction projects
What this means for manufacturers
Additional environmental regulation and oversight come with a tradeoff of higher administrative burden and operational complexities to maintain compliance. In the concrete example above, there is an additional requirement for products to have an Environmental Product Declaration (EPD) requirement that discloses the global warming potential (GWP) in kgCO2 of the materials used.
For manufacturers who have been prioritizing environmentally-friendly products, this poses an opportunity to enhance pricing power and grab share while the market catches up (e.g. grabbing share with clean refrigerants product). The flipside is also true where investments in environmentally compliant products can become obsolete once regulation is repealed.
Infrastructure Spending
Background
The past 4 years has seen a significant investment by the government into infrastructure through the Inflation Reduction Act (IRA), IIJA, and CHIPS act. Given a typical lag from policy announcement to implementation, we are just now seeing this investment hit projects.
In particular, these acts passed since 2021 have focused on incentivizing the development of US clean energy infrastructure, bipartisan infrastructure development, and advanced chips manufacturing:
Bipartisan Infrastructure Act (IIJA): Launched in 2021 to bipartisan support, invested in financing, credits and direct grants for american advanced manufacturing and energy
$3B battery recycling and manufacturing grant through 2026
$750M advanced energy manufacturing
Various 8-figure R&D grants and incentives programs
Inflation Reduction Act (IRA): Investing in clean and environmentally friendly infrastructure (passed 2022)
$40B loan authority for building clean infra
Advanced manufacturing production credit for domestic manufacturing of solar, windmills, batteries and critical minerals processing
$250M in domestic heat pump manufacturing
$2B in loans for Critical electric transmission infrastructure
CHIPS Act: Investing in domestic semiconductor manufacturing
$39B in manufacturing incentives
Micron, Intel, TSM already announcing $25B+ manufacturing investments domestically which will ripple through the manufacturing supply chain
What this means for manufacturers
The CHIPS act and IRA are both still in early stages, with deployment of funding just now starting to hit the mega-projects. Savvy manufacturers can track the various incentives and programs they could qualify for and identify the impacts of this stimulus in their existing / future customer base.
Given these acts are still in deployment, the next administration may choose to modify or discontinue this stimulus in favor of other mechanisms (e.g. tax policy), but domestic manufacturing in America has received bipartisan support. Given Bipartisan support for the IIJA it’s less likely that changes will occur to that program.
An interesting thread has been the allocation of this funding towards repair vs. new infrastructure projects - given the state of infrastructure, repair will be a large needed component in the next few years. However repair work is primarily non union, which may create friction for Federal funding allocation that has traditionally been union based (see 2023 regulation around PLAs and union work).
Conclusion
We’ve only touched the surface of a very deep topic to provide a framework for manufacturers to assess the impact of current and upcoming regulation to their business.
We’ve released an internal tool we used to navigate thousands of pages of documents for public use in exploring regulation by state and industry, to help manufacturers quickly identify the relevant regulation for their business.
View the free tool here (beta)
You can also follow us as we publish further write ups on these topics here