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The State of the Manufacturing Industry Today

May 24, 2018

Now that we’re well into the second quarter of the year, what does the remainder of 2018 and beyond hold for the manufacturing industry? Recent changes under the Tax Cuts and Jobs Act will certainly shake things up, as well as cybersecurity issues and more. Read on.

Recent developments on issues like tax reform, trade renegotiations and data breaches have trickled down to private businesses — and evolved into some of the leading concerns from the manufacturing trenches today.

Federal Taxes and Regulations

Manufacturing trade organizations generally support lower tax rates, simpler tax rules and fewer federal regulations. Although most business owners are optimistic about the progress made in these areas, uncertainty persists.

Specifically, manufacturers are still unsure exactly how the Tax Cuts and Jobs Act (TCJA) will ultimately affect them starting in 2018. The new law is nearly 500 pages and contains some provisions that may be unfavorable to certain businesses. Congress is expected to issue technical corrections, and the IRS promises to issue technical guidance to explain some of the more complicated aspects of the new law.

Once manufacturers figure out how much they’ll save on the new law, management faces a tough decision: How do we spend the incremental cash flow? The three most popular options are increasing capital spending (64.7%), expanding the business (64.3%) and hiring more workers (57.3%), according to a 2017 survey by the National Association of Manufacturers (NAM).

Trade Agreements and Tariffs

Global supply chains are another source of uncertainty as the United States renegotiates major trade agreements with countries in North America, Europe and Asia. President Trump also signed presidential proclamations imposing tariffs of 25% on imported steel and 10% on imported aluminum, initially intended to be effective on March 23. The imposition of these tariffs has since been postponed.

International trade negotiations require finesse. These tariffs have prompted angry responses from U.S. allies. Some analysts fear national protectionism could adversely affect U.S. businesses in foreign markets.

Manufacturers need to consider political tensions when selling products overseas and ordering materials or outsourcing from other countries. Cost increases and shipping delays could negatively impact profits, so it’s always prudent to have a domestic back-up plan for your supply chain needs.

Cybersecurity

Though data breaches tend to strike the service and retail sectors, manufacturers aren’t immune to cyberattacks. In fact, some hackers specifically target supply chain partners with weak security to access end-user data. For example, the breach against Target allegedly was achieved by hacking into data held by a subcontractor.

Manufacturers need to safeguard their systems to minimize the cyber risk for themselves and their supply chain partners. Examples of ways to beef up security include: 1) ongoing employee training, 2) formal policies for password resets, bring-your-own devices and asset disposal, and 3) formal breach response procedures.

What Matters to You?

Our professionals specialize in providing accounting, tax and consulting services for the manufacturing industry. Every spring, KLR conducts its Manufacturing Industry Outlook Report to gauge the concerns of owners and executives. Contact us for the latest survey results or to participate in our 2018 survey.

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