Construction Equipment magazine’s Post

Transcript

We're talking today with Kip Idenburg, Senior Vice President, Government and Industry Relations and Communications for the Association of Equipment Manufacturers. My name is Rod Sutton. We were coming in right after the election. Donald Trump is our president-elect and we're also coming in right after a EM's annual conference, which you folks held right after the election. So just following up on the conference, is there a sense that you can give me for what your members? Feeling about the incoming administration, specifically in regards to equipment manufacturing and the construction industry. Yeah, great question, Ron. I think it's, it's like any administration, whether it's an incoming administration or a returning administration, there's going to be a, you know, a few challenges and a few opportunities facing the the industry. And you know, we are hopeful that we're going to have to have a, you know, going to have a constructive working relationship with the new administration on rolling back some of the many regulations that are making it just a little bit more difficult to manufacture equipment in the United States. So that's certainly a, a positive or in the, you know, negatives or, or cause for concern, let's call it obviously tariffs. And there's been no shortage of announcements from, from the president-elect and, and some of the folks on his transition team and, and folks on Capitol Hill who are close with him that they are going to leverage tariffs, you know, as a, as a negotiating tactic, perhaps as a way of offsetting some costs, raising revenue for the US Treasury. That's a concern. Tariffs are taxes, their taxes on American businesses, their taxes on American consumers. They're going to make us less competitive and they are inflationary by nature. So cost for concern. And then you know, there's there's some that third bucket. Perhaps there's there's some unknowns, right. We stole the new president is going to have to preside over renegotiating USMC A or Kuzma as our friends to the north call it another highway reauthorization. And so no shortage of opportunities there for the president-elect and let's let's hope that he seizes. Those opportunities and turned them into wins for the industry is do you have any feel for whether or not this tariff thing is is actually gonna go through? Do you have a take of what will actually happen? If I did, I'd make a fortune on the stock market. Not to be coy about it, Rob, but I, I don't think anyone can say with any authority that they know what the president-elect is going to do. Ultimately, it's going to come down to what the president decides he wants to do. There's no doubt that he has talked about, you know, a 10% blanket tariffs on all imports. That's obviously cost for concern. He's talked about, you know, an additional 20 to 40 to maybe even 60% tariff on imports from China. That's concerned. He's talked about perhaps additional tariffs on imports from Mexico. That's a concern and so. Obviously the threat of tariffs is, I think it's part of his strategy, right? He wants to signal to our allies, trading partners and some of our competitors primarily, that he's serious about addressing what he sees as unfair practices. And so we should expect that very least we, we as an industry need to have the intestinal fortitude. To to weather. A steady stream of proclamations, threats and announcements on. At least the idea of tariffs in union. And of course, as we all know having lived through the trade wars of 20/17/2018, this will lead to retaliatory tariffs from our competitors, our our trading partners and our allies. They are not going to just take this laying down. So now all of a sudden American exports will be less competitive, supply chains will be strained. It will be chaotic. So I, I would, I would caution. Everyone to be patient, to listen carefully to what the president says, to to expect the unexpected, but to at least be prepared for some tariffs in some form. What would tariffs do to the pricing for new equipment and replacement parts, again, given the fact that the market is a a global market? Well, so, so last time you know, we, we have some some very robust data from the last go around, right. So 20/17/2018 you know, it became more expensive to manufacture equipment in the United States. Now OEM's did what they always do is that they balance that increased cost of production by absorbing some and passing some of it down to the to the customers. That's just the reality of, of how you deal with rising costs, uh, whether they are as a result of tariffs or, or other factors, right? So if the president, and again, it's a big caveat here that we, we really don't know yet what he's going to do, what imports he will target, you know, by how much. But what he's talked about would be far beyond what we saw back in 2017 with 25% tariffs. He's talking about, as I said earlier, up to 60% from some. Some markets right so that obviously then would would stand to reason that cost would go up and they would go up even more likely than they did in 2017. So equipment would be more expensive to make here in the US. So if I'm you know, if I'm a fleet manager, you know, fleet operator, contractor and yes and OEM. Tariffs will mean increased costs from a whole goods perspective. Is it fair to say that prices if, if the tariffs go through that prices will increase in line with the amount of the tariff? You cannot say a 10% tariff would not necessarily mean a 10% increase in cost of, of, of anyone type of equipment. It's a little bit more complicated than that. Good news, I suppose, right, for the fleet managers, operators, contractors is that, you know, the cost wouldn't go up quite that much, but the cost would go up. I mean it's. You know, and, and, and frankly, you know, it's tariffs are also inflationary. So they've already seen like 30% increases in the cost of new equipment since the pandemic. A tariff would add to that inflationary pressure. Now we've got this this I JA funding pool that is out there. It seems to me that if we continue to inflate the cost of equipment, you're going to deflate the effect of that federal funding. Spending what? What's your take on that? I think you're, you're spot on there, right? I mean the. Every for every, every tax increase that is put in place, whether it's a traditional tech tax increase or, you know, comes in the form of a tariff, the purchasing power, the spending power of the IGA is going down. So that makes those infrastructure projects more expensive. And it's not just the equipment prices that go up, but you know, input prices too, right? And you know, we've, we've seen that across the board for infrastructure projects, they've just gotten more expensive, which means that we're getting less. Out of the AIJA or you know, if it is a partially funded through the states, partially funded through the federal government in the form of grants. You know, some states are holding off on these projects because by the time they started planning for them at the time, you know that when it's time to actually kick them off, no, things have gotten more expensive. So all of a sudden they out they may not have, you know, all the funding that they thought they did. And so it is absolutely taking a little bit of the wind out of the sails of the IGA, but yes. IGA what will the value of that will will will deflate 100%. And so that's a concern. What's your sense on the new administrations desire to continue funding at at you know the levels that we've seen you know, as much as he may be loath to recognize. A good legislative accomplishment on behalf of his predecessor. The implementation will take place under his watch and there will be no shortage of ribbon cuttings and groundbreakings for him and his administration to attend to. And that's always appealing, right to any politician. The IRA, The inflation. Excuse me, Reduction Act, there's been talk about rolling back some of those provisions, but as we've seen the business community. Is in many instances fully behind those provisions. There's been a there's quite a lot of money in the IRA for electrification investment in in the infrastructure, you know strengthening, hardening our grid, supporting new new technology in terms of you know how you power equipment be electrical, hydrogen, hybrid money for a lot of good opportunities for the industry that. Not just our industry, but across the board have taken advantage of our taking advantage of benefiting from. And so I, I, I, I suppose I'm a little less worried about that when push comes to shove than I am about the tariffs, just the, the inflationary pressure that will come from them. And then the best we talked about, right, the squeezing every dollar out of the IJA because there's a lot of money left on the table there that still has to be dispersed. And, and those projects are, they're creating jobs. God, they're helping. They're helping your readers, right? They're helping our industry. They're helping us as a country. We need, we need more efficient. Reliable infrastructure, safer infrastructure, we need more of it. So opportunities. I think the other thing that I would watch if I were, you know, part of the construction industry, no matter, you know, whether you're, you know, a contractor, fleet manager, an OEM, it's the, the upcoming renegotiations of of USMC A which has to kick off in earnest in 2026, what's slated for renewal in 2026. I think how that unfolds. Is going to be hugely impactful on our industry. I mean the Canadian market is our is, is critical to our industry. It's our most important market. Obviously we've seen more production as part of that, you know, onshoring, nearshoring. That we got started under during the pandemic and you know, we've seen companies move supply chains, move production to Mexico, which is, you know, that's part of USMC, a right to be simple, we have that agreement is so that we can treat the North American market as one market. So that's all good for the industry now. Are there changes that could, should be made? Yes. Are there improvements to the agreement? Absolutely. So, you know, will the president-elect just just blow it all up? Or is he willing to take a more methodical approach where his team will, you know, sit down with our friends in Mexico and in Canada and and start to sort of chipping away at the margins, tweaking it, making it a little bit better. And that is something that I would watch for sure.