The Association of Equipment Manufacturers (AEM) and the Equipment Dealers Association (EDA) partnered to survey their respective members on the implications of the Tax Cuts and Jobs Act enacted in December 2017 and President Trump’s recent implementation of steel and aluminum tariffs. We wanted to understand the actual or anticipated impact of these two developments, if any, on member businesses, the equipment industry and the U.S. economy as a whole.
Predictably, dealers and manufacturers were generally in agreement on their perceptions of the new Tax Cuts and Jobs Act. The survey identified eight provisions of the new tax code and asked respondents to rank them from the most beneficial to the least beneficial for their company’s respective operations. The consensus from both groups of survey takers was that the two most beneficial provisions were (1) the lower corporate tax rate and (2) the favorable expensing provisions for new and used equipment. When asked if there were any troubling components of Tax Cuts and Jobs Act, survey takers uniformly agreed that there were no provisions which they believed were negatively impacting their businesses. It is worth noting that, despite a generally positive perception of the Act, several dealers commented that it was simply “too soon to tell,” if there were any negative components of the new tax law for their businesses.
As for tariffs, survey respondents were asked whether President Trump’s tariffs on aluminum and steel were likely to a) negatively impact the sale of new equipment in 2018 and b) impact the economy as a whole. Dealers and manufacturers uniformly agreed that the tariffs will have a negative impact on the sale of machinery in 2018. Comments included:
- “We’re already hearing from customers who will delay or cancel purchase decisions due to higher prices.”
- “If farm income was higher, may not impact. Unfortunately that is not the case.”
- “Higher equipment prices will curb sales.”
- “Already seeing price increases from almost all manufacturers.”
While manufacturers and dealers agreed on the impact the tariffs would have on equipment sales in 2018, there were substantial differences in opinions related to the affect tariffs would have on the U.S. economy as whole. Only 45.5% of dealers said that the tariffs would negatively impact the economy as compared to 61.9% of manufacturers who said the same.
Manufacturer participants commented that “input costs are rising rapidly for manufacturers at a time when farm income is low. Retaliation tariffs on ag will not help,” and “our customers will pay higher prices as a result of the tariffs.” Conversely, several dealers commented that “I can see it helping the overall economy but hurting the ag sector.”
Another facet of the Tax Cuts and Jobs Act that has been of particular interest to the equipment industry is Section 179. The survey asked ‘what impact on the purchase of equipment do you expect the expansion of the deduction limit of Section 179 and the 100% bonus depreciation to have?’ Generally, dealers and manufacturers agrees that the impact would be minimal (less than 5%) but we do find that some manufacturers think that a 5-10% impact is more likely than no impact at all.
All things considered, dealers and manufacturers are on the “same page” when it comes their opinions on the Tax Cuts and Jobs Act and President Trump’s steel and aluminum tariffs. Many expressed that there may be varying short term and long term consequences and that it’s difficult to judge the impact of such major policy changes so quickly. It will be interesting to contact these groups again in 2019 to assess whether or not their impressions of these initiatives have changed.