With a new presidential administration in the White House, there are – and will continue to be – changes made and regulations that shift the economy. The Trump administration took an “America First” stance manifested by tough protectionist trade policies and tariffs on China, as well as lowering the top corporate tax rate in effort to repatriate American dollars. Ideologically, the Biden administration is very different. How they plan to spend, regulate, and tax may be worlds apart, but the effect on consumers and businesses may end up netting similar outcomes.
As we examine the new administration and their policies, it may give some insight into the direction of the economy in several areas, from taxes to manufacturing. Having an idea of what is to come will allow you to make more informed decisions as you forecast and plan for 2021 and beyond.
Many corporations are already bracing for higher corporate tax bills, due to hints Biden made on the campaign trail. There is some uncertainty as to if and when any tax increase might occur.
Here’s what we know:
- Biden wants to raise the corporate rate from 21% to 28%.
- Changes to the tax rate must pass through the Congress – which is split – with Republicans controlling the Senate and Democrats controlling the House. The midterm elections in 2022 may complicate or upset this balance.
An increase in the corporate tax rate may affect your bottom line and many of your future business decisions as you seek to control expenses. Much of the uncertainty hinges on the midterm elections in November 2022. Here’s what to watch for:
Before the elections:
- House Democrats may try to push a tax increase bill through if they can get enough Senate Republican support. That bill would then be signed by President Biden.
After the elections, there are two scenarios that could play out:
- Democrats retain their House majority and gain a majority in the Senate. A corporate tax increase would most likely follow.
- Republicans gain control of the House and retain their Senate majority. Any corporate tax increase proposed by Democrats would not pass.
On the campaign trail, Biden said he is open to signing multilateral trade agreements. But tariffs aren’t likely to disappear, according to retail trade groups. “Biden will strike a more constructive tone on trade, but in effect he won’t be that dissimilar to Trump,” said David French, head of government relations for the National Retail Federation.1 While President Trump had a unilateral approach to tariffs and trade policies, President Biden will most likely seek a coalition or multilateral approach.
Trade With China
In 2020, the Trump team set in place the first phase of a trade deal with China, which could be lucrative in terms of China’s ambitious purchase commitments. The Biden administration will need to decide how firmly they want to enforce that trade deal moving forward.
- Tariff relief. According to the Wall Street Journal, in the first phase of the trade deal, the U.S. committed to cut the tariff rate in half from 15% to 7.5% on roughly $120 billion in Chinese products.2 This means that some Chinese imports used in furniture could be cheaper.
- Currency measures. As China devalues its currency, the yuan relative to the U.S. dollar is cheaper making Chinese goods a less expensive option for international consumers. To counter this imbalance, the U.S. included currency manipulation restrictions in the trade deal to help U.S. business internationally.
- Buying American products. Beijing committed to ramp up the purchase of U.S. goods and services by at least $200 billion over the next two years, which includes $123 billion of “manufactured goods.” This is good for U.S. furniture manufacturers and retailers who export to China.
What Are “Manufactured Goods?”
According to Trump’s trade deal, “manufactured goods” include a variety of materials and machinery for furniture manufacturing. The list includes. but is not limited to:
- Weaving looms
- Machinery for preparing, tanning, or working hides and/or skins
- Particle board. fiberboard, and plywood
- Tableware and kitchenware made of wood3
Your furniture manufacturing supply chain may include some of these items. So how does this impact your company on a micro level? The following implications show how some retailers are dealing with tariffs.
Some furniture stores have had to change their entire manufacturing process. Mark Schumacher, executive vice president of the Home Furnishings Association, said, “Every retailer is different, but one thing that’s true for all of them is they can’t pivot on a dime when it comes to what they have available in their warehouses.”4
Trendler, Inc., a Chicago-based manufacturer of chairs, barstools, and furniture parts, shifted their entire business model. As they expanded their product line from components and parts to chairs and barstools, they maintained a manufacturing presence while implementing a hybrid business model. Most of their products are built in their Chicago facility, with less than 30% of parts and components coming from oversees. With this model, Trendler provides its customers with reliable, quality furniture that comes with predictable lead times, competitive pricing, and superior service.5
In his first days in office, President Biden signed several executive orders (EO) to help boost American manufacturing. The most notable, EO 14005 Executive Order on Ensuring the Future is Made in All of America by All of America’s Workers, ensures the federal government purchases more materials from American manufacturers by closing loopholes and making it harder for companies to receive waivers for foreign-made goods.6
President Biden also recently unveiled a $2 trillion plan for economic recovery and infrastructure.7 As part of that plan, $580 billion is earmarked for American manufacturing, research and development, and job training efforts. These combined actions show his resolve to invest in American business and could pave the way for more “America First”- type policies in terms of regulation, grants, tax breaks and subsidies to maintain American manufacturing, supply chains and jobs.8
On the campaign trail, Biden set climate and labor issues as a high priority of his administration. Regulations and executive orders could pave the way for more environmentally friendly, socially conscious, pro-Union workplaces for employees. Here’s what it means for business.
Many large retailers have been raising hourly wages in recent years, but increasing the federal minimum wage to $15 an hour as President Biden suggests, would add costs for some large chains and many smaller retailers.9
On his first day in office, President Biden issued an EO to rejoin the Paris Climate Accord, an initiative with the goal of net-zero emissions. Businesses must take swift action on climate and sustainability if they wish to survive in the future.
According to the Harvard Business Review, here are some other implications for business leaders.10
- Climate regulation is coming. U.S. firms will be best positioned to thrive if they integrate science-based emission reduction targets aligned with limiting global warming into their strategies.
- Delayed action is a business risk. Any business that is not already working on climate initiatives will begin to lose market share and miss out on an opportunity to grow and innovate.
- Investors will favor businesses taking climate actions. Many investors are already acting by moving their portfolios away from high-polluting companies.
- Corporate disclosure on climate risk and emissions will become mandatory. Companies can begin evaluating, managing, and reducing these risks to stay ahead of the curve by following the recommendations of the Taskforce on Climate Related Financial Disclosure.
- Climate penalties are in the works. Companies should begin looking internally to start identifying the parts of the business that may incur the greatest risk and adjust accordingly.
The financial policies of the new administration may have more immediate impacts on the consumer side. Credit lenders and financing institutions are bracing for more fines and enforcement as the Biden administration has signaled a more aggressive role in the Consumer Financial Protection Bureau (CFPB).
The administration’s new director of the CFPB, Rohit Chopra, may tighten regulation and consumer protection laws to allow consumers greater access to financing options.11 “You will see some pretty big changes pretty quickly, both on the enforcement and rule-making side,” said Dennis Kelleher, chief executive at Better Markets, an advocacy group that lobbies for tighter financial regulations. “It’s one of the very few places where you could easily see a 180-degree turn.”12
These and other government actions could allow greater access to credit and financing for consumers to spend in your stores. With more cash and consumer-friendly options available, consumers looking to leverage some of their stimulus money with financing can buy a bigger kitchen set or mattress than they could otherwise.
New presidential administrations bring changes, some through executive orders and others through policy and legislation. How those changes affect American business largely depends on how proactive and agile a business is. It requires an awareness of what is happening in Washington and how that reverberates on Wall Street and Main Street. Hopefully, the ideas laid out here will provide an outline of things to watch for and plan accordingly. And any resulting changes will allow your business grow stronger and better than ever before.
About the Author: Matthew Mack is a Senior Marketing SEO Content Writer for Snap Finance and is a contributor to Furniture World Magazine, and AutoLink Magazine. To connect with Matt, visit www.linkedin.com/in/matthewdmack
About Snap Finance: Innovating the fintech industry, Snap Finance helps furniture retailers reach their full sales potential by offering credit-challenged customers flexible financing solutions. Interested in learning how Snap can help increase sales by reaching an underserved customer base? Contact Snap at 866-871-0311 or visit snapfinance.com
1Kapner, S. (2020, Nov 8). What Bidens win means for business. Wall Street Journal.
2Davis, B. Wei, L. (2020, Jan 13). How the US and China settled on a trade deal neither wanted. WSJ.
3Economic and Trade Agreement Between the Government of the United States and the Government of the People’s Republic of China. Office of the United States Trade Representative. 15 Jan. 2020. https://ustr.gov/sites/default/files/files/agreements/phase%20one%20agreement/Economic_And_Trade_Agreement_Between_The_United_States_And_China_Text.pdf
4Uhler. A. (2019, Nov 19). Trade war tariffs now truly part of the furniture. Marketplace.org
5Gresser, S. (2019). The economic impact of tariffs on the furniture industry. Trendler.com
6Secard, R. (2021 Jan 26) Biden’s first orders and what they mean for US Manufacturing. Industry week.
7Pramuk, J. (2021, Mar 31). President Biden unveils his $2 trillion infrastructure plan – here are the details. CNBC. https://www.cnbc.com/2021/03/31/biden-infrastructure-plan-includes-corporate-tax-hike-transportation-spending.html
8Colvin, G. (2020, Nov 7) What a Biden administration means for business. Fortune.
9Kapner, S. (2020, Nov 8). What Bidens win means for business. Wall Street Journal.
10Mendiluce, M. (2021, Mar 3) What Biden’s sustainability agenda means for business. HBR. https://hbr.org/2021/03/what-bidens-sustainability-agenda-means-for-business
11Nunez, A. (2021, Jan 21). What the Biden administration could mean for financial policy, consumer spending, and small business. Business Insider.
12McCaffrey, O., Andriotis, A. (2020, Oct 21). Financial firms gear up for Biden and an emboldened consumer watchdog. WSJ.
Furniture Industry News and in depth magazine articles for the furniture retail, furniture manufacturers, and furniture distributors.
Read other articles by Matthew Mack