Mold makers brace for tariff talks, Chinese competition, R&D fix, heat rules

GRAND RAPIDS, Mich.—The American Mold Builders Association successfully fought to replace tariffs on Chinese imports and is preparing for another political battle.

U.S. President Joe Biden is under pressure to lift some or all of the trade provisions, which include Section 232 tariffs of 25 percent on certain steel and 10 percent tariff on aluminum as well as Section 301 tariffs of 25 percent on thousands of products imported from China since July 2018.

AMBA members filed 60 of the 1,497 comments made to the U.S. Trade Representative, which is reviewing the issue, but more action will be needed this summer related to exclusions, according to AMBA lobbyist Omar Nashashibi, a founding partner at Franklin Partnership L.L.C., a bipartisan government relations and lobbying firm based in Washington.

Nashashibi spoke at AMBA's annual conference, held May 10-12 in Grand Rapids.

"The U.S. government could, with a stroke of a pen, remove all those tariffs and allow the flood to come in," Nashashibi said. "What we heard from you all is that the molds, dies and tooling is already underpriced by China probably 40-60 percent. So, 25 percent doesn't even get you whole, but it does help."

The timeline will unfold in a couple of stages with an announcement on the exclusion process coming in August or September.

"We're hearing from around town in D.C. that by the end of the year, likely in December, they will have a firm policy in place for exclusions, for which products have tariffs lifted," Nashashibi said. "If they were to lift the tariffs of 25 percent that are protecting many of your businesses now, it wouldn't be overnight. They'd give you a few months and likely would align it with Jan. 1, 2024. We're doing everything we can to prevent that."

AMBA members should be ready to contact federal officials again.

"This summer, we might look at a pressure campaign. Maybe in the September time frame or so when Congress comes back to really mobilize some folks out there with regard to making sure the tariffs remain in place. This is our top priority," Nashashibi said.

He and his staff have been talking with the White House.

"I think a lot of it will come down to what politics align and where are the pressure points in the economy at the time Biden makes a decision," Nashashibi said. "From our understanding, he was ready to go last July. Once he went to Taiwan, things got more complicated, and he put off a final decision."

Nashashibi expects Congress to pass a bipartisan bill to curb Chinese competition by restricting investments and cutting off any joint ventures or other business activity that would allow them to expand in certain technological areas. The goal is to build on last year's bill to increase computer chip production with $52 billion in manufacturing incentives and semiconductor research.

The new legislation will focus on limiting U.S. technology and capital from going to Chinese companies, preventing China from buying U.S. farmland, and giving the Biden administration more authority to potentially restrict foreign-made computer apps. The bill also will try to deter the Chinese government from engaging in conflict with Taiwan.

"Washington sees China as a threat," Nashashibi said, also pointing to China's grip on the electric vehicle supply chain and its dominance of much of the battery industry from lithium and cobalt sulfate refining to battery cells, cathodes, anodes, electrolytes and separators.

Federal lawmakers created the Select Committee on the Chinese Communist Party to address competition with the United States. The bipartisan panel doesn't pass legislation, but members will offer recommendations to make on China that will ultimately be folded into a bill.

"This new generation of bipartisan is very concerned about cyber war with China, technology advancements, semiconductors, the U.S. falling behind and not being able to stay up to date with China now, let alone by the end of the decade," Nashashibi said. "That's where you're seeing a lot of concepts forming about what could be included in a possible China bill."

Last year, Congress failed to extend a key provision under Section 174 of the tax code that allowed companies to fully expense research and development costs in the year incurred. On Jan. 1, 2023, companies went from expensing 100 percent of depreciation to amortizing 80 percent of the expense over five years. Income tax bills for some companies then skyrocketed by as much as 400 percent, which drained cash flow.

"Some will say congressional inaction is a good thing. I don't want Washington to do something to me. Well, folks, that's how you're stuck with the [Section] 174 R&D expensing issue. That congressional inaction can sometimes be more painful than congressional action. So beware of what you wish for," Nashashibi said.

The change was a big blow to major corporations and small tool shops.

Seventy-seven percent of AMBA members conducted R&D in 2022 at an average investment of $1.4 million. They are now looking at an average increase in tax liability of $290,013, according to one of Nashashibi's presentation slides. As a result, 50 percent of those AMBA members will reduce R&D activity, 38 percent will maintain their levels, and only 2 percent will increase activity.

AMBA lobbyists are pushing for an R&D expensing fix, which Nashashibi said is likely to be the subject of yearend congressional talks.

Nashashibi gave AMBA members credit for their grassroots writing campaign and said he received a positive message from the tax-writing committee.

"This cannot be about Boeing, Microsoft and Alphabet; it has to be about small businesses. It has to be about the impact of the [Section] 174 provision — the requirement for amortization and capitalization you can no longer immediately expense. This has to be about America's backbone, the downstream industries," Nashashibi said.

A lot is at stake for businesses, Nashashibi told mold builders.

"When we look at the increased tax liability, it's quite significant in terms of what you all should be doing with those dollars. You should be further investing it and not sending it to people in Washington to just spend recklessly," Nashashibi said.

To pay the increased tax, 48 percent of AMBA members will reduce their capital expenditures, 25 percent will implement a hiring freeze, and 13 percent will trim their workforce.

"More than one in 10 will have to lay off employees in order to pay their tax bill," he said.

Talk about fixing Section 174 often is tied to raising the debt ceiling, which isn't going to happen this summer, the AMBA lobbyist said.

"What we need is to hitch a ride on a must-pass vehicle. So, the research and development fix under [Section] 174, while we have two dozen co-sponsors, bipartisan in the Senate, equal number of Republican and Democrat, it will not pass on its own as a stand-alone bill. Things do not happen like that in Washington. It's not Schoolhouse Rock from the '70s. You have to have a must-pass bill that everybody loads up with their priorities. That's how bills get through Congress these days," he said.

In June, the House's tax-writing Committee on Ways and Means will pass a bill with a Section 174 fix that could be made permanent and retroactive to Jan. 1, 2022. Or, the year 2022 could be dropped.

"That is very real. Think about it. Tax incentives are supposed to incentivize you to conduct an activity, which in this case you already did," Nashashibi said. "They might look at it as, 'Why should I add cost to this bill? I could just knock off 2022, give them 2023 for the full calendar, and then call it a day.'"

AMBA lobbyists are pushing back strongly.

"Just know it's an option," Nashashibi said. "Talk to your tax experts to know what your options are on a quarterly basis to adjust for what we don't know is coming out of Congress."

Federal officials also will look at heat rules for working indoors and outdoors. For example, when the heat index reaches 80° F indoors, new regulations could require personal protective equipment, breaks, a certain amount of cool water depending on the length of exposure to the heat, and a weatherization plan for onboarding new employees "to help them adjust to the new environment," Nashashibi said.

A draft rule with "significant" requirements could be announced by the end of the calendar year or in early 2024.

"I do work with forgers and die casters. They're melting aluminum at 1,200-plus degrees. It's not cool next to these machines, even in Minnesota in the wintertime," Nashashibi said.

Still, some parts of the rule aren't feasible, he added.

"This is not a one-size-fits-all," Nashashibi said, cautioning against warehouses being lumped with restaurants or even outdoor contractor yards with indoor warehouses.

Federal officials also may add a permitting bill for oil and gas leases, decide what to do with unspent COVID funds and take a 30-day extension with the debt ceiling.

"The drama right now through Memorial Day is likely to continue through the summer," Nashashibi said.