Charting the Impact of Trump's Deregulation on Manufacturing
President Trump has made advancing American manufacturing the cornerstone of his economic agenda. And the first six months of the Trump Administration has occurred in concert with positive growth for the U.S. manufacturing sector. The Institute for Supply Management (ISM) reported that U.S. manufacturing activity expanded in June at the fastest pace in nearly three years and recorded the second highest reading in more than six years. According to the ISM, manufacturing growth in June accelerated and was broad-based, with 15 of 18 manufacturing industries showing growth. Moreover, the ISM reported that the overall US economy grew in June for the 97th consecutive month.
But how much of this manufacturing expansion should be attributed to the Trump Administration’s efforts at federal regulatory reform? One positive indication can be found in a one-year series of quarterly Manufacturers’ Outlook surveys undertaken by the National Association of Manufacturers (NAM) (see Figure 1 below). For example, in the 2016 third quarter survey, under the topic “Primary Current Business Challenges”, NAM members surveyed ranked “Unfavorable business climate, e.g., taxes, regulation” (73.6%) closely behind the top ranked “Rising health care/insurance costs” (74.8%). However, by the 2017 first quarter survey, “Unfavorable business climate, e.g., taxes, regulation” (58.2%) dropped dramatically to the number three ranking, with “Rising health care/insurance costs” (65.1%) remaining number one, and “Attracting and retaining a quality workforce” (63.5%) rising to the number two ranking. Most recently, in the 2017 second quarter survey, “Unfavorable business climate, e.g., taxes, regulation (55.7%) remained in the number three ranking, but dropped another 3.5%, with “Rising health care/insurance costs” (74.7%) remaining steady at the number one ranking, and “Attracting and retaining a quality workforce” (64.4%) retaining the number two ranking.
Source: National Association of Manufacturers
The 2017 first quarter and second quarter decline, according to NAM, “is likely because manufacturers are optimistic that the new administration will continue to provide regulatory relief and make progress on regulatory and tax reform.” Moreover, the first quarter 2017 survey results show manufacturers’ optimism rose to a new all-time high (average of 93.3%) in the survey’s 20-year history, with the second quarter 2017 survey results registering the second highest all-time high (89.5%).
So what regulatory reform policy efforts has the Trump administration undertaken to improve the U.S. manufacturing sector’s operating environment and justify this optimism? Immediately after entering office, President Trump placed an executive hold on approval of administrative rules (with exceptions made to those pertaining to emergency circumstances relating to health, safety, financial, or national security matters).
Second, the President issued Executive Order 13771 (“Reducing Regulation and Controlling Regulatory Costs”), with the Office of Management and Budget, in a follow-up Memorandum, further explaining its requirements: “In general, executive departments and agencies may comply with those requirements by issuing two “deregulatory” actions for each new significant regulatory action that imposes costs. The savings of the two deregulatory actions are to fully offset the costs of the new significant regulatory action (emphasis added).”
Third, with the assistance of Republican majorities in Congress, President Trump was able to successfully employ the 20 year-old Congressional Review Act, which provides that an administrative rule once repealed cannot be promulgated again without a new act of Congress, to prevent 14 rules adopted in the final months of the Obama administration from taking effect. One of those rules, "Clarification of Employer's Continuing Obligation to Make and Maintain an Accurate Record of Each Recordable Injury and Illness", was submitted by the U.S. Department of Labor and had an industry-estimated regulatory cost of $1.9 billion.
Source: Office of Information and Regulatory Affairs
In the first six months of the Trump administration, the results of regulatory reviews undertaken by the White House’s Office of Information and Regulatory Affairs (OIRA) (see Figure 2 above) show that this “gatekeeper” Office has approved significantly fewer “major” rules (i.e., having an economic impact of $100 million or more, or meets other criteria specified by the OIRA administrator), and dramatically fewer “minor” rules than the previous three administrations. Compared to his immediate predecessor’s administration, the Trump administration has approved 58 percent fewer “major” rules and 73 percent fewer “minor” rules than the Obama administration during its first six months in office.
For calendar year 2017, it is safe to say that the Trump administration appears to be on-track to generate significantly fewer actual pages (minus blanks and skips) in the Federal Register than the all-time high of 95,894 pages established by the Obama administration for calendar year 2016.
Source: Office of Information and Regulatory Affairs
Further, focusing on the four executive branch agencies which can significantly impact the manufacturing sector (see Figure 3 above), Agriculture (“food processing”), Commerce (“international trade”), and Environmental Protection (EPA) and Labor (“social regulation”), the data reveals similar results for the first six months between the Trump administration’s regulatory review performance and the previous three administrations. For example, the Trump administration has approved an impressive 68.4 percent fewer “major” rules and 73.9 percent fewer “minor” rules than the Obama administration during its first six months in Office.
Also, the U.S. House of Representatives is considering three bills addressing different aspects of the federal regulatory process. The “Searching for and Cutting Regulations that are Unnecessary Burdensome (SCRUB) Act” (H.R. 998) establishes the Retrospective Regulatory Review Commission to conduct a review of all federal regulations and identify individual rules that “implement a regulatory program that should be repealed to lower the cost of regulation.” The “Regulatory Integrity Act” (H.R. 1004) would restrict the use of agency funds to advocate on behalf of administrative rules. Lastly, the “OIRA Insight, Reform, and Accountability Act” (H.R. 1009) would codify specific executive branch regulatory review procedures. The Trump administration announced that it “looks forward to working with the Congress on technical and other amendments to these bills.”
Moreover, on January 24, President Trump signed “Presidential Memorandum Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing” (“Presidential Memo”), a directive to departments and agencies to support U.S. manufacturing expansion through expedited reviews of – and approvals for – proposals to construct or expand manufacturing facilities and by reducing regulatory burdens affecting domestic manufacturing. The Commerce Department published in the Federal Register a request for comments on the Presidential Memo from interested stakeholders, and received 171 comments from corporations and industry associations. Many comments focused on the EPA’s tightening of ozone rules under the Clean Air Act’s National Ambient Air Quality Standards for construction of new manufacturing facilities. The Commerce Department earlier indicated that it would release its manufacturing regulatory review plan in the middle of June, but the report was not released.
What remains to be implemented on the regulatory reform agenda? To further buttress its efforts to reduce the regulatory burden on the manufacturing sector, the aforementioned H.R. 998, H.R. 1004, and H.R. 1009 bills need to be passed by Congress this fall. Furthermore, the “Regulations from the Executive in Need of Scrutiny (REINS) Act”, which allows Congress the authority to approve (by voice) within 70 days after a major administrative rule, i.e., those $100 million or greater in annual economic costs is finalized, passed the House in January and is now awaiting a Senate vote. Lastly, S.288, the “Regulatory Predictability for Business Growth Act of 2017”, introduced in February, requires notice and comment provisions under the Administrative Procedures Act for certain “interpretative rules” that have been in effect for not less than one year.
Passage of this legislative agenda rounds out an array of regulatory reform tools that the Trump administration needs to improve the manufacturing sector’s future operating environment. Also included in this agenda is Senate confirmation of executive branch appointees, as Republican leadership has been woefully inept at getting the President’s managers in federal agency positions responsible for regulating manufacturing. For the Republican congressional leadership, it is time to follow through on their part of the regulatory reform agenda.