How the new president will affect U.S. industrial policy — especially electronics manufacturing.

With the U.S. election cycle in full swing, experts are pondering how the new president will impact U.S. industrial policy—particularly electronics manufacturing. Phil Stoten discusses the election and U.S. economic policy with Shawn DuBravac, chief economist at IPC.

Phil Stoten: Watching American politics is like watching a circus that's moving very fast. Right now, the Democratic Party has a new candidate, Kamala Harris. We have a new vice presidential candidate. How do you think about that, and what do these people need to do to let us know what their strategy is, what their industrial policy looks like?

Shawn DuBravac: I think Harris and her team are still building out their platform. We haven't seen them formally release their industrial policy or even their broader political ambitions and goals. Right now, it feels like they're continuing some of the work that the Biden administration started and some of the things that she talked about a lot when she was vice president.

We should wait and see what the debates are. There's still some discussion about when and where they're going to be, but it looks like we're going to see some debates between former President Trump and Harris in September, so I do think we'll start to get a clearer picture of what their policies are going to be around manufacturing and other things.

Obviously, some of the other hot topics in the U.S., whether it's immigration or other issues, are being discussed a lot, but I'm hopeful that with a debate in September, or even multiple debates in September, we'll have a much richer discussion about what some of these manufacturing policies might look like.

Phil Stoten: And then there's the vice presidential debate. Is that important? Or is it just a sideshow?

Shawn DuBravac: In the past we might have said it's no big deal. This year might be different. There's a lot of things that happened this year that I didn't expect to happen. So we'll see.

Interestingly, we have two Vice Presidential candidates with similar backgrounds. They both appeal to the Midwest, which is going to be a big audience in this election, and it's also a big audience in manufacturing, so I think you can see that their views are important.

Interestingly, we have two Vice Presidential candidates with similar backgrounds. They both appeal to the Midwest, which is going to be a big audience in this election, and it's also a big audience in manufacturing, so I think you can see that their views are important.

Philip Stoten: I think what is most fascinating is how politics affects the decisions that electronics manufacturers, especially EMS companies, make in terms of investment, which always stalls a bit in presidential election years.

When you talk to leadership, do they just want to know what's going on, as opposed to, "I do expect things to go this way or that way"? Do they just want a definite and clear outcome so that they can plan the business within the framework that's been provided to them?

ShawnDuBravac: I think that's right. I think it's hard not to be personal in America these days. The political environment has become so divisive, and you do have strong emotions. But I do think that CEOs and executive teams are looking for clarity. They're looking for transparency.

For some of the longer-term projects that have a lifespan of 30, 40, 50 years, you need to wait and make sure you really know what the policy environment is going to be before you start digging and building. Also, they may also be looking for opportunities for fiscal support. Is there an opportunity for stimulus?

We're going to end up with a new administration anyway, given who's running now, so now Kamala Harris may retain some of the power of the existing administration, but regardless, you're going to have a new president and a new vice president who will bring their team and their policies.

I think we're waiting for that to happen. The recent volatility in the market hasn't helped us, and I think that will continue until at least the election in early November, so at this point, I think it makes a lot of sense to wait.

You also hope that the Fed has cut rates by then. That's the consensus expectation.

The market is certainly anticipating a lot of rate cuts from the Fed for the rest of the year, so funding costs may be a little bit lower and availability of funding may become a little bit easier. We saw the senior loan officer results this week, and credit for commercial and industrial projects remains tight, so things may improve after November, after a few Fed meetings, so I think businesses are waiting for that as well.

Philip Stoten: I think when I look at the EMS industry, the PCB industry, and all the companies that supply that industry, what they like is to be able to make plans, and the only way to make plans is to see stability in the market. And what they are seeing right now is volatility. A milestone like the US presidential election may move us from a point of more volatility to a point of less volatility.

Shawn DuBravac: We also saw Intel announce large layoffs. That's the reality. Even without taking the politics into account, you see a company with the heritage and importance of Intel announce large layoffs, which causes some hesitation, which causes other companies to say, oh, what do they know that we don't know, what do they feel, we may feel the same way. So, people start to be cautious. Let's wait a little longer and make sure that this doesn't affect us

Philip Stoten: From the IPC data, we still feel that the market is at a very insecure stage in terms of EMS, and it's probably even worse in the PCB field, and everyone is very eager to put as much investment as possible back into this field and bring it back to Europe and the United States. How do you think about this situation?

Shawn DuBravac: Yes, I think PCB in Europe and the U.S.

I think part of the reason why this is happening there is that after the pandemic, companies have lost pricing power and cannot raise prices as costs rise. Consumers are willing to pay higher prices either because they have extra money or because they really need to. Now, a lot of the extra savings have been spent.

Wage rates in the U.S. have been rising, and workers have regained some purchasing power as a result. In this environment, if wages are rising faster than inflation, then you have the ability to spend more on goods. Now, this situation has reversed and wage growth is slowing. I think companies have lost the ability to pass on price increases, so they are squeezed because we know that raw material costs are still rising. So you are back to that mindset: Where can I cut costs? I can't cut labor costs because the labor force is tight and wages are still rising. I am losing workers. I need to keep these workers. Other material costs have been rising. Until recently, energy prices have been rising. Now, as concerns about a slowdown emerge, some energy prices are being removed from the market, but these concerns have been driving costs higher.

I think some companies are looking for other places to buy things like PCBs, especially where they can buy them from Asia at a lower price, which gives them a little bit of breathing room on pricing. Again, we publish data on North America-specific PCB and EMS book-to-bill ratios, and Europe is obviously doing the same. And then some of the tech categories, like consumer and some other segments, have seen a natural slowdown. So there are a lot of factors that are contributing to this, but the biggest factor to me is definitely that companies are losing pricing power, so they have to think about how to reduce costs.

Philip Stoten: When I look at EMS companies broadly, some are doing well in 2023 and others are not doing well, and maybe that will carry over into 2024. If you look at the top 10, the top companies headquartered in the U.S., Flex, Jabil, Sanmina, Celestica, are all doing pretty well in 2023. The ones that are suffering the most are the large Asian companies, especially the very, very large ones.

Shawn DuBravac: I think geography is important, but so is the market segment you serve, as you said. If you look at the [recent] inflation data in the U.S., commodity prices are going down, so you know that your prices are going down for your company, but your input costs are going up, and you're going to be squeezed, and you have to find ways to reduce costs or do things differently, so I think both of those factors are playing a role.

Philip Stoten: Who would have thought that Nvidia would be worth 20 times the market value of Intel?

Shawn DuBravac: It just shows the volatility of the market and what's going on and how the market is changing, how the demand for technology is shifting, and Nvidia is clearly very well positioned to take advantage of the shift to artificial intelligence in particular.

Philip Stoten: Finally, on a positive note, I think what this really tells us is that the long-term demand fundamentals for the electronics industry are sound. We have no real concerns. No one is saying, hey, we're not going to do electronics in the future, it's going to be.

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