Chris Enbom,
CEO,
AP Equipment Financing

I am writing to discuss, in general terms, possible changes to policies and laws that could affect the equipment financing space under President Trump.

There are hundreds of great articles and essays on policy predictions for the next few years under the new president and Congress. When looking for information that is publicly available, major law firms are a great source of opinions since they have attorneys and lobbyists who are close to political leadership. Holland & Knight released a good policy article as an example.

Overall Goals of Trump
Trump clearly states his goals for his presidency: greater U.S. economic power through lower taxes, deregulation (especially in the energy sector), increased border security, cessation of imported goods produced in a manner that is unfair (this will be hard to define), and reduced spending on foreign offices, military and foreign aid.

More recently, the president has also suggested that the U.S. should purchase Greenland from Denmark and make Canada a U.S. state. Only Trump knows whether he believes these goals are realistic, but it is clear that he wants to focus on more direct security threats to U.S. sovereignty including surrounding geographic regions (Greenland, Canada, Mexico and China) and spend less money and energy on Europe and the Middle East, where he does not perceive a direct military threat. One major exception may be Iran, which he sees as a direct threat and menace to the U.S.

Trade Policy
Trump has been very clear that he sees tariffs as a powerful tool to support U.S foreign and trade policy goals. Even before taking office, he began negotiating with the governments of Mexico and Canada, using the threat of a 25% tariff on imported goods to change their behavior. These efforts also aim for more border security and less drugs and undocumented immigrants crossing into the U.S. Trump believes the NAFTA agreement allows Chinese and other foreign-manufactured components and goods to enter the U.S. at prices that undercut U.S. manufacturers. It is highly likely that Trump will withdraw from NAFTA and pursue new, separate trade agreements with Canada and the U.S. which include some level of tariffs.

What Trump will ultimately enact in terms of exact tariff rates is difficult to predict — he will likely focus on China and restructuring NAFTA, but I think we can expect some level of general import tariffs as a way to raise funds for tax cuts and other budget priorities and to give a boost to local manufacturers. The complexity comes when other nations retaliate and start to hit U.S. farmers, tech companies and manufacturers. As a result, the scope of tariffs remains highly uncertain.

Most policy experts believe that Trump will ultimately moderate his tariff demands after the U.S. has extracted gains from bilateral agreements with various countries. The president has stated that he will follow through with his tariff demands and does not intend to back down. There is uncertainty as to whether Trump has the authority to impose tariffs that are overly aggressive without support from Congress — which complicates matters as well.

Any tariffs create winners and losers among manufacturers, which, in turn will have an impact on our dealer and OEM customers. It is a good time to make sure you understand where equipment is manufactured and where major components are sourced by your dealer and OEM customers, allowing you to better anticipate potential impacts on your financing business. For example, a dealer selling products 100% manufactured in China may struggle to remain price-competitive under Trump, while U.S.-made products will likely become more price-competitive.

Tax Policy
Trump has stated his goal of simplifying and reducing both corporate taxes and individual taxes. In this area he must work with his slim congressional majority, including a large group of fiscally conservative Republicans who are very concerned with the ballooning deficit. Any tax reforms will be part of a complex and comprehensive overall budget negotiation, likely revising parts of the Inflation Reduction Act and reducing other spending less popular with Republicans to fund tax cuts. I believe most provisions of the Inflation Reduction Act related to infrastructure spending on transportation, communications and energy transmission will stay in place, as Congressional members do not want to announce cuts to infrastructure spending to constituents.

Rules around bonus depreciation (being scaled back from 100% bonus three years ago to 80%, then 60% last year and now 40% and eventually headed to 0%) will be heavily discussed, as well as tax incentives for alternative energy projects. It is hard to say what will happen with these tax provisions, given the difficulty in passing any major tax legislation, at any time, and the various strains on the budget, as well as the competing interests of lawmakers. My best guess is that bonus depreciation will be phased out (small businesses still have Section 179 expensing and MACRS depreciation options) and many alternative-energy tax credits will be phased out as well. Both areas of tax law are controversial, even within the Republican party.

Banking Regulations
Trump will make banking deregulation a big focus by allowing banks some relief from strict capital requirements, allowing more bank mergers and generally lowering the audit and regulatory requirements on banks. We could see more aggressive behavior from banks, along with an increase in equipment finance mergers and acquisitions by banks. Independents may be negatively impacted by this more
aggressive bank behavior.

Energy Policy
Energy policy and tax policy are in some ways intertwined, but Trump has explicitly said he is against any new wind energy products during his presidency. Otherwise, Trump is likely to try to roll back regulations on drilling and ease greenhouse gas and pollution regulations related to combustion engines and power plants. Elon Musk is a wildcard for transportation electrification efforts, although Musk has often stated that he can now compete without subsidies.

Section 1071
Lastly, I want to mention Section 1071. The Consumer Financial Protection Bureau has finalized rules for reporting various data points related to demographic information of owners and other transactional data pertaining to lending and capital leasing to small businesses. The rules are unpopular with most Republicans, and the CFPB itself is widely disliked in the Republican party. There has been talk among Republicans of dismantling the CFPB.

What may happen with Section 1071 of the Dodd-Frank act is uncertain. It could be relatively simple for Republicans to nullify Section 1071 as part of a comprehensive tax and spending agreement. My best guess is that this is a complete “toss-up,” but I’m not sure that overturning 1071 is a big enough priority for Trump to push for it. It will certainly be an interesting year! •

Chris Enbom, CLFP, is CEO of TCUSA group, which consists of AP Equipment Financing, Work Truck Direct, and TCUSA.