The election of Donald Trump marks our entry into an era of polarization. Media and political elites seem stuck to a script of hype and slogans. Yet, in the real world, significant changes are underway in the industrial sector that require a somber analysis. As an observer of trends that relate to asset maintenance and manufacturing productivity, I will address the economic impact of the Trump Administration on Industry 4.0 and Industrial Analytics. To the extent possible, I will avoid any partisan political references.
Perhaps the only point of agreement between supporters and detractors of President Trump, is the expectation of disruptive change. Anthony Scaramucci, the recently appointed (and recently departed) White House Communications Director, has generated significant media attention for his colorful language and non-traditional management approach. In a recent interview with the BBC, Mr. Scaramucci used a term that went unnoticed: “disruptive.” America is a disruptive startup, led by a disruptive President. Of note, after the formation of the White House Office of American Innovation (OAI), Forbes described “a mantra of disruptive innovation” and “tearing up the old playbooks.” Once again, whether you love or hate the President, we can all agree that old playbooks have vanished.
Industry 4.0. Its genesis is in the conservative German industrial heartland, a world away from the glitz and glamor of Team Trump. McKinsey Consulting, an organization not typically associated with hyperbole, warned its clients to “get ready for disruption.” Countless other analysts and consulting firms including Deloitte and PwC are forecasting far-reaching changes in the manufacturing sector. After all, Industry 4.0 is an industrial revolution.
The comparisons between the political upheaval in the world’s second largest manufacturing country and Industry 4.0 are not merely semantic. American domestic taxation regulations and global trade policies will impact every country and manufacturing sector.
Let’s start with the underlying demand. The US industrial sector is plagued with aging infrastructure. For instance, in the oil and gas industry, more than 50% of offshore platforms are beyond their original design life. The average asset age of industrial equipment is about 10 years, the same level as that recorded during World War II. In other words, the US manufacturing infrastructure has fallen behind Asia and Western Europe and needs to catch up.
Source: U.S. Bureau of Economic Analysis
Here are the basic political calculations. Donald Trump was elected by appealing to disenchanted voters in States with a high concentration of manufacturing jobs. Putting aside extraneous factors such as the inquiries into Russian interference in the 2016 election, the success, failure or re-election of Donald Trump are largely dependent on the performance of America’s manufacturing sector over the next three years.
Taxation. Unlike issues such as healthcare, industry-supported tax reform is one policy area that unites the traditional (Chamber of Commerce) wing of the Republican Party and the nationalist wing led by Steven Bannon. Until at least the mid-term election in November 2018, the GOP will control both Congress and the White House. The appointment of conservative economists such as Kevin Hassett, Ph.D., to lead the Council of Economic Affairs is indicative of a focus on tax reforms. He joins Steve Mnuchin as Treasury Secretary and other officials that are committed to using the tax code to incentivize investments in infrastructure and capital equipment.
How does this impact Industry 4.0? As Industry 4.0 emerges as a corporate priority, the world’s second largest manufacturing economy is likely to receive a massive financial incentive to upgrade its aging manufacturing infrastructure. Although it is too premature to understand the full impact of a domino effect, we expect an acceleration of Industry 4.0 investments globally.
The extent to which jobs will be created is more complex. A Ball State University study stated that the largest contributing factor to the US manufacturing sector job loss between 2000 and 2010 was based on productivity gains attributed to automation and technology. Furthermore, approximately 40% of US jobs will be automated by 2030 according to a PwC report. Job creation may be limited to more technical and higher skilled employees than expected.
It is still too early to predict the long-term impact on employment rates, productivity and output. However, the confluence of a new U.S. willing to embrace pro-manufacturing fiscal policies and the application of big data and machine learning to the industrial sector will accelerate the transformation to Industry 4.0.