Joe Biden is the projected winner of the presidential election, while control of the Senate will be won only by a slim margin following runoff elections for Georgia’s two seats in January. What does a divided government mean for the middle market? RSM is looking at the policy implications and key issues for various industries. This is one in our series of industry-focused outlooks for a Biden administration.

According to Joe Biden’s plan:

We expect the incoming Biden administration to be somewhat more supportive of free trade, even though Biden’s “Buy American” proposal—which would require the federal government to procure goods solely from domestic companies—does reflect protectionism. A Biden presidency will also introduce the potential for a shift in U.S. trade relations with China. We expect Biden to continue talks with China; while he may be tough on issues such as intellectual property theft and currency manipulation, we expect he will take a multilateral approach that could ease some of the uncertainty that has existed between the two countries in recent years. We do expect China tariffs to continue for the near term under Biden.

What a closely divided Senate means for manufacturing:

Depending on the ultimate makeup of the Senate, the ability for Biden to execute his agenda may be severely constrained. Biden has proposed a $2 trillion climate plan that includes a vast expansion of solar and wind energy, a network of electric vehicle charging stations and a plan to reach net-zero emissions by 2050. Moderate Democrats do not universally support these plans and Republicans have shown very little interest in supporting these policies. These efforts could face legislative gridlock if the Senate remains under Republican control or is split 50-50. In order to fund these green proposals, Biden would also need his tax proposals to be approved by Congress, the likelihood of which greatly depends on what ensues in the Senate.

When it comes to trade, Biden could exercise executive power to remove tariffs, but it’s important to note that his infrastructure plans will require the support of Congress. Manufacturing businesses should closely follow how trade relations between the United States and their trading partners, most notably China, change over the next year. Manufacturers should use this time to evaluate the viability of their supply chains and whether they need to consider reshoring or decentralizing aspects of their operations in light of the pandemic and the continued uncertainty of geopolitical relationships.

Furthermore, depending on how the new administration addresses the pandemic and whether its response triggers significant changes in supply and demand for autos and other goods, companies should be prepared to adapt accordingly.

What room for growth or evolution exists in manufacturing?

Along with trade policy shifts, a Biden presidency is expected to be positive for infrastructure-based sectors, particularly power, electric equipment and HVAC systems, all of which are closely tied to energy efficiency goals and environmental policy. Biden also plans to create one million new jobs in the American auto industry by investing in domestic auto supply chains and auto infrastructure, from parts to materials to electric vehicle charging stations. But depending on the outcome of the Senate, Biden’s plans related to green energy and infrastructure projects may face significant headwinds.

Biden has said he wants to increase investment in the electric grid, which could boost electrical equipment sales, especially among low-to-medium voltage component makers. He similarly aims to invest in upgrading four million commercial buildings and weatherizing two million homes in his first term. Companies with smart products (i.e., Internet of Things capabilities) that help lower energy consumption will stand to benefit more from the Biden administration’s policies, especially building automation and software providers, HVAC equipment makers and electric appliance manufacturers.

Biden’s green energy focus also involves pushing for what he calls a “railroad revolution,” investing in municipal transit networks to close the infrastructure gap between the United States and other developed countries. Overhauling railroads to develop passenger train networks, connect rural areas, reduce commute times and prioritize energy efficiency would benefit construction equipment markets, building material companies and suppliers to these end markets. But many such companies would still likely need to reframe their approaches to energy efficiency and green infrastructure. Biden has also said he wants to make significant investments in charging infrastructure for electric vehicles and mandate procurement rules for federal, state and local governments to purchase clean vehicles for their fleets.

Digital innovation and advanced technologies will remain at the forefront of the forces shaping the future of the manufacturing industry. Whatever policy changes occur over the next four years, companies need to keep pace with digital trends and maintain a proactive stance on implementing technologies that make their operations more efficient and interconnected. Manufacturers must also continue to address any overreliance they may have on China and focus on developing more resilient supply chains.

Questions that frame the path forward:

• How will companies assess their relationships with China based on how policy may change?
• What will Biden’s trade policies mean for manufacturing companies in terms of nearshoring or diversifying aspects of their supply chains?
• How will the Biden administration’s trade policies and response to the COVID-19 pandemic affect supply and demand for autos and other goods?
• What other alternative supply chain models might companies need to evaluate to reduce their reliance on any one particular country or region?
• How will companies continue to leverage technology to adapt to policy shifts that arise over the next four years?
• What specific investments in U.S. manufacturing will Biden make to increase the country’s competitiveness and encourage companies to return production operations to the United States?
• What rules or mandates might be introduced to reduce emissions from industrial activity?