IPC APEX EXPO 2019: Hear from the Attendees

IPC APEX EXPO 2019, where technology’s future came to together with 9,796 attendees from 56 countries and 440 exhibitors from around the world. Join us in San Diego for IPC APEX EXPO 2020!

U.S. Tax Law Boosts Growth, But Uncertainties Loom

By Chris Mitchell, vice president, global government relations

Monday, April 15 was the deadline for millions of Americans to file their income tax returns, so this is a good time to review the Tax Cuts and Jobs Act of 2017 (TCJA) as well as the current tax policy landscape and how these rules are affecting the electronics industry.

TCJA Fostering Economic Growth

In passing the TCJA, Congress restructured the U.S. tax code for the first time since 1986. IPC applauded the bill’s passage because of the need to replace an outdated tax code with one that promoted competitiveness and innovation in our industry and economy-wide.

Several provisions were especially important to the electronics industry, including:
• Lowering the corporate tax rate from 35 percent to 21 percent;
• Allowing full and immediate expensing of capital investments placed in service between September 27, 2017 and January 1, 2023; and
• Safeguarding the R&D tax credit.
• The bill also allows many small businesses that are organized as “pass through” companies to claim a 20 percent deduction for the non-wage portion of pass-through income.

These provisions have helped generate stronger-than-expected GDP growth and near record-low unemployment. In fact, the number of U.S. job vacancies has exceeded the number of unemployed Americans for months. Most economists are forecasting continued growth through 2019.

Changes Coming in a Few Years

Even as we celebrate the success of the TCJA, we should be mindful of work yet to do and new issues that have come up. Here are a few that affect our industry:

Bonus Depreciation Starts Ramping Down in 2023. The TCJA provided for 100 percent bonus depreciation for capital expenditures, spurring investments in plant and equipment. However, the law phases out bonus depreciation from 2023 to 2026. Bonus depreciation enjoys wide support on Capitol Hill, so there will be attempts to prevent its expiration. Some skeptics believe bonus depreciation is more appropriate as a tool for reversing economic downturns, while others say it is accelerating automation and jeopardizing jobs. We expect a tough fight to extend this provision past 2023.

R&D Tax Credit Falls Short. Beginning in 2022, companies will be required to amortize R&D expenses over five years instead of claiming an immediate, full deduction as they do today. There are concerns that this will reduce R&D investment, and some in Congress are working to rewrite this provision. Moreover, a cadre of Congress members will continue to fight to increase the alternative simplified R&D credit from 14 percent to 20 percent to bring it in line with international competitors. But such an increase is considered unlikely.

TCJA Regulations Still Pending. Significant portions of the tax law require the Treasury Department to issue implementing regulations, but many such rules are still in the proposal stage. Regulations can undergo significant changes as they go through the process, so IPC and its members will need to keep an eye on them and be prepared for further advocacy.

Pass-throughs (S-Corps) Still Face Unfair Treatment and Significant Uncertainty. Pass-throughs have long argued for tax parity with C-Corps, and the authors of the TCJA sought to provide some relief by granting a 20 percent deduction on some pass-through income. However, legislative rules prevented Congress from making the relief permanent, and the deduction will vanish at the end of 2025. Because pass-through tax rates are tied to individual rates, any debate over changing them will get caught up in the political battle over marginal tax rates for individuals.

Expiring Tax Provisions in Limbo. No sooner had the TCJA passed in 2017 than congressional efforts began to pass an “extenders packages” to reinstitute several old tax provisions that were left out of the bill. Currently, there are 29 so-called extenders that expired in 2017 and 2018, and we are beginning to see bipartisan interest in passing an extensions bill later this year. The two provisions with the most support are the biodiesel tax credit and the short-line rail maintenance credit. We will continue to monitor developments.

TCJA Exacerbates Budget Woes. The TCJA may be boosting economic growth, but it is not paying for itself. Tax revenues are falling below forecast, and the Trump administration’s FY2020 budget proposes $1 trillion+ annual deficits through FY2022. And that is a best-case scenario!

Planning Ahead

The TCJA made some very helpful changes to an outdated tax system. However, the tax writers also created a great deal of uncertainty by putting a time limit on some of the most significant and popular provisions, which are likely to expire in a few years absent a resurgence of bipartisanship. We know that many IPC members make long-term business decisions based on the tax code. Thus, your company may want to consider taking advantage of TCJA tax provisions while they last and working with IPC to advocate for smarter, more predictable tax policies in the future.

IPC Working to Revive R&D on Lead-Free Electronics in High-Reliability Sectors

by Chris Mitchell, IPC vice president, global government relations

Ask yourself the following question: Why is it that the aerospace, defense and high performance (ADHP) electronics sectors remain reliant on lead solders and components even as the commercial sector has largely phased out their use?

The short answer is that lead-free electronics do not offer the performance and reliability assurances that the ADHP sectors require, but the longer answer is that key stakeholders, including government entities, have not invested in the science to understand how to achieve symmetry and interchangeability between lead and lead-free electronics.

IPC is working to change that and we need your help.

Essential R&D Delayed by Budget Cuts

Over the last 15 years, the commercial electronics industry has largely phased out its use of lead (Pb) in the manufacture of electronic components and circuit assemblies. The transition to Pb-free electronics was driven by the European Union’s Restriction of Hazardous Substances Directive (RoHS), which placed new restrictions on the use of lead in commercial products.

Though initiated in Europe, RoHS has had a global impact on the electronics industry. Other countries have followed Europe’s lead and manufacturers are now obligated to eliminate the use of lead in their goods for markets around the world.

The migration to Pb-free electronics has been successful in the commercial markets, but the ADHP electronics sectors have been slower to abandon the traditional tin-lead solder used in the production of components and circuit assemblies. ADHP products have more demanding performance requirements than consumer electronics; they need to perform flawlessly in harsh environments and in safety-related applications; and there is not enough data on the performance of Pb-free products to support the move.

Enter the Pb-Free Electronics Risk Management (PERM) Council, comprised of subject matter experts from government, industry, academia, and other stakeholders. Founded in 2008 and housed by IPC since 2012, the PERM Council provides leadership and coordination of Pb-free electronics risk management activities in both government and industry.

A major focus of the PERM Council has been gathering enough detailed engineering knowledge to underpin the conversion from tin-lead solder to Pb-free in the ADHP sectors. In 2009, PERM supported an effort funded by the U.S. Department of Defense (DoD) to identify the knowledge gaps and estimate the cost to fill them. The cost estimate this “Pb-Free Manhattan Project” was about $110 million over three years, broken down into more than 100 “bite-size chunks” from $100,000 to $5 million.

Unfortunately, due to DoD budget cuts in the last decade, the “Manhattan Project” was never fully funded, although some companies and universities continued to work on the smaller chunks. In 2014, IPC completed a “re-baseline” and estimated that about $40-50 million was still needed to complete the knowledge base. To date, the R&D project is still incomplete.

Now, in 2019, IPC and a consortium of manufacturers and academic institutions are working with more than a dozen congressional offices to secure $15 million in federal funding to put the R&D back on track. The formal funding requests have been filed; congressional deliberations on defense spending are underway; and Congress is expected to send a defense appropriations bill to the president for his signature by late summer, at which time we will know whether we have been successful.

A great deal of policymaker education and advocacy will be necessary to achieve this goal in 2019 and to keep the momentum going in 2020 and beyond. The IPC Government Relations team will be working on the issue 24/7, but members of Congress are most interested in hearing from IPC members, i.e. the front-line business leaders in their states and congressional districts.

To learn more and contribute your expertise to IPC’s Pb-free electronics efforts, please visit the PERM Council page on IPC’s website and contact me at ChrisMitchell@ipc.org to join our Advocacy Team.

Question of the Week: What Does Brexit Mean to Your Company?

The United Kingdom’s effort to leave the European Union, known as Brexit, is making waves in the global economy. Many companies are facing tough decisions about their operations in the UK and EU.

IPC members, how concerned are you about the impacts of Brexit on your company? Take a one-minute survey.

 

Last Week’s Question: “Over the last year, how difficult has it been for your company to find qualified workers for roles that require technical knowledge and skills?”

The response was nearly unanimous: About 90 percent of those who answered said it was “very difficult,” and around 10 percent said “somewhat difficult” to find qualified workers. That’s a powerful statistic! Thanks for your responses.

Brexit Postponed Amid Political Gridlock; Industry Disruptions in Store

By Chris Mitchell, vice president, global government relations

The United Kingdom’s effort to leave the European Union, known by the nickname “Brexit,” is bogged down in political uncertainty, which in turn is creating disruptions in the global economy. With a “no-deal” Brexit possible within two weeks, here’s a recap of recent developments and the possible impacts on the electronics industry. (And let us know what you think about Brexit.)

First, a Quick Recap

Following a 2016 referendum in which the “leave” side won narrowly, the British government invoked Article 50 of the Treaty of European Union, which lays out a two-year process for member countries to withdraw from the EU’s political and economic structures. That process was set to conclude by last Friday, March 29.

British Prime Minister Theresa May finalized a Withdrawal Agreement with the EU in November 2018. However, Parliament rejected the agreement on January 15, as well as two subsequent versions of it on March 12 and March 29. In a rare move, rank-and-file members of Parliament took control of the chamber twice in the last week to hold “indicative votes” on 12 Brexit alternatives, but none won a majority.

Just yesterday, following a lengthy cabinet meeting, Prime Minister May signalled that she would seek a further extension from the EU until May 22 and that she would work more closely with Labour leader Jeremy Corbyn to forge a compromise.

Top Takeaways

1. The urgency remains even as the deadline is postponed.
PM May asked for and received an EU extension of the Brexit deadline to April 12. She now has indicated she will seek an extension until May 22. But May 22 is right around the corner, and the country’s political leaders remain at loggerheads. It is not clear whether working with Corbyn can deliver a deal with majority support.

2. A no-deal Brexit remains a real possibility and would wreak havoc.
Goldman Sachs has estimated a 15 percent likelihood that the UK will exit the EU without a deal in place. Some fear the likelihood is even greater, and most agree the outcome would be dire. World Trade Organization (WTO) tariffs would go into effect, requiring goods to be re-priced accordingly. Customs officials would need to re-establish rules and procedures at the border, but it’s uncertain whether adequate infrastructure could be put in place that quickly.

3. A new PM is likely soon.
Throughout her tenure, May has come under withering criticism from both the Left and Right for trying to chart a middle course. In a last-ditch effort to win more Conservative Party votes for her Withdrawal Agreement, she pledged to step down if Parliament adopted her deal. The ploy did not work. Now the British political class is gearing up for a leadership contest on top of everything else.

4. A general election is also possible.
Britain’s next national election is not scheduled until 2022. Parliament can trigger an election sooner, but the current Conservative majority is largely opposed, having lost seats in 2017 in an election that May did not need to call. On the other hand, the current impasse, if it continues, may make general elections a necessity. The Labour Party may pick up seats in a general election, but few experts think it would be enough for a strong mandate, and any election would be at least several months away.

5. Manufacturers must plan for various scenarios.
Saddled with these uncertainties, companies with operations in the UK and EU are hedging against the various outcomes. IHS Markit’s Rob Dobson expects that “the impact of Brexit preparations, and any missed opportunities and investments during this sustained period of uncertainty, will reverberate through the manufacturing sector for some time to come.” In the near term, the uncertainty has led to advance purchasing and stockpiling of inventory, leading to surges in manufacturing production. But many companies are shifting their supply chains away from the UK, sourcing goods and materials from other EU countries or from outside the region altogether. Airbus, Nissan, Ford, Siemens and Sony are just a few of the companies that are considering or actively shifting operations out of the UK as a response to Brexit.

6. The electronics industry may be disproportionately impacted.
According to an Oxford Economics study commissioned by IPC, the EU28 electronics industry employs more than 2.4 million workers, with about 8 percent or 196,000 of them in the UK. Without an orderly Brexit, the UK could slide into recession in 2019, and the country’s share of the EU’s electronics workforce could drop even further. It’s impossible to predict with precision, but the electronics industry has a highly globalized and complex supply chain. New trade barriers and uncertainties will constrain the ability of British electronics companies to leverage the European electronics marketplace and labour force.

7. Brexit has already harmed economic growth in the UK.
A column in the Financial Times says the UK economy has already shrunk by 1.5 percent since the Bank of England’s 2016 forecast, even as the world economy has grown. Goldman Sachs predicts that a no-deal Brexit could whack UK GDP by another 5.5% and depreciate the pound sterling by 17 percent. The New York Times reports the UK has forfeited its role as an economically and politically stable country from which companies can base their European operations.

With so much at stake for the electronics industry, IPC will continue to stay abreast of developments and keep you informed. Let us know what you think by taking our survey or dropping me a line at ChrisMitchell@ipc.org.

 

IPC Launches Electronics for a Better World | IPC Cares Initiative

The electronics industry has a positive impact around the globe— this week of volunteerism is a great way to show the world the good things we do beyond the products we manufacture! From June 9-15, 2019 we are asking companies that are part of the global electronics supply chain to select a charity or cause of your organization’s choice to support through staff volunteer efforts. Take part in a local litter collection. Organize a food drive. Anything to make a difference!!

IPC will celebrate your good work through social media and other promotions! Follow our social media pages and stay involved with what our supporters are up to!

Tell Us What You Think About the Skilled Workforce Shortage

As a longtime leader in education and training in our industry, IPC is stepping up its efforts, and we could use your input. How would you answer the following question?

Over the last year, how difficult has it been for your company to find qualified workers for roles that require technical knowledge and skills?

Click here to respond by COB Friday, March 29.

Thank you!

Trump’s FY2020 Budget Plan Kicks Off U.S. Policy Debates

by Ken Schramko, senior director, North American Government Relations

Within the last week, U.S. President Trump released his $4.7 trillion fiscal 2020 budget plan, kicking off the annual federal budget process. IPC is watching several budget debates that could impact the electronics industry and its supply chain.

It’s important to remember that Congress has the power of the purse, and the President’s budget is merely a request. Ultimately, members of Congress must make the tradeoffs that result in spending bills that can pass.

When passed in identical form by both houses of Congress, the budget establishes the overall allocations that the appropriations committees then use to write annual spending bills. However, Congress is not even required to pass a budget; and due to partisan wrangling, in many years it does not. Under the rules, action may begin on the annual spending bills even if the House and Senate have not agreed on a budget resolution by May 15.

Thus, while the president’s budget is a significant statement of executive branch priorities, it is merely the starting point.

Within that context, let’s look at the key takeaways:

The administration’s budget proposal runs a $1 trillion+ annual deficit through FY2022. Rather than balancing the budget within 10 years as Republicans in Congress have proposed in recent years, President Trump proposes to balance the budget in 15 years based on relatively rosy economic assumptions.

The Trump budget assumes the continuation of the spending caps in the 2011 Budget Control Act (BCA), which would force overall federal spending down by $126 billion. Congressional leaders have signaled their intent to raise these caps.

Maintaining the BCA caps would require a 9 percent cut to domestic discretionary spending. Spending for Medicaid, Medicare and other mandatory programs is also proposed to be cut. Programs marked for growth include “funding for border security, national defense, opioids, law enforcement, childcare, veterans’ healthcare, emerging technologies that support the industries of the future, and workforce development.”

The Trump budget would cut overall research and development spending by roughly $6.5 billion—or 5 percent. These cuts would primarily affect civilian agencies including the Dept. of Energy, NASA, National Science Foundation, National Institutes of Health, and others.

President Trump is proposing to draw on “off-budget” funds from the Overseas Contingency Operations (OCO) to push through a 5 percent, $33.8 billion overall increase in defense spending. The move is controversial because the OCO was intended for combat operations and crises abroad.

The Trump Administration is expecting GDP growth to hover around 3 percent for the next decade, while the Congressional Budget Office forecasts a decline in GDP growth from 3.1 percent in 2018 down to 1.7 percent by 2020 and then relatively flat through 2029. Federal Reserve Chairman Powell this week said growth appeared to be slowing from last year, “under the weight of the Trump administration’s trade war, economic slowdowns in Europe and China and fading stimulus from the Republican tax cuts of 2017” (New York Times, 3/21).

IPC is digging into the details of the President’s budget request, particularly with regard to DoD, Commerce, and EPA. We will work with Congress throughout the appropriations cycle to protect and improve programs of interest. Please let us know if you have any input on this.

Here’s a rundown of how some budget shifts could affect the electronics industry:

EDUCATION/LABOR

• Would invest $1.3 billion in grants to states for Career and Technical Education (CTE). The recently reauthorized Perkins CTE program helps students gain access to technical education, “including work-based learning during high school and a wide array of post-secondary options including certificate programs, community colleges, and apprenticeships.”

COMMERCE

• Would eliminate the Manufacturing Extension Partnership (MEP) and Economic Development Agency, both of which support U.S. manufacturing initiatives.
• Would provide $688 million for the National Institute of Standards and Technology and prioritize research in quantum computing, artificial intelligence, and microelectronics.

DEFENSE

• Significant increases for DoD R&D programs, including hyper-sonics, AI, and quantum computing. More defense R&D could be good news for defense supply-chain research and IPC’s efforts to secure funding for a five-year, $40 million program to help the defense industry move toward Pb-free electronics.

EPA

• Would cut the agency by $2.8 billion (31.2 percent), which if enacted could affect IPC’s effort to persuade the agency reduce reporting burdens on electronics manufacturers that send byproducts sent for recycling.

HOMELAND SECURITY

• Would give DHS a $3.6 billion (7.4 percent) increase to help support funding for 750 additional border patrol agents, 1,000 ICE officers, and 54,000 detention beds. The budget proposal would require all employers to use E-Verify program for worker authorization.

ENERGY

• Would eliminate the Advanced Research Project Agency–Energy (ARPA-E).

Looking Ahead

The U.S. budget process as it works today also revolves around those cliffhanger moments when Congress and the President must agree on a way forward or trigger government shutdowns or debt defaults.

The “meta” decisions are whether to raise the BCA spending caps and based on what understanding; how to handle the next debt-limit increase; and within those parameters, partisan wrangling over programs like the border wall, defense, and health and welfare programs. In short, this promises to be another raucous budget and appropriations year.

As always, please let us know if you have any questions or concerns about how the federal budget process affects your business.

Chris Barrett, Safari Circuits Helps Develop New IPC Video on Through-Hole Rework

This March, Chris Barrett of Safari Circuits travelled to the IPC Video Studio in Taos, N.M., to shoot a new training video, Through-Hole Component Removal and Rework.

This was the 7th video that Chris Barrett has helped create for IPC:

142C – Introduction to Hand Soldering (Communicator Award)
• 143C – Through-hole Component Preparation and Hand Soldering (Telly & Videographer Awards)
• 144C – Hand Soldering – SMT Component Installation (Communicator Award)
• 145C – Basic SMT Rework without Component Removal (AVA Digital Award)
• 196C – Area Array Rework
• 118C – Terminal Soldering
• 141C – Through-Hole Soldering – Component Removal and Rework

Chris Barrett, Safari Circuits

Chris was responsible for organization of the video script, the resolution of committee technical comments, and also provided the hands-on demonstrations shown in the video.

“It takes an exceptional amount of patience and skill to perform on-screen soldering for an IPC video… creating the sample, setting up the lighting, performing the action flawlessly, along with the inevitable retakes. This process would test the patience of any ordinary mortal. Chris is wonderful to work with, and he does his job amazingly well… it’s a real pleasure to be able to work together,” said Mark Pritchard, IPC video producer.

Our sincere thanks to Chris (aka “CB”) and the management of Safari Circuits for their continued support of the IPC training efforts for the electronics assembly industry.

All of these videos will be available in the new IPC online video subscription library.

Here’s the 2019 Outlook on IPC Advocacy for Workforce Education and Training

by Ken Schramko, senior director, North American government relations

The chronic shortage of skilled workers is the top business challenge facing the electronics industry worldwide. Our skilled workers are aging and retiring faster than we can hire replacements. A large majority of our members report that their inability to find skilled workers is limiting their growth. Too often, today’s rising workers lack essential knowledge and skills including math, basic technology skills, and problem-solving.

Given these facts, IPC is building on our strengths and making workforce development one of our top priorities. We’ve pledged to develop 1 million new training and workforce development opportunities in the United States over the next five years; and we launched the IPC Workforce Champions initiative to engage our member companies in that effort.

Here’s an overview of the government policy landscape that we’re working to shape.

New U.S. Government Advisory Board

In the United States, last week a newly formed advisory committee to the federal government held its first meeting. The members of the American Workforce Policy Advisory Board, led by Commerce Secretary Wilbur Ross and Advisor to the President Ivanka Trump, include representatives of eight companies, three industry associations, four universities, three state and local governments, and several nonprofits, think tanks, and a trade union. The board will serve from now through July 2020.

During the meeting, Ms. Trump outlined four goals of the board:
1. Develop a robust campaign to promote multiple pathways to good-paying jobs, dispelling the myth that there is only one path to a successful career, i.e. a four-year college degree.
2. Improve the availability of high-quality, transparent, and timely data to better inform students and educators, as well as match American workers to American jobs.
3. Modernize candidate recruitment and training practices to expand the pool of job applicants that employers are looking to hire.
4. Measure and encourage employer-led training and investments, such as those being made by IPC.

You may recall that IPC President John Mitchell and several IPC member companies were invited to the White House last October to discuss this issue with President Trump, Ivanka Trump and other senior policy officials. Rest assured we have kept those communications channels open and are continuing to engage with the administration on this issue.

Congressional Outlook

Meanwhile, on Capitol Hill, there is strong bipartisan support for addressing the workforce shortage. Last summer, Congress passed and the president signed the Strengthening Career and Technical Education for the 21st Century Act (the Perkins CTE Act), which IPC strongly supported and continues to support in its implementation phase.

In the current session of Congress, attention is turning to work-based learning programs and the employment visa backlog.

For example, Sen. Tammy Baldwin (D-WI) and Reps. Suzanne Bonamici (D-OR) and Drew Ferguson (R-GA) recently reintroduced the Promoting Apprenticeship with Regional Training Networks for Employers’ Required Skills (PARTNERS) Act last month. This legislation would promote registered apprenticeships and other work-based learning programs for small and medium-sized businesses through the establishment and support of industry-based partnerships. It also would provide funds to states to award grants to eligible partnerships.

Meanwhile, some lawmakers are working to make it easier for companies to access high-skilled immigrants. Sens. Mike Lee (R-UT) and Kamala Harris (D-CA) and Reps. Zoe Lofgren (D-CA) and Ken Buck (R-CO) recently introduced the Fairness for High-Skilled Immigrants Act, which would eliminate the per-country immigration caps that cause backlogs in the employment-based green card system.

Now Seeking Workforce Champions in the EU, Too

Later this month, IPC is preparing to launch its Workforce Champions initiative in Europe with a pledge to provide education, training and career opportunities to more than 500,000 Europeans over the next five years.

As part of the preparations, IPC’s European team has been networking and developing relationships with the European Centre for the Development of Vocational Training (CEDEFOP); the European Alliance for Apprenticeships; EURASHE, representing technical education institutions; EUROCHAMBRES, representing regional Chambers of Commerce; and the STEM Alliance, bringing together Industries, ministries of education, and other stakeholders to promote STEM education and careers to young Europeans.

Please stay tuned for more news on the European front and let us know if you want to get involved.

IPC Members: Help Your Industry and Yourselves!

Over the last two years, IPC has doubled down on its longstanding commitment to help address the chronic skills gaps affecting the electronics industry. Beyond the efforts noted above, IPC also has launched the IPC Education Foundation to expand the number of education and training opportunities in the electronics industry.

Just over the horizon, IPC’s annual U.S. advocacy days in Washington (May 21-22) and Brussels in the Fall will provide opportunities for IPC members to tell government policymakers our views on education and workforce development. IPC encourages our member companies to send senior executives to participate in these important events to help advance our industry’s interests.

Please contact me at KenSchramko@ipc.org in the U.S. or Nicolas Robin in the EU if you have any questions or information to share on workforce issues. Our success depends in large part on the guidance and support we receive from IPC members like you!