3D printing and additive manufacturing have completely changed modern supply chain practices, especially in consideration to manufacturing. Proposed tariff increases will likely accelerate this impact. Additive manufacturing has become more common in every industry including the production of fasteners. These added tariffs could accelerate the automation currently taking place as well as put pressure on 3D printing manufacturers to make their printers use as little material as possible. Businesses are always challenged with finding new solutions to adapt to a changing environment whether it be legislation, consumer wants/needs or economic factors. In this case, these tariffs could encourage fastener manufacturers to invest in additive manufacturing to keep the need for costly raw materials as low as possible. Effected fastener companies who would invest in 3D printing may be eligible to take advantage of the Research and Development Tax Credit.
The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayer’s business
- Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
- Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
On March 18, 2018, the United States Department of Commerce announced a new tariff on steel and aluminum. Steel and aluminum would be taxed at 25 and 10 percent respectively. NAFTA was excluded from this tariff although this administration has hinted at the possibility of that changing.
In Support of the Tariffs
Since the announcement of these tariffs a little over a month ago, effects are already being felt. US-based steel companies like Nucor and Alcoa (Subsidiary of Arconic) have seen their stock prices surge since the announcement was made. Nucor is the largest producer of steel in the US, producing around 15 million tons a year. It has a fastener division with a large production facility in Indiana as well as testing lab in Memphis where experiments within 3D printing are conducted. Nucor tests different solutions in its lab to see if implementation of additive manufacturing while producing certain products is more cost effective. With steel tariffs favoring Nucor, the implementation of additive manufacturing could allow the company to be the top supplier of steel and steel products in the United States.
In Opposition of the Tariffs
Arrow Fastener Company LLC is not as excited about the new tariffs. The company has been making heavy-duty tools like staple and nail guns for over 90 years. Arrow is a New Jersey-based company that currently employs over 280 Americans, and was looking to expand. However, after the steel tariff was passed, the company is going to have to halt its plans to expand and hire 56 more people. The company imports one hundred percent of its banded wire steel from China for its fasteners.
Effects of Tariffs in Other Nations
Rusal PLC is one of the largest suppliers of aluminum in the world. Based out of Russia, the company has refineries, mines and smelters across the globe. American companies as well as close American trade allies (European nations, Japan and South Korea) now have until October 23rd to find a different supplier and avoid paying the ten percent tariff. Rusal PLC having higher prices will likely create a higher price for everyday goods such as soda cans and aluminum foil, create a surplus of aluminum that cannot be sold, lead to Rusal laying off employees across the globe or a combination of one or more of these outcomes.
In order for these companies to adapt to a hike in the price of raw materials, 3D printing could be part of the solution. 3D printing cuts back on the amount of waste in the manufacturing process in comparison to other methods like casting, forging or CNC machining. The effects of automation can already be felt in the larger economy and this trend is only being accelerated by innovations in 3D printing and now tariff legislation.
To learn more about the fastener industry and its 3D printing applications, please consider attending the International Fastener Expo in Las Vegas October 30th – November 1st, 2018.
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Charles Goulding & Ian Brown of R&D Tax Savers discuss 3D printing and the fastener industry.