- Trump is likely to initiate lower taxes for individuals and corporations, but the benefits aren’t as clear-cut as some may hope
- Trump has also promised to impose tariffs on foreign-made goods, which could affect telecom supply chains
- The biggest economic concern for broadband right now is how Trump will treat the BEAD program
Donald Trump’s most clearly articulated economic plan is that he intends to impose a lot of tariffs on foreign-made goods entering the U.S. We can also speculate that he won’t allow tax breaks given in 2018 to lapse as they’re scheduled to do, and that Republicans will probably address taxes as one of the first items on their agenda. The effect of these policies on the telecom sector will be a mixed bag.
During President Trump’s first term he passed the Tax Cuts and Jobs Act, which created a single corporate tax rate of 21%. At the time, companies with foreign investments were also allowed to re-onshore those investments by paying a 15.5% tax instead of the previous 35%. But re-onshoring won’t be a factor this time around.
The 2018 law also included a lot of tax cuts for individuals, which are set to expire in 2025. It’s possible that Trump won’t allow the tax cuts to expire.
Grant Spellmeyer, CEO of the trade group ACA Connects, predicts that the new administration will immediately put a big focus on taxes, and a lot could change besides just extending previous tax cuts.
“On the assumption Republicans control the House, you’ll see a major tax bill moving in 2025 that will have opportunities to revisit tax policy. I think that will dominate the first half of the year,” said Spellmeyer.
While everyone, both individuals and corporations, would enjoy a nice tax break, the implications could be far-reaching and mixed.
The Wall Street Journal did an analysis, saying that less tax funds would result in a higher federal deficit and put upward pressure on interest rates. And as we’ve seen over the last couple of years when the Federal Reserve has increased interest rates, that’s difficult for companies that are carrying debt or that want to engage in mergers and acquisitions.
Dish Network, for example, has almost crumbled under the weight of its high interest debt. And the higher cost of capital also crimped some capital investment and merger and acquisition activity in the telecom sector as companies wait for rates to go down.
How tariffs might affect the telecom industry
During the September 10 debate with Vice President Harris, Trump was adamant about imposing tariffs. He said, “Other countries are going to finally, after 75 years, pay us back for all that we’ve done for the world. And the tariff will be substantial in some cases.” He’s proposed tariffs as high as 60% on Chinese goods and 10% to 20% on other countries.
Economists, generally, don’t like tariffs. Even the Project 2025 document published by the conservative Heritage Foundation included advice from Kent Lassman, president of the Competitive Enterprise Institute, who dissed tariffs.
Lassman said the steel tariffs in Trump’s last administration caused retaliatory tariffs levied by other nations, which resulted in the loss of 75,000 manufacturing jobs while creating only about 1,000 jobs in the steel industry.
However, Peter Navarro, former White House director of trade and manufacturing policy, wrote in the Project 2025 document than the World Trade Organization’s most favored nation rules encourage U.S. trade partners to adopt high tariffs, which leads to the U.S. having chronic trade deficits.
Preston Padden, a longtime telecom executive who is now principal of the consulting firm Boulder Thinking, told Fierce Network, “No sane economist would support tariffs.”
Within the telecom industry, the most obvious victims of tariffs would be Nokia and Ericsson because both of those companies are based in Scandinavia.
Many telecom vendors have already self-certified that their products are Build America, Buy America (BABA) compliant for purposes of the Broadband Equity, Access and Deployment (BEAD) program. To avoid tariffs, Nokia and Ericsson could build more of their products in the U.S., where they already do some manufacturing however foreign components could cause challenges there.
Padded noted, “Even smart phones have a lot of foreign components. If tariffs hit those it could raise the cost of phones as well.”
The analysts at Bernstein Société Générale Group wrote that hardware companies, including server manufacturers such as Dell that rely on foreign parts or manufacturing, could be especially vulnerable to retaliatory tariffs. That could impact the telecom sector as well.
The impacts to the BEAD program
One thing that’s on a lot of people’s minds in the telecom industry is how the second Trump administration might affect the BEAD program. The $42.5 billion has already been distributed to the states, which are knee-deep in the process for awarding money to companies that build broadband networks. Everyone in the industry from service providers to vendors is anticipating some boom years during all this broadband construction.
Certainly one of the issues is whether the next administration will choose to revisit some of those BEAD rules. That is one of the issues forefront in my mind.
Grant Spellmeyer, CEO, ACA Connects
However, the BEAD program has always specified a preference for fiber broadband. But Trump currently has a cozy relationship with Elon Musk. What happens to BEAD if the next NTIA chief takes away the preference for fiber and replaces it with a preference for satellite broadband? Would all the taxpayers’ billions end up in the hands of Musk for his Starlink satellite company?
No one knows the answer to that question, yet. Spellmeyer said, “Certainly one of the issues is whether the next administration will choose to revisit some of those BEAD rules. That is one of the issues forefront in my mind.”
Less regulation
The telecom industry doesn’t like regulation because it costs money to comply and sometimes prevents profitable activities. So, Trump’s win will probably have a positive economic impact on their bottom lines in terms of regulation.
The main regulatory issue they’ve been concerned about is net neutrality, which they particularly loathe because it could open the door to price regulation. The Sixth Circuit Court of Appeals is currently reviewing a lawsuit filed against the Federal Communications Commission (FCC) over its net neutrality rules. Now that Trump has been elected, net neutrality is probably dead in the water. A new FCC chairman appointed by Trump won’t pursue it, and telecom stakeholders will be relieved that price regulation is off the table.
Other regulatory initiatives will probably also go away. The industry is opposed to the FCC’s efforts to ban bulk billing in multi-dwelling apartments and condos. Dropping this effort will make providers with bulk-billing arrangements happy that their business models aren’t in jeopardy.
The FCC is also looking into rules that would make it easier for telecom customers to cancel their service.
Padden said a lot of these regulation roll-backs will be good for the industry, while not necessarily good for consumers.
What does it all mean?
As with any major economic upheaval there are a lot of puts and takes. Telecom and broadband companies are likely to enjoy lower taxes and less regulation. But they might find it expensive to source products from global companies. And if BEAD changes dramatically, the boom-times in fiber broadband may not happen.
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