Regulatory and Legal Reform

What’s the state of manufacturing in the U.S.? Strong and resilient—but under threat.

That was the message delivered by NAM President and CEO Jay Timmons and other speakers at the NAM’s 2024 State of Manufacturing Address at RCO Engineering in Roseville, Michigan, on Thursday.

• Attending the address were nearly 100 RCO Engineering team members—some of whom are second- or even third-generation manufacturing workers—as well as local education leaders, including Macomb Community College President James O. Sawyer IV and Macomb Intermediate School District Superintendent Michael R. DeVault.
• The address was the keystone event of this week’s launch of the 2024 Competing to Win Tour, an opportunity to visit local manufacturers and report on where the industry stands at the start of 2024. 

A place of strength: “The state of the manufacturing industry depends on the people in it,” Timmons said in remarks covered by POLITICO Influence (subscription). “And we are now 13 million strong—the largest in more than 15 years. If we can continue on this trajectory, this resurgence, imagine what the state of manufacturing might look like in 2030.”

• Johnson & Johnson Executive Vice President and Chief Technical Operations & Risk Officer and NAM Board Chair Kathy Wengel echoed that sentiment in her opening remarks. “Manufacturers are improving the quality of life for everyone. … Together, we can lead the way.”
• And Michigan Manufacturers Association President and CEO John Walsh told the audience at RCO Engineering, “You are making parts here that are going everywhere. It’s a phenomenal story for us in Michigan. It not only helps you as employees here, but it helps your families, it helps your communities. It builds our state. It builds our nation.”
• “Manufacturing … is an industry that is vital to our economic competitiveness,” said Macomb County Executive Mark Hackel. “In Macomb County, we’re not just witnessing the growth of manufacturing; we’re actively contributing to it. What we are doing here is creating an environment where innovation thrives and where manufacturers can grow as well as compete.”
• RCO Engineering General Manager Jeff Simek agreed. “The manufacturing brand is coming back, and it’s coming back alive—and you guys are a big, huge piece of that,” he said to loud applause. 

Fork in the road: But continued manufacturing strength isn’t guaranteed, Timmons said. Rather, it’s in large part contingent on sound policy decisions by U.S. leaders.

• “We will head in the wrong direction if Congress lets taxes go up on small businesses when rates expire next year,” Timmons said. “Or if they hit you with even more regulations—regulations even harsher than ones they have in Europe. Or if they fail to solve the immigration crisis because they put politics over good policy. Or choose trade barriers rather than trade agreements, or … abandon our allies overseas and put our national security at risk.”
• The recent regulatory onslaught by federal agencies—which Timmons discussed with Fox Business earlier this week—must stop and be replaced with sensible rulemaking done in cooperation with manufacturers, he said.
• He cited the Environmental Protection Agency’s recently finalized, overly stringent standard for particulate matter and the Biden administration’s decision to freeze liquefied natural gas export permits. This “forc[es] our allies, like Europe and Japan, to buy dirtier energy from countries we can’t trust, potentially enriching the likes of Russia … undercut[ting] our most basic national security objectives,” Timmons said.

No new taxes: The NAM’s message to Congress on taxes is simple: “No new taxes on manufacturers in America,” Timmons said. 

• “And while we’re at it, Congress should bring back some of the tax policies that made it easier for manufacturers to invest in the future.”

On immigration: The U.S. needs a common-sense solution to immigration, and it needs it now, Timmons said.

• While manufacturers may not like every piece of the bipartisan border deal that was recently killed in the Senate, “here was my test: Does it make us more secure than we are today? Yes. Does it make our workforce stronger than it is today? Yes. And does it help our allies overseas? Yes,” said Timmons.

Come what may: No matter what the November elections bring, manufacturers will continue to do the jobs so many people depend on them to do, Timmons concluded.

• “Our commitment is to work with anyone, and I truly mean anyone, who will put policy—policy that supports people—ahead of politics, personality or process. We will stand with you if you stand with us in advancing the values that have made America exceptional and keep manufacturing strong.” 

The Environmental Protection Agency’s recently finalized standard for particulate matter (PM2.5) will hamstring U.S. economic growth, job creation and competitiveness—and it must be reversed, the NAM told the House Thursday.

What’s going on: “The EPA’s unworkable PM2.5 standard … of 9 [micrograms per cubic meter of air] is in line with background levels of particulate matter in many parts of the country,” NAM Managing Vice President of Policy Chris Netram told committee members during “Safeguarding American Prosperity and People’s Livelihoods: Legislation to Modernize Air Quality Standards,” a hearing of the House Energy and Commerce Subcommittee on Environment, Manufacturing and Critical Materials.

• “In other words, the standard is now so low that companies will be expected to reduce their emissions below what naturally occurs.”
• The result of an overly stringent National Ambient Air Quality Standards level: Large swaths of the U.S. will be forced into “nonattainment” status, making permitting for critical infrastructure nearly impossible and all but guaranteeing job cuts, not growth, Netram said in his testimony, which Bloomberg (subscription) covered.

Why it’s important: A particulate matter standard of 8 micrograms per cubic meter of air—only slightly below the newly finalized level—would result in a loss of up to $200 billion in economic activity and almost 1 million jobs, according to a recent NAM study.

• As far as global competitiveness is concerned, the new limit effectively cuts America off at the knees, Netram continued. “Europe’s current PM standard is 25; China’s is 35. If we want the next manufacturing dollar to be spent in America rather than abroad, a standard of 9 is simply not feasible.”

What should be done: Lawmakers should introduce a Congressional Review Act resolution to overturn the new standard as soon as possible, Netram urged. The NAM also highlighted key NAAQS reform policies Congress is considering:

• Extend the EPA review period to 10 years.
• Allow the EPA to count wildfire mitigation as exceptional “rather than holding manufacturers accountable for PM they can’t control.”
• Require the EPA to consider the economic effects of a tightened standard.

Small businesses are a critical part of both manufacturing and the U.S. economy at large, but the federal government’s costly regulatory onslaught is putting their continued existence at risk, the NAM told House lawmakers Wednesday.

What’s going on: “In the manufacturing sector, the majority of firms are small,” NAM Vice President of Domestic Policy Brandon Farris told the House Committee on Small Business during the hearing “Burdensome Regulations: Examining the Impact of EPA Regulations on Main Street.”

• “These firms are the backbone of the manufacturing supply chain, often producing key components for larger firms … [but] manufacturing faces significant headwinds in the form of the cost, complexity and uncertainty associated with overreaching and burdensome federal regulations.”

Why it’s important: The seemingly endless conveyor belt of new federal rules for the industry is costing manufacturers “shocking” amounts, disproportionately imperiling manufacturers—small ones in particular, Farris continued.

He cited NAM data finding that:

• The federal cost of regulations for manufacturers in 2022 was roughly $350 billion, a 25% increase from 2012; and
• The average manufacturer in the U.S. pays $29,100 per employee per year to comply with federal rules, while for the average small manufacturer, that price is $50,100.

Where it’s coming from: Farris cited other recent examples of onerous federal rulemaking, including:

• The Environmental Protection Agency’s recently finalized update to the National Ambient Air Quality Standard from 12 micrograms per cubic meter of air to 9 micrograms, a level approaching naturally occurring levels in many parts of the U.S., according to Farris, and one that “will make manufacturing in the U.S. less competitive globally”;
• The Department of Energy’s recent freeze of liquefied natural gas export permits, which, given increased European reliance on U.S. LNG since the start of Russia’s war in Ukraine, risks “leav[ing] our allies [and] our manufacturers in the cold”; and
• The Securities and Exchange Commission’s proposed climate disclosure rule, which “would increase manufacturers’ compliance costs dramatically, divert resources from job creation and growth, expose companies to increased liability, reveal proprietary and confidential information and ensnare wide swaths of the manufacturing supply chain.”

What must be done: Manufacturers aren’t asking legislators to cut corners, Farris said.

• Rather, they are seeking “regulatory certainty that can guide investment decisions and ensure that this country’s economic competitiveness is not outpaced or outflanked or overtaken by nations that do not share our values.” 

To learn more about the high cost of overregulation, visit Manufacturers for Sensible Regulations, a coalition created by the NAM and members of the NAM’s Council of Manufacturing Associations and Conference of State Manufacturers Associations that’s intended to address the recent regulatory onslaught from federal agencies. 

For nearly 50 years, Rinnai America Corporation has been selling innovative products in the United States. But as the Department of Energy prepares to unveil new rules in April, the water heater manufacturer is bracing for a big—and unnecessary—setback to its operations.

The background: There are a lot of water heater options on the market, and consumers must make a few key choices.

• First, they can choose between electric and gas heaters.
• Second, if they choose a gas heater, they can select one with a tank or one without.
• Finally, even tankless gas heaters come in two forms: condensing or noncondensing. Condensing heaters are used generally in colder environments, while noncondensing units are better for warmer climates.

The rule: The Department of Energy has proposed regulations on gas water heaters that would go into effect in 2029.

• However, the proposed efficiency requirements for tankless gas water heaters are so strict that noncondensing tankless units would not qualify—removing a cost-effective option from the market, and one that is in fact comparatively efficient.
• “The DOE is not taking into consideration what is best for the consumer, best for the industry and best for the environment overall,” said Frank Windsor, president of Rinnai America Corporation. “This is a shortsighted decision that doesn’t take into account the ramifications.”

The consumer impact: The DOE’s rule would restrict consumer choice severely by creating a de facto ban on noncondensing tankless heaters.

• “Consumers are getting hurt,” said Windsor. “Around 20% of consumers want tankless options”—including noncondensing tankless heaters. 

The industry effect: Rinnai invested $70 million in 2022 in a new Georgia facility that makes noncondensing tankless gas heaters.

• “We built this new facility to make tankless water heaters that give consumers significant energy efficiency at a low price—and now the DOE is saying that, by 2029, you can’t make noncondensing units anymore,” said Windsor.
• “We’ve got close to 200 people working for us in Griffin, Georgia, so it impacts a lot of people.”

The innovation loss: According to Windsor, the rule is also counterproductive because it forces companies like Rinnai to reallocate funds that otherwise could go toward product innovation.

• “We’re going to have to spend money to retool that plant, and then we’ll get taxed on the capital for the plant that we can’t use anymore—and that’s all money that we would’ve spent on product innovation,” said Windsor.

The last word: “Why would you eliminate the availability of a cost-effective, efficient product and force the consumer to buy a more expensive option?” asked Windsor.

Learn more about the high costs of regulations, and the extreme burden on small manufacturers, in this recent NAM study. And check out Manufacturers for Sensible Regulations, a coalition created by the NAM and members of the NAM’s Council of Manufacturing Associations and Conference of State Manufacturers Associations, which is intended to address the regulatory onslaught coming from federal agencies in recent years.

In a move that could have a significant negative impact on manufacturing in the U.S., the Environmental Protection Agency on Wednesday finalized an update to the federal air quality particulate matter standard.

What’s going on: The EPA announced a significantly stricter standard for fine soot, lowering the National Ambient Air Quality Standards for fine particulate matter (PM2.5) from 12 micrograms per cubic meter of air to 9 micrograms.

The background: America’s air is actually cleaner than ever, due in large part to manufacturers’ commitment to innovation.

• In fact, the EPA recently reported that PM2.5 concentrations have declined by 42% since 2000.
• Yet, last year, the agency signaled that it was considering lowering the standards even further anyway—and while the NAM and manufacturers spoke out against the move, the EPA moved ahead.

The problem: If enacted, such an aggressive standard would make it far more difficult and costly for manufacturers to operate in the United States.

• It would put huge swaths of the country in “nonattainment,” meaning that they would not meet ambient air quality standards. Factories in nonattainment areas would be unable to operate. Permitting would become almost impossible, and economic development would grind to a halt.
• A recent NAM-commissioned analysis by Oxford Economics found that a standard at this level could reduce GDP by nearly $200 billion and cost as many as 1 million jobs through 2031.

Our take: “The Biden administration’s new PM2.5 standard takes direct aim at manufacturing investment and job creation in direct contradiction to the president’s stated goal of strengthening manufacturing in communities all across America,” said NAM President and CEO Jay Timmons.

• And it will “mak[e] an already gridlocked permitting system further gridlocked” and discourage long-term investments by manufacturers.

​​​​​​​Unfair disadvantage, tough choices: It would put the U.S. at a disadvantage with global competitors, too, Timmons added.

• “Manufacturers in America will also be hard pressed to make long-term investment plans domestically as our global competitors have set more reasonable goals. The EU standard is currently 25, and a proposal there would be to reach 10 by 2030. The UK has a target of 10 by 2040.”
• And it would require state and local officials to make difficult decisions about which critical infrastructure projects in their areas move forward, Timmons continued.

High cost, little impact: What’s more, the tightened rule won’t address the greatest sources of particulate matter, according to NAM partners the American Forest & Paper Association and American Wood Council.

• The “EPA’s rule delivers a devastating blow to U.S. manufacturing and the economy while doing nothing to address the largest sources of particulate matter, including wildfire smoke,” they said in a joint statement. “This unworkable air rule undermines President Biden’s promise to grow and reshore manufacturing jobs.”
• “This administration has set the PM2.5 NAAQS at near background levels, ensuring permit gridlock for most manufacturing sectors around the country, while failing to address 84% of overall PM2.5 emissions.”

Next steps: The NAM has spoken out repeatedly against this stricter regulation and will continue to call on Congress to reverse it.

NAM in the news: AFP, Associated Press, Daily Caller, Fox News and Newsweek all covered the NAM’s response to the finalized rule.

The last word: “The U.S. already has some of the strictest air standards in the world, and thanks to manufacturers’ innovation and leadership, some of the cleanest air and best environmental records,” Timmons concluded. “Manufacturers will consider all options to reverse this harmful and unnecessary standard, because it is our duty to stand against policies that hold our country back.”

Pharmacy benefit managers are contributing to the skyrocketing cost of health care for manufacturers and must be reined in—and that’s why the NAM supports the bipartisan Delinking Revenue from Unfair Gouging (DRUG) Act, passed yesterday by the House Oversight and Accountability Committee.

What’s going on: PBMs, created in the 1960s with the intention of keeping prescription drugs affordable, are now doing the very opposite, the NAM informed the committee ahead of Tuesday’s markup.

• PBMs “increas[e] the price that health plan participants pay for medicines,” NAM Vice President of Domestic Policy Charles Crain said. “By applying upward pressure to list prices that dictate what patients pay at the pharmacy counter, pocketing manufacturer rebates and failing to provide an appropriate level of transparency about their business models, PBMs increase health care costs at the expense of manufacturers and manufacturing workers.”

• In addition to other reforms, the DRUG Act would require “delinking”—ensuring that PBMs charge a flat rate for their services rather than charging a percentage of a medication’s list price. This critical reform would “remov[e] PBMs’ incentive to put upward pressure on list prices in order to maximize their own profits,” Crain said.

Why it’s important: The NAM—whose advocacy, including a six-figure ad campaign, helped lead the DRUG Act to passage by the House Oversight Committee—“has long favored delinking PBM compensation from the list price of medications, including in the commercial market,” Crain continued.

• The NAM will continue to advocate for PBM reforms that “will benefit employers by making PBM contracts more straightforward, transparent and predictable—and will benefit workers by reducing the prices they pay out of pocket for their prescriptions.”

The Securities and Exchange Commission’s pending climate disclosure rule would place an enormous, untenable burden on manufacturers—and impose a disproportionate hardship on small businesses, NAM Vice President of Domestic Policy Charles Crain told lawmakers Thursday.

What’s going on: Crain gave testimony before the House Financial Services Subcommittee on Oversight and Investigations on the damaging effects of the SEC’s proposed climate rule, which would require businesses to reveal large amounts of convoluted (and often sensitive) climate-related data.

• The plan would force disclosure of so-called “Scope 3” emissions—those that come from companies’ supply chains—and institute new climate-related accounting requirements, among other mandates.

Why it’s a problem: If finalized, the rule would divert funds from manufacturing growth, including at small manufacturers.

• “Manufacturing pioneers groundbreaking technologies, including the innovations necessary to combat climate change,” Crain said. “The rule would impose tremendous costs on manufacturers of all sizes—while overwhelming investors with immaterial information. And the SEC hasn’t done the work to show that the rule’s benefits outweigh its costs, or that the rule is even within the SEC’s legal authority.”
• The proposed regulation would, by the agency’s own accounting, “raise the cost to businesses of complying with its overall disclosure rules to $10.2 billion from $3.9 billion, an additional cost of about $530,000 a year for a bigger business,” according to The Wall Street Journal (subscription).

Costs to manufacturers: Crain told lawmakers that the SEC’s analysis likely understates the true costs of the rule, in part because the agency did not consider the impacts on private businesses.

• “For the larger companies subject to [the Scope 3] requirement, the SEC has admitted that it cannot ‘fully and accurately quantify’ the costs,” Crain said. “But for the small businesses that are swept into large companies’ Scope 3 efforts, the SEC hasn’t even tried. The SEC’s proposal does not include any discussion of the Scope 3 costs that will fall on small and private businesses.”
• Crain warned lawmakers that these compliance costs would represent a “huge resource diversion” for small manufacturers.

Regulatory onslaught: Crain shared the NAM’s landmark Cost of Federal Regulations study with lawmakers, explaining that the SEC’s proposal would add to the $50,000-per-employee-per-year regulatory burden small manufacturers face.

• “The SEC’s climate rule is at the center of this regulatory onslaught,” Crain said.

NAM in the news: Bloomberg (subscription), Law360 and Pensions & Investments all covered the NAM’s testimony. 

The House passed a health care package on Monday that includes measures to curb some practices by pharmacy benefit managers, according to STAT News.

What’s going on: The Lower Costs, More Transparency Leadership Act, which passed on a bipartisan vote, “would equalize payment between hospital outpatient departments and doctors’ offices for administering medicines in Medicare, rein in some practices by pharmacy benefit managers and codify health care price transparency rules.” 

• The vote on the measure was scheduled for September originally but was pushed back amid a larger funding dispute.

What it means: The package would prohibit PBMs from “spread pricing”—or charging Medicaid more than they pay pharmacies for medications.

• It would also require PBMs, “clinical lab test providers, imaging providers [and] ambulatory surgical centers … to be more transparent about their pricing.”

What’s next: “Some community health advocates hope Monday’s vote will jump-start negotiations with the Senate, where leaders have signaled they’re looking for more than what’s in the House bill,” POLITICO reports.

Our view: “House passage of the Lower Costs, More Transparency Act is a step forward for PBM transparency, but Congress must continue to advance reforms that ensure PBMs pass on prescription drug discounts directly to plan sponsors and patients as well as delink their compensation from the list price of drugs,” the NAM said on Tuesday.
 

So-called “right-to-repair” policies undo many of the federal and state laws designed to protect consumers and manufacturers—and they could result in “steep cost[s] to quality, performance, consumer safety, the environment and the broader U.S. economy,” according to a new NAM-commissioned study.

What’s going on: “The Economic Downsides of ‘Right-to-Repair,’” by Capital Policy Analytics’ Ike Brannon and Kerri Seyfert, finds that enacting right-to-repair laws could disrupt supply chains, leave manufacturers open to intellectual property theft, drive up costs for consumers and manufacturers and increase greenhouse emissions in the atmosphere.

• Right-to-repair policies, currently in place in more than 30 states, generally require manufacturers to make all tools, guides and parts required to repair their devices available to everyone, including independent repair outfits.
• A federal right-to-repair law “would ultimately alter how manufacturers operate their businesses, and there is no guarantee that consumers would benefit, as manufacturers would be forced to change the way their products perform,” according to the study.

Why it’s important: “There is a wide range of unintended and potentially harmful consequences that would arise if the most commonly introduced versions of ‘right-to-repair’ go into effect,” Brannon and Seyfert write.

• In addition to making product repair more difficult, such policies could drastically increase compliance costs for manufacturers and drive up prices for consumers.

Pharmacy benefit managers—companies that were first established to manage the cost of prescription drugs—are now driving up pharmaceutical prices for employers and patients, the NAM told the House Committee on Energy and Commerce this week.

What’s going on: While manufacturers remain committed to providing health benefits to their workers, PBMs are “[c]ontributing to the increasing costs of health care,” said NAM Vice President of Policy Chris Netram on Monday, ahead of the committee’s markup of 44 pieces of legislation.

• These measures included the Protecting Patients Against PBM Abuses Act and the Medicare PBM Accountability Act.

Why it’s important: PBMs operate with a virtual monopoly, as just a few of them now control up to 89% of the prescription drug market, Netram continued.

• PBMs operate with limited federal oversight and frequently steer business toward pharmacy networks owned by their parent firms.

What should be done: Congress should pass legislation aimed at changing the PBM model.

• “The complex formulas and opaque business practices of PBMs must come to an end,” the NAM wrote in a social post Tuesday. “Congress must address PBM reform to increase transparency, ensure pharmaceutical savings are passed to the plan sponsor and patients and delink PBM compensation from the list price of drugs.”

In related news: CVS Health “will move away from the complex formulas used to set the prices of the prescription drugs it sells, shifting to a simpler model that could upend how American pharmacies are paid,” The Wall Street Journal (subscription) reports.