Charles Goulding and Andressa Bonafe from R&D Tax Savers discuss US/China trade tariffs and opportunities for 3D printing.

The U.S. trade deficit with China reached $375.2 billion in 2017, underlining the Chinese market advantage within some product categories. While part of this phenomenon is explained by the perception that the U.S. cannot be cost competitive, there are also certain product categories that were originated in China because of a lack of capabilities to produce them nationally. In recent years, however, many U.S. manufacturers have considerably expanded their capabilities, automating their production facilities and introducing a combination of 3D printing, advanced machine tools, and robots. Given these technological advancements, the list of Chinese goods subjected to import tariffs actually provides an important market opportunity for U.S. manufacturers with newly acquired potential to provide higher-quality, lower-cost alternatives.

The U.S.-China Trade Conflict

In a significant escalation of the U.S.-China trade conflict, the Trump administration enacted two waves of tariffs on Chinese imports affecting roughly $50 billion worth of products. The first round went into effect in early July and targeted $34 billion worth of goods while the second tranche, effective late August, targeted an additional $16 billion. The tariffs focus on industrial items, including machinery, vehicles, and chemicals. While often seen as generating higher costs for American manufacturers, these tariffs actually represent a major growth opportunity, particularly for innovative companies with 3D printing capabilities.

Many of the targeted items are from product categories originated in China due to lack of U.S. cost-competitive capabilities. However, as production technologies advance to include automation, advanced machine tools and, especially, 3D printing, American manufacturers are well positioned to fulfill this market opportunity and start producing nationally what was previously imported from China. The following examples illustrate how additive manufacturing has changed the production of goods on the tariffs lists.

I. DC and AC Generators of Various Sizes and Power Levels

The first list of targeted imports included DC and AC generators of various sizes and power levels. 3D printable generators and generators parts are multiplying, reducing the costs and time involved in the production of these items. Located in Export, Pennsylvania, Fulmer Company is among the largest North American manufacturers of brush holders and specialty-machined parts for DC/AC motors, generators, and alternators. The company hosts a precision CNC machine shop with fabrication capabilities that include a spring shop and assembly department. Fulmer Company also boasts a vast amount of engineering and technical expertise in addition to MasterCam, SOLIDWORKS, and 3D printing capabilities that have been cornerstones of the firm for years. 3D printing has been an integral piece of their success, especially for their precision manufacturing and non-ferrous permanent mold foundry, Perma-Cast.

II. Aircraft Engines and Engines Parts

The first tariff list also included aircraft engines and engines parts. The aerospace industry has a been a first mover with 3D printing due to the need for new product designs, weight reduction, and lower costs. All of the major engine builders including Rolls Royce, GE, and United Technologies have made extensive use of 3D printers.

GE’s Catalyst engines illustrate the benefits of incorporating 3D printing into the aircraft engine manufacturing process. As the world’s first turboprop engine with 3D printed parts, Catalyst provides considerably less fuel consumption and higher cruise power than its competitors. A combination of additive manufacturing and advanced alloys enabled innovative component design, which reduced part counts from 855 parts to 12 components. This reduction in complexity speeds up production, reduces fuel burn and weight, and increases durability with fewer seams and tighter tolerances.

III. Marine Propulsion Engines for Outboard Motors

Yet another product category subject to Section 301 tariffs is marine propulsion engines for outboard motors. Headquartered in Fond du Lac, Wisconsin, Mercury Marine is one of the world’s leading providers of marine propulsion. Mercury is the creator of Enertia ECO, an innovative propeller that offers optimal fuel economy and performance at cruise speed. With a large 16-inches diameter, extra-large blade area, and a high-progressive rake for increased bow lift, Enertia ECO enables up to 10 percent higher cruising miles per gallon with no compromise in holeshot or top end speed. Mercury’s innovative design relied on 3D printing for prototyping as well as for the creation of molds to cast props for testing. The image below presents a 3D printed marine propeller made of resin activated by laser. Similar to a honeycomb, the 3D printed prototype prop is rigid yet light.

Mercury Marine has nine manufacturing plants around the globe, including two facilities in the U.S. and one in China. This international presence puts Mercury in a privileged position to engage in tariff planning. The company could use 3D printing to make more component parts in the United States, avoiding any potential setbacks from import taxes. Other American outboard motors’ manufacturers, such as Sturtevant, Wisconsin-based Evinrude, could also utilize additive manufacturing technology in order to take full advantage of the market opportunity created by the tariffs on Chinese goods.

IV. Gas Turbines and Parts of Gas Turbines

Gas turbines and parts of gas turbines are also among the imports targeted by the new tariffs. Until recently, blades for gas turbines were cast or forged, which consisted in complex, time-consuming, and costly procedures. However, technological advancements point to the revolutionary potential of additive manufacturing in changing this scenario. Siemens has introduced 3D printed gas turbine blades produced from a high-temperature-resistant powdered polycrystalline nickel-based superalloy. The innovative turbine can withstand extreme conditions of operation, including high pressures as well as extreme heat and tremendous centrifugal forces. According to Siemens’ website, 3D printing reduced the period of time from the design to the production of a new blade from two years to two months. Additionally, the new process enables greater design flexibility for the development of tailored solutions according to customers’ needs.

R&D tax credits may be available for U.S. companies taking the initiative to provide products targeted by the recently imposed tariffs.

The Research & Development Tax Credit

Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

• New or improved products, processes, or software

• Technological in nature

• Elimination of uncertainty

• Process of experimentation

Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On December 18, 2015, President Obama signed the bill making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum Tax and startup businesses can utilize the credit against $250,000 per year in payroll taxes.

Conclusion

The Trump administration is considering the implementation of an even wider round of tariffs that could affect as much as $200 billion worth of Chinese imports. Even though there is no consensus on the potential economic repercussions of the U.S.-Chinese trade war, American manufacturers could take advantage of 3D printing capabilities to venture into product categories that have been dominated by Chinese competitors. The U.S. 3D printing industry should study the products targeted by the newly imposed tariffs and consider apprising their customers who they feel have the capability of making the listed items.