Donald Trump has said that he plans dramatically to reduce the regulatory burden facing American businesses. If his administration is successful, the U.S. could become a far more competitive location for business and grow at a more rapid rate.
There is little doubt that regulations impose a huge cost on U.S. businesses. Using survey data, the National Association of Manufacturers estimated that the cost of federal regulations in 2012 was over $2 trillion. Meanwhile, in April 2016 the Mercatus Center published the results of an economic model which estimated that the additional since 1980 additional federal regulations have reduced economic growth by 0.8 percent of GDP per year.
In October, Donald Trump stated, “I would say 70 percent of regulations can go.” That may be a little ambitious. Trump’s website states that his administration will, “reform the entire regulatory code to ensure that we keep jobs and wealth in America” and it describes a process for achieving this aim. Specifically, he plans to:
- Ask all department heads to submit a list of every wasteful and unnecessary regulation which kills jobs, and which does not improve public safety, and eliminate them.
- End the radical regulations that force jobs out of our communities and inner cities. We will stop punishing Americans for working and doing business in the United States.
- Issue a temporary moratorium on new agency regulations that are not compelled by Congress or public safety in order to give our American companies the certainty they need to reinvest in our community, get cash off of the sidelines, start hiring again, and expanding businesses. We will no longer regulate our companies and our jobs out of existence.
- Cancel immediately all illegal and overreaching executive orders.
- Eliminate our most intrusive regulations, like the Waters of the U.S. Rule. Scrap the EPA’s so-called Clean Power Plan which the government estimates will cost $7.2 billion a year.
- Decrease the size of our already bloated government after a thorough agency review.
While this plan is admirable in its intent, implementation will not be easy. First, agencies may amend or rescind regulations that are already in force, but to do so they must comply with the Administrative Procedures Act, which requires them to: (a) issue a notice of any proposed rulemaking by publishing details in the Federal Register; (b) offer interested persons an opportunity to comment on the proposal; (c) publish the final rule, at least 30 days before it becomes effective; and (d) “give an interested person the right to petition for the issuance, amendment, or repeal of a rule.”
This process can become very protracted, especially since many attempts to repeal existing regulations will likely be challenged in the courts, either by incumbents or by interest groups. Incumbent businesses have in many cases already implemented existing regulations, so repeal would benefit new entrants relative to incumbents, who will seek to keep those regulations in place. Meanwhile, special interest groups will claim that the regulations are necessary to protect public health, the environment, or some other cause.
Given the practical challenges of advancing reform, it is important that the new administration carefully identify reform opportunities that are likely to be both successful and meaningful.
The two regulations specifically identified in the plan seem like good examples. The so-called “Clean Power Plan” imposes a range of requirements on states to regulate electricity production and, even by the EPA’s own estimates, its enormous costs (put at $39 billion/year by National Economic Research Associates) are not justified by the benefits in terms of reduced emissions of greenhouse gases – its ostensive aim. Moreover, the regulation has been challenged by more than two dozen states, which have questioned its constitutional legitimacy, and it is currently being reviewed by the Court of Appeals.
Likewise, the Waters of the U.S. Rule reinterprets the meaning of “navigable waters” for the purposes of implementing the Clean Water Act in such a way as to include many locations that would not normally be considered navigable, such as ditches and parking lots on which water occasionally collects. By expanding the meaning of “navigable,” the rule grants jurisdiction over those “waters” (i.e. parking lots) to the EPA and Army Corps of Engineers. In so doing, it restricts all manner of economic development, while doing practically nothing to protect the environment.
Trump’s proposal to ask department heads to identify other suitable candidates for reform seems reasonable. But where will those department heads get their candidates? Under the existing agency structure, they would presumably be reliant on the same staff who oversee the regulations – and whose self-interest lies largely in expanding the role of regulation, not constraining it.
Instead of relying on information from agencies, the new administration might draw on existing appraisals of the cost of regulation such as those produced by the American Action Forum and the Competitive Enterprise Institute. This could be combined with a prioritization effort modeled on the approach developed by Bjorn Lomborg’s Copenhagen Consensus Center, bringing experts and agency heads together to develop a ranking of which regulations to target based on the net benefits of repeal/reform and the likelihood of success.
In principle, reform efforts might be assisted by the White House Office of Information and Regulatory Affairs (OIRA), whose remit is to review regulations issued by the executive. But OIRA’s powers are very limited. In a recent article in Regulation magazine, Sam Batkins of the American Action Forum and Ike Brannon of Capitol Policy Analytics recount the sorry tale of an attempt by OIRA to stop a regulation issued by the U.S. Department of Agriculture that would effectively force a groups of farmers to tear out their apricot orchards. Even though the total cost of the program was estimated at only $20 million, Batkins and Brannon note, “the fight was kicked to Office of Management and Budget Director Mitch Daniels, who in turn kicked it to Vice President Dick Cheney. Cheney then met with the agriculture secretary, Ann Veneman, to negotiate a resolution – which amounted to letting the USDA go ahead with the program, but with a promise that OIRA would ‘win the next one.’”
One solution would be to increase the budget and authority of OIRA, giving it a role in reviewing existing regulations, as well as those being proposed. An alternative would be to create a new, independent agency responsible for deregulation. The incentives of those working at such an agency would be aligned with the removal of unnecessarily burdensome regulations.
While the Clean Power Plan and Waters of the U.S. Rule are discrete regulations implemented by agencies, Trump has also talked about overturning whole pieces of legislation, including Obamacare and Dodd-Frank. While in principle desirable, such reforms will clearly be more challenging. To repeal entire statutes will require new legislation. Indeed, given the problems already outlined, new legislation may be the most effective way to reform many existing regulations. But only Congress can pass new legislation. And while there are many supporters of regulatory reform in the Republican Party-dominated Congress, support for reform is by no means guaranteed, in part because the same groups that would object to reforms by the executive wield considerable influence through lobbying.
Given the difficulties of identifying and implementing regulatory reform, it is too early to say with any precision what practical effect Trump’s actions will have. But assuming they achieve some of their aims, the effect will be to make the U.S. more competitive in the production of goods and services. Such a prospect is presumably part of what has driven the rally in U.S. stocks since the election on Nov. 8.
From the perspective of offshore jurisdictions, deregulation in the U.S. presents both opportunities and threats. Opportunities are likely to exist in the form of new capital investments from funds that focus on industries that have been over-regulated, such as energy and manufacturing. In addition, reform of FATCA and AML rules might increase the attractiveness of offshore jurisdictions, deepening the pool of global capital, benefitting both the U.S. and offshore jurisdictions. Threats may come from changes to regulations such as Dodd-Frank and Sarbanes-Oxley that currently make the U.S. a less attractive location for financial services.