What Trump’s second term means for distribution

The distribution industry faces significant changes in tax, trade and labor policies that could reshape supply chains, pricing and profitability.

President Trump’s early executive orders and policy proposals signal shifts in corporate taxation, tariffs and workforce incentives, creating both opportunities and challenges. While some initiatives may boost domestic manufacturing and investment, others could increase costs and disrupt global sourcing. For distributors, staying ahead means understanding these policy changes and preparing for their impact.

Tax policies for distributors to watch

Several tax policies enacted during Trump’s first term remain in effect, including unpopular expense rules. Industry leaders are hopeful that tax policies will be adjusted in favor of U.S. manufacturers and distributors this term.

Key tax policies to watch include:

1. IRS Section 174: R&D expensing

During Trump’s first term, the Tax Cuts and Jobs Act (TCJA) altered IRS Section 174, requiring R&D expenses to be amortized over five years (for domestic expenses) rather than allowing a 100% deduction in the year expenses were incurred.

This change resulted in a significant loss of tax benefits and, some businesses argue, discouraged modernization and slowed cash flow. For years, trade groups unsuccessfully lobbied Congress to repeal the rule. This could be their moment.

A memorandum circulating in the House Budget Committee this month included a proposal to return to immediate expensing. The Section 174 proposal is part of a broad list of tax-related changes under consideration and may evolve during the legislative process.

2. Bonus depreciation

The TCJA also introduced a provision allowing distributors to write off 100% of qualifying equipment and fixed assets immediately. The benefit has been phasing down since 2023 and will fully expire by 2026.

If not extended, the loss of bonus depreciation could make investments in warehouses and distribution technology less attractive to distributors. Some companies may even delay capital projects or infrastructure upgrades.   

3. IRS Section 199A: Flow-through deduction

Currently, Section 199A allows owners of pass-through businesses to deduct up to 20% of their qualified business income. The deduction benefits S corporations, partnerships and sole proprietorships by making more capital available to invest in operations and equipment. The pass-through deduction is set to expire at the end of 2025.

If it expires, owners can remain pass-through entities without the 20% deduction (and face higher tax liabilities) or consider restructuring as C corporations, which are subject to a 21% tax corporate tax rate. There is speculation that the pass-through deduction will become permanent, but no action has been taken yet.

4. Corporate tax rate

Trump has proposed lowering the corporate tax rate from 21% to 15%, with the biggest tax relief going to companies that make products in the U.S. He mentioned the rate change in a virtual address to the World Economic Forum on January 23, although no legislative measures have been formally introduced.    

Trade policies for distributors to watch

Trump initiated several tariffs during his first term that continued through the Biden administration, including tariffs on:

• Chinese electronics, machinery and furniture (Section 301 Tariffs).
• Steel and aluminum (Section 232 Tariffs).
• Surging imports, such as solar panels and washing machines (Safeguard Tariffs).

These tariffs are all expected to remain in effect. In addition, Trump has announced new tariffs:

• A 25% tariff on all goods imported from Canada and Mexico, effective February 1, 2025.
• A 10% tariff on Chinese goods, with no established timeline.
• Potential tariffs on computer chips and pharmaceuticals from Taiwan, South Korea and Japan.
• A 50% export duty was threatened against Colombia.

The focus on tariffs has created uncertainty in global supply chains. If enacted, retaliatory tariffs could follow, increasing the cost and complexity of international trade and straining relationships with trade partners.

While these policies are intended to protect domestic industries and boost economic activity in the U.S., distributors are likely to see higher costs for imports and supply chain delays in the short term. It’s unclear who will absorb the extra costs. If consumer prices rise too steeply, demand could cool.

These challenges may prompt distributors to diversify their supply chains and seek additional ways to build resilience.

Labor policies for distributors to watch

Trump has proposed eliminating federal income and payroll taxes on overtime pay to incentivize workers to put in more hours. Higher wages and better compensation may help the industry fill persistent talent gaps — or it could push distributors toward automation and offshoring to reduce their reliance on hourly workers.

Distributors should also keep an eye on the Work Opportunity Tax Credit, which provides federal tax credits for hiring veterans and disadvantaged workers (up to $9,500 per eligible employee). The WOTC is set to expire at the end of 2025. It has already been extended several times, including by Trump in 2019, but he has not indicated whether he will push for another renewal.

Implications for the distribution industry

The distribution industry plays a critical role in the U.S. economy, ensuring goods move swiftly from manufacturing centers to consumers and retailers, so the cumulative effect of these policies is significant. Each proposal aims to bolster the U.S. economy and support domestic industries, including distribution. However, they may deliver conflicting outcomes in the near term. For instance, a lower corporate tax rate could encourage capital investment and expansion — but the benefit could be offset by higher wages, rising procurement costs or supply chain disruptions caused by tariffs.

Distributors must weigh the full effects of each policy and respond with strategies to build resilience.

How Wipfli can help

Distribution leaders are adaptation experts, whether they’re facing new regulations or the latest customer trends. Our team is here to help you find opportunities to build agility and resilience, no matter the challenge. To hear more of our perspective, visit our distribution page or contact us to learn more how we can help. Visit our 2025 regulatory, policy and tax changes for the latest updates to administration policies impacting your industry.