Trump goes in for a Carrier Landing, but at what cost?

Mr. Trump is not yet inaugurated, and he is already achieving notable policy success.  This week’s decision by Carrier to keep 1000 jobs in Indiana rather than moving to Mexico is seen as a vindication against Mr. Obama’s “hand’s off” approach to job loss from globalization. In reality, Mr. Trump is repeating the same mistakes as Mr. Obama.

Of course its a great victory for the 1000 workers, and I rejoice that the pain that their community felt is assuaged.  Likely none of the readers (or the authors here) have a clue as to the depth of the emotional pain that those workers and that town have gone through since the initial announcement last February.  As I often say in class when we discuss the benefits of free trade and free flow of capital, while its undoubtedly true that we all benefit (especially over the longer term), its of little solace to the worker in Indiana who just had the one factory in their town close up shop that they can buy some cheap Chinese goods at Walmart.  It’s precisely this difficult short term reality that makes presidential leadership on trade so crucial. And Mr. Trump is getting a C- in this initial phase.

Why not an F?  Because he has hit at one of the real reasons for the loss of manufacturing, and is pledging to go full force against it once in office–they abysmal corporate tax policy and oppressive “all cost and no benefit” regulatory regime of the current administration.  If he had continued in this direction only, I would have given him an A+. Mr. Trump should have consistently said, “I’m going to make the corporate tax policy and business environment so good, that companies from around the world are going to be clawing to get in. When I’m done, America is going to be so great our immigration problem will be foreign employers crossing the Rio Grande to start up their new high-paying manufacturing jobs!”  Yes, I could imagine Mr. Trump with that kind of campaign rhetoric.

But the actual approach is not just to make the business environment positive.  Mr. Trump also wields the velvet glove with the clenched fist underneath.  He threatened punitive import duties on Carrier’s furnaces from Mexico, and there was the implicit threat of the parent company’s (ITT) broader government and export-related business prospects (which affect far more workers than just the furnace line).  As the WSJ said this morning:

A mercantilist Trump trade policy that jeopardized those exports would throw far more Americans out of work than the relatively low-paying jobs he’s preserved for now in Indianapolis. Mr. Trump’s Carrier squeeze might even cost more U.S. jobs if it makes CEOs more reluctant to build plants in the U.S. because it would be politically difficult to close them.

And Indiana threw in some special tax incentives for Carrier.  This is just Mr. Trump’s Crony Capitalist industrial policy.  Mr. Obama did this for his favored green energy companies, and now Mr. Trump is doing it for his political advantage.  But special tax breaks for Carrier means that some other business (or individual) in Indiana is going to have to pick up the tab.  The benefits to Carrier are seen, the costs to the broader population are unseen.  Are we surprised that we get Cronyism and Industrial management whoever we elect?

EDIT UPDATE:  I read a couple more things after posting this, and this quote is worth noting to amplify the argument above:

“Companies are not going to leave the United States anymore without consequences. Not gonna happen,” Trump said in Indianapolis Thursday.

This kind of rhetoric is going to have significant negative effects on business decisions to build new facilities.  This says that if they come to America and need to leave in the future, that they will be financially penalized.  At the margin, this will reduce the amount of domestic investment in the U.S. and result in less jobs.  Which firms will see this most?  Precisely the type firms that will bring political repercussions–in a Trump administration, this will be manufacturing jobs.  So his very rhetoric in support of an industry will harm it.  He can help in the short run, but at long run costs (at which time he will conveniently be out of office).  Mr. Trump is singing the the famous Eagles song, “you can check out anytime you like, but you can never leave!”  This is all the more reason why a Republican congress needs to stand up to the imperial presidency.

29 thoughts on “Trump goes in for a Carrier Landing, but at what cost?”

      1. My point is that Trump (more likely Pence) in some way bribed this company to stay (crony capitalism). They are claiming complete victory. But 700 jobs are still going to be lost.

      2. Ok; the numbers are in flux in different reports, but I see your point. And I agree that its Cronyism. Conservative Cronyism tastes no better than Progressive Cronyism.

  1. I hope everyone can tell the difference between an accomplishment and a publicity stunt.

    The jobs report from this morning indicated that the economy added 178,000 jobs in November and that unemployment rate fell sharply to 4.6% from 4.9%, the lowest rate since 2007. November was the 74th consecutive month America added jobs.

    Carrier saving 1,000 jobs (or whatever) is a mere drop in the bucket compared to the millions of jobs that have been created in the last several years and a mere 1/178 of the new jobs created just in the last month.

    1. The “official” unemployment rate does not tell the whole picture, which is significantly worse. The more comprehensive U-6 number, which takes a number of additional factors into account, including workforce participation, is 9.7%. To quote the article below: “But despite the improvement that government statistics show, some economists think that the employment situation is much more dire, partly because of the sluggish participation rate. That rate fell by 0.2 percentage points in May to 62.6 percent”

      Also, a very important question to ask is whether the “millions of jobs” added the last several years are the same quality/pay level as the jobs lost that they have been replacing.

      http://www.cnbc.com/2016/06/03/charts-whats-the-real-unemployment-rate.html

      I guess what I am trying to say is Trump by no means has a monopoly on publicity stunts. Sometimes it certainly seems the jobs reports (or at least the media spin on them) fall more into that category at times.

      1. I have read criticisms of the NFP jobs reports for years now, and I have been unimpressed. Many smack of conspiracy theory and seek to “unskew” the numbers.

        Compare employment (er, unemployment) in January 2009 during the crisis to the situation now. There really is no comparison.

        We cannot know for sure if all of the jobs that were lost were replaced by higher paying ones, but we do know that average wages have been ticking higher in recent years. Wages still are not coming close to tracking productivity gains, but progress is progress.

        Labor workforce participation is a non-issue, a red herring of sorts. Discouraged workers data to me is much more relevant, since it actually tracks those who want a job or a better job. There are fewer discouraged workers now than there have been for many years (see BLS data,updated today).

        Fact is, the job market is better now than it has been for almost a decade. Not bad for a Kenyan communist born in Hawaii! :-)

      2. “I have read criticisms of the NFP jobs reports for years now, and I have been unimpressed. Many smack of conspiracy theory and seek to “unskew” the numbers.”

        Well, I guess there we have it. You see conspiracies in places I don’t and I see them in places you don’t. To each his own, I guess.

        “Fact is, the job market is better now than it has been for almost a decade. Not bad for a Kenyan communist born in Hawaii!”

        If it were actually because of him, which it is not, at least not him alone. For the past six years we have had a GOP congress that does have a say in the matter of economic policy. In fact, I would argue it could be much, much better if not for him. That’s my opinion, though. If you want to believe that everything positive is solely because of him, go ahead. Makes no difference to me.

        Have a nice day :)

  2. Good post! I didn’t really know much about the whole Carrier thing, and I now feel informed on both sides.

  3. Do you think that there would ever be a good reason for people to try to keep the jobs in their country even from an economic perspective? I mean, I know that from an economic perspective that international trade is a good thing, but couldn’t it be a greater benefit in re-stimulating a dying economy enough to help it get going again?

    1. EAF–
      Thanks for the ?. The question is not keeping jobs in this country or another country, but what kind of mix of jobs in both countries. I am completely in favor of keeping Carrier jobs in this country if the business rationale for their leaving is the cost of doing business because of regulatory excess and poor tax policy. So if the underlying business case for jobs is there, and all we have to do to keep them is have sane public policy, then Mr. Trump would do us all a favor by helping to reverse Carrier’s job calculus. But let’s not see the seen, while refusing to see the unseen. For all the jobs that are leaving, there are newer different jobs that are appearing, ones that are often better paying, despite the rhetoric.

  4. I found this article to be very educational because I was very uneducated on the carrier topic. I find it to be very interesting and am curious what Mr. Trump will do with other decisions concerning this issue in the future.

  5. It sure is scary that this is such a simple concept that seems to be ignored. The god thing is, I could easily see the Trump administration singing a different tune after the inauguration. I would have preferred that any action be made to promote the long term well being of the US, but I also understand that Trump is very concerned with improving his public image.

  6. I didn’t know much about this topic at all, so this was very informational for me. It seems that the costs of his decision far outweigh the benefits. Thanks for posting this, I’m interested to see his future decisions.

  7. “For the past six years we have had a GOP congress that does have a say in the matter of economic policy”

    The Democratic party held control of the Senate through 2014.

    If you want to see an example of states where conservatives basically destroyed the economy (turned surpluses into debt, among other miscues) , see Kansas and Louisiana. Thank goodness the nation did not go the way of those dreadful states. Now that the GOP runs the House, Senate, and the presidency (under DJT, the “T” standing for “tariff,”) such debacles may be happening nationwide.

    1. “The Democratic party held control of the Senate through 2014.”

      Yes, but the House controls the budget, not the Senate.

      As far as examples of States where conservatives destroyed the economy… using two bad examples out of many GOP-controlled States hardly proves anything at all about GOP-run economies. Some of them have done quite well. On the flip side, there are Democrat-run States that are doing well and some horribly. Each State if different and therefore the approach that might work in one might not in another.

  8. Another way to keep companys from leaving the US is to reward them for staying. But I guess Trump would not consider that idea much.

    1. He did in this case. He gave them 7 million dollars to stay. Not counting the jobs that would have stayed anyways that’s somewhere between 20,000 and 7,000 per job saved.

    2. Bribe companies into keeping jobs?

      Bad idea, since it would quickly lead to extortion.

      Any company could say, hey, pay us or we are taking jobs to Mexico.

      1. Jeff, what Trump did (assuming the details we have are true) is bribery, we can all agree that’s a bad idea.

        What Franklin’s vague suggestion was alluding to was more wide spread and not specific to carrier. Like lowering the corporate tax rate

  9. Interesting post. I was not aware of this subject until reading it here, but it is very fascinating to keep in mind. Still interested to see how Trump will act as president with more authority.

  10. Really interesting to see that Trump is doing the exact opposite of what his intentions are. Thank you for pointing out the long term implications of what Trump has said and plans to do. It will be fascinating to see how this all plays out over the next 4 years.

  11. This post just goes to show that there is so much beneath the surface. Up close, it looks like a victory that the company stayed in Indiana, and they did it because it was “the right thing to do” and what Trump wanted. However one can’t always see that they are getting tax breaks or being threatened. Definitely cool to read about the underlying things going on with this topic

  12. I am not familiar in this subject and it was very intriguing to me. There is so much going on that I would have to dig deep to find all the facts and be well informed. The idea to keep companies in the US is a good idea. I would like to see how Trump plans to do that. IT will be very interesting to watch his term as president.

  13. Jeff,

    Do you concur with my prediction of massive increases in national debt?

    If we get significantly increased defense spending and spending on infrastructure and lower taxes across the board, plus the Carrier-like payoffs to other companies to keep jobs here (“Give us tax breaks or else we will move our jobs to Mexico, Mr. President!”).

    Do people really know what reckless and fiscally irresponsible precedent Trump has set? It is like blackmail, and what will be held hostage are American jobs.

  14. It’s hard for me to really comment on this cause I really had no clue about this prior to reading this. Thank you for the information. I will add that I do have faith in Mr. Trump to have a positive effect on the economic competitive market with his four years as president. I think it’s good that he wants to keep business within America so that helps provides jobs.

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