Something in President-elect Donald Trump’s deal to save 800 Carrier jobs doesn’t add up.
When Carrier announced in February that it would shutter its Indianapolis factory and move the operation to Monterrey, Mexico, it said the move would save $65 million a year. When you pay your Indiana workers $22 an hour on average and pay your workers in Mexico $3 an hour, that saves a lot of money.
During the presidential campaign, Trump had singled out Carrier for attack, railing against it for turning its back on America. Trump even vowed to somehow keep 100 percent of the Carrier jobs in Indiana.
To help Trump save the 800 jobs, Indiana officials agreed this week to give Carrier $7 million in state incentives over a decade. That’s a lot less than the $65 million that Carrier would save annually by moving operations to Mexico.
This raises questions about what really persuaded Carrier to keep these jobs in Indiana. Carrier and its parent company, United Technologies, originally said last February that they would move around 1,800 jobs from Indiana to Mexico. That included 1,100 jobs from Carrier’s Indianapolis plant, which makes gas furnaces, and 700 jobs from United Technologies’ plant in Huntington, Indiana.
Under the deal that was trumpeted by Trump and Vice President-elect (and Indiana governor) Mike Pence, 800 of the 1,800 jobs will stay in Indiana. That’s great for those 800 workers, but not great at all for the other 1,000. In Indianapolis on Thursday, Trump celebrated as if he had saved all the jobs, when he had actually saved less than half. (To further confuse the math, there are 300 Carrier engineering and headquarters jobs in Indianapolis that were never heading to Mexico. Trump claims to be saving those 300 jobs, even though they weren’t going anywhere.)
Not long after Trump won on November 8, it occurred to me that Carrier might now get cold feet about closing its Indianapolis plant and moving its 1,100 unionized jobs to Mexico. (I had gone to Indianapolis in late September to interview Carrier workers for a book I’m writing. So Carrier was very much on my mind.) I thought that Carrier might chicken out because it must fear that Trump’s triumph will mean he will renew his attacks on Carrier. If Carrier were to go through with its planned exodus of jobs, one can imagine that Trump might view that as someone waving a red flag in front of him—and he might then go on the attack. For a consumer-products company like Carrier, Trumpian tirades could turn the American public against it, and that could do major damage to its reputation, sales, and bottom line.
I suspected that if Carrier were to reverse its Mexico plans, it, like any self-respecting company, would need some fig leaf to make it appear as if it wasn’t cravenly surrendering. And presto came the $7 million in state incentives that Carrier could say had justified its about-face. Carrier cited another reason for keeping the 800 jobs in Indiana—that Trump had pledged to “create an improved, more competitive U.S. business climate.” That vague, hopeful statement presumably refers to lower corporate taxes and fewer regulations. Carrier might have also changed course because it feared Trump’s threat to impose a 35 percent tariff on imported goods made by American-owned factories in Mexico.
Some smart readers are already asking, “But what about that other big factor.” Yes, that other big factor might have been Trump’s real trump card. Trump may have indeed threatened United Technologies that if it followed through with its original plan and moved the 1,800 jobs to Mexico, a Trump administration might nix some of the company’s Pentagon contracts. Perhaps Trump never made such a threat, but United Technologies might have feared that would happen in any case. About one-tenth of the company’s $56 billion in annual revenues comes from federal contracts. The Pentagon is United Technologies’ biggest customer, and its Pratt & Whitney division is a major supplier of jet engines to the military.
On Thursday, Trump boasted that his deal with Carrier signaled that a new sheriff was in town when it came to offshoring jobs. “Companies are not going to leave the United States anymore without consequences,” he said.
Trump’s Carrier deal was attacked from the right and the left. From the right, some critics said his effort to save the 800 jobs was inexcusable government interference in the free market, while others called it crony capitalism. From the left, critics maintained that Carrier had played Trump and come away with a nice bonus—$7 million in state incentives.
Bernie Sanders—who had also attacked Carrier during the campaign—made an important criticism of Trump’s Carrier deal. Seeing that Carrier had gotten a $7 million sweetener, many U.S. companies might soon begin threatening to send operations overseas to shake down the Trump administration for tax breaks and subsidies.
In a Washington Post op-ed, Sanders said, “In essence, United Technologies took Trump hostage and won.”
In my view, Sanders isn’t quite right on this point. It was Trump’s wrath (and the threat of more such wrath) that took Carrier hostage. Carrier freed itself from Trump’s wrath by agreeing to keep 800 of the jobs in Indiana.
As anyone who closely follows economic development knows, $7 million in incentives is relatively small potatoes. For that fairly modest price, Trump, in a public relations coup, got Carrier to partially reverse course and keep its Indianapolis furnace factory open and most of its jobs in the United States. He also sent a message to companies throughout the land. (Some critics attacked the news media for giving such huge coverage to Trump’s Carrier deal when he hadn’t saved even half the jobs.)
To my mind, Trump certainly achieved a victory here—or least a partial one. In many ways, Trump was following a recommendation I made in a book I wrote eight years ago, The Big Squeeze: Tough Times for the American Worker. In discussing globalization and offshoring, I noted that companies that decide to send hundreds or thousands of jobs largely had a free pass because so few political leaders spoke out to criticize them. In my book, I wrote:
Far too many business executives seem predisposed to laying off workers at home and moving operations abroad. The corporate mentality should instead be ‘How can we make it work in the USA?’ Political leaders rarely criticize companies that move operations overseas, in effect, giving them a green light. Just as President Kennedy intervened with U.S. Steel to help hold down steel prices, some high-level jawboning might persuade some companies to keep jobs in the United States. This is not a call for protection, just a call for a change in attitudes.
With his loud denunciations of Carrier during the campaign, Trump did considerably more than jawbone. Indeed, many commentators thought he was wrong to beat up on an individual company or to cut a deal with an individual company. That can, and should, be debated.
But when one cuts through the criticisms and chaff, Trump did one unarguably important thing beyond saving 800 jobs: He made clear that there will no longer be a hands-off, turn-a-blind-eye attitude when American companies move hundreds or thousands of jobs overseas. If a president’s jawboning or hostile glare helps to persuade companies to keep jobs in the United States, what’s not to like?
One final thought. I imagine that President Barack Obama might have also wanted to castigate various manufacturers (similar to the way Trump did) when they announced plans to move operations to Mexico or China. But virtually every conservative politician and commentator—including many who applauded Trump’s deal with Carrier—would have no doubt attacked Obama for improperly meddling in the magic of the free market.