By Jeff Ferry
President-elect Donald Trump’s and VP-elect Mike Pence’s coup in getting Carrier Corp. to agree to keep some 1,069 jobs in Indiana instead of shipping them to Mexico is not only great news for Carrier employees and their families, but a welcome sign that the new administration will be focused on living up to its pre-election promises to put a new priority on economic growth and a better trade policy.
[ Jeff Ferry | December 02, 2016 |The Hill ]
Trump’s Carrier coup was quickly attacked from both the right and the left wings of the political spectrum. The left attacked the Carrier deal because it involves the promise of an additional $7 million of state funds from Indiana in return for keeping those jobs here. “Corporate welfare” they call it. The right attacked the deal for using subsidies to sway corporate behavior, instead of leaving it to the “free market.” Knee-jerk reactions from both sides.
In point of fact, that $7 million of state support seems to be just window dressing. Carrier previously said it would save $65 million by moving those jobs to Mexico. So keeping 1,000 or more jobs here will cost the company far more in production costs than the value of that state support — and anyway some (28% to be precise) of that state support will be quickly spent on retraining programs for other employees who will lose their jobs.
The deciding factor in Carrier’s decision appears to lie in jawboning from Trump and his colleagues regarding Carrier parent United Technologies’ larger corporate interests. According to press reports, the Trump team told United Technologies CEO Greg Hayes that a move to Mexico could make the federal government take a closer look at the $5.6 billion in annual revenue that UT gets from the federal government, and the $1.5 billion it receives as research and development grants from Washington.
In addition, according to one press report, Trump reminded UT that it needed to consider that companies shifting production out of the U.S. are in danger of being “taxed very heavily at the border if they want to leave, make products in different countries.” That’s a clear indication Trump is actively considering following through on his pre-election talk of putting tariffs on imports from Mexico and elsewhere.
This is just the sort of jawboning we need to see from our next president. Company location decisions are based on so many hard-to-predict variables that they are actually easier to sway than many politicians think. The U.S. has lost so much production and so many facilities partly because it has not been as focused on keeping production here as many smaller countries.
Many of our largest companies receive billions of dollars in federal revenue in one form or another. Many of them are happy to take the money, and then tell their employees they are not American but “international” with “stakeholders” all over the world.
Whether it involves building overseas factories, or following foreign censorship rules, partnering with local joint venture partners, or paying “sales commissions” to local executives who happen to be related to various powerful people, they are often happy to follow the dictates of foreign governments.
The U.S. should remind these companies that being an American corporation, like being an American citizen, is a privilege but also a responsibility. With those billions of dollars of government revenue and grants come some responsibilities too. Like responsibilities to the U.S. economy and the U.S. workforce.
Teddy Roosevelt said, “Speak softly but carry a big stick.” Before the election, Donald Trump was known as a man who rarely spoke softly. We’re pleased to see that in the Carrier affair, he and his team spoke very softly — we may never know exactly what was said. We do know that $5 billion of federal revenue is a very big stick.
The right results seem to have been achieved. Jawboning works.