Donald Trump, who claimed to be uniquely positioned to fight special interests in Washington and vowed to crack down hard on companies that send jobs overseas, is now taking credit for cutting a deal that epitomizes corporate socialism at the expense of American taxpayers.
The details of the agreement he brokered with Carrier to keep some of the 2,100 manufacturing jobs the company had planned to move to Monterrey, Mexico – where workers typically make $19 per day – are still hazy. But CNBC reports that it entails “new inducements” for the company, arranged by Indiana Governor and vice president-elect Mike Pence, in exchange for keeping what CNN says will be “nearly 1,000” jobs in the Hoosier State.
Trump is flying to Indiana tomorrow to hail his great negotiating skills. But make no mistake, using tax dollars to bribe the company is nothing like what he promised on the stump. In March, The New York Times reported that Trump “cited Carrier again and again on the campaign trail, threatening to phone executives at the company and its parent, United Technologies, and to hit them with 35 percent tariffs on any furnaces and air-conditioners they imported from Mexico. To the cheers of his supporters, he predicted at rallies that Carrier would call him up as president and say, ‘Sir, we’ve decided to stay in the United States.’” One Carrier worker who supported Trump specifically because of that promise told the Times, “If he doesn’t pass that tariff, I will vote the other way next time.” But Trump appears to have abandoned talk of steep tariffs – which would likely lead to retaliatory measures by countries that import U.S. goods – and was instead talking to Carrier officials about easing regulations once he took office. Pence then arranged a package of new incentives from the state, according to reports.
Trump will no doubt be lionized by his supporters for “saving” those jobs, but dig down a bit and it’s clear that this deal represents the worst kind of corporate welfare. First, Carrier, and United Technologies, are already heavily subsidized by the government – and many of those subsidies were specifically dedicated to keeping the very jobs it threatened to offshore here at home.
An investigation by The Indy Star found that under Mike Pence, Indiana had “awarded millions of dollars in economic development incentives to companies that have moved production to foreign countries such as Mexico and China, and Carrier was “the highest-profile case.” According to the conservative National Review, the company also got $5.1 million in stimulus-funded tax credits from the Department of Energy “for the sole purpose of creating and maintaining green jobs in the United States.” Carrier won the grant by “vowing to expand production of energy-efficient gas furnaces at its Indiana facility.”
CNN reports that United Technologies gets about 10 percent of its annual revenues from federal contracts, and that “the government also pays for nearly $1.5 billion of the company’s annual research and development spending.” That figure represents 23 times as much money as the company would save in labor costs by moving its Indiana facilities to Mexico. United Technologies shelled out around $18 million for lobbying in 2015 and 2016, according to Open Secrets, making it the 33rd biggest spender on Capitol Hill. So much for draining the swamp.
Carrier is also highly profitable – there’s no reason to believe it needs either government subsidies or cheap Mexican labor to get by. David Dayen reported for Salon that “Carrier produced a significant chunk of total profits for its parent company… Of $7.6 billion in earnings in 2015, $2.9 billion came from the Climate, Controls & Security division, where Carrier resides. Profits from this division have expanded steadily in recent years, which is not what you’d expect from a unit desperate to cut labor costs.”
Finally, while any jobs that stay in Indiana are vitally important to the people who work them, they represent only a fraction of United Technologies’ larger plans to move jobs from “high-cost locations” to countries that offer cheap labor and minimal regulations. According to The Street, United Technologies’ plan to move its Indiana plants to Mexico was just “one of the many cost-cutting measures” announced last December as part of a multi-year, $1.5 billion dollar restructuring plan that would “move manufacturing locations around the world” to countries like Mexico and Poland.
So viewed in the context of the multinational’s larger scheme, Trump’s big deal is little more than a bit of political theater. But it sends a loud and clear message to other companies – as University of Michigan economist Justin Wolfers noted, “every savvy CEO will now threaten to ship jobs to Mexico, and demand a payment to stay. Great economic policy.”
In the coming days, we’ll see how this deal is reported. If the media can’t differentiate between Trump’s promises to get tough on Carrier, and more broadly to fight crony capitalism in Washington, and giving companies that spend big on lobbying a sweetheart deal in exchange for a handful of jobs and a nice photo-op, then we’re going to be in for a long four years of similar stunts.
Update, December 1, 2016: The Indy Star, citing senior United Technologies officials, reported that the company’s desire to work with Trump was motivated more by the prospect of additional access to federal contracts and gaining input on regulatory and tax policy than the incentives Mike Pence arranged from the state of Indiana. Ball State University economist Michael Hicks told The Star that “the chance for Carrier (and their lawyers) to help craft a huge regulatory relief bill is worth every penny they might save over delaying the closure of this plant for a few years.”