Even some liberals are joining the chorus to praise the public relations coup the president-elect just scored in saving 1,000 Carrier jobs in Indiana. The company had planned to move them to Mexico and today, Donald Trump and Mike Pence will take a victory lap in Indianapolis for the deal they brokered to keep them in the U.S. Nelson Schwartz at the New York Times went so far as to suggest it is a “Nixon goes to China” moment.
It also signals that Mr. Trump is a different kind of Republican, willing to take on big business, at least in individual cases.
And just as only a confirmed anti-Communist like Richard Nixon could go to China, so only a businessman like Mr. Trump could take on corporate America without being called a Bernie Sanders-style socialist.
But for those who have critiqued a lack of transparency when it comes to negotiating trade deals, we actually don’t know what the incoming administration promised to Carrier to save those jobs. It is clear that vice president elect Pence, who still serves as Governor of Indiana, offered a state tax break in the neighborhood of $700,000/year over a period of years. But that part of the deal will have to be approved by the Indiana Economic Development Corporation. John Mutz, who serves on that board said that Carrier had previously turned down a similar deal they offered before the election. So there’s more to it than that.
Many are suggesting that perhaps Trump and Pence threatened Carrier’s parent company, United Technologies, with losses in their $56 billion revenue from federal contracts. But as Max Ehrenfreund notes, that’s not likely.
Observers have said that those federal contracts probably would be secure regardless of what happened at the Indianapolis plant. United Technologies is a crucial supplier for the Pentagon. In the years to come, however, a positive relationship with the new administration could have benefits for United Technologies that are difficult to predict.
Here’s how one analyst put it:
While the standoff loomed large in the lives of its employees in Indiana, for United Technologies the forgone savings is tiny — equivalent to about 2 cents per share in earnings.
“Every penny counts, but if we step back and I’m looking at earnings of $6.60 per share this year, 2 cents is an easy concession if the president-elect listens to some of the company’s bigger concerns,” said Howard Rubel, a senior equity analyst with Jefferies, an investment banking firm in New York.
Alan Murray obtained information about what those “bigger concerns” might be.
A source close to the company said President-elect Trump called Greg Hayes, CEO of Carrier’s parent company United Technologies, two weeks ago and asked him to rethink the decision to close the Carrier plant in Indiana.
Hayes explained that the jobs were lower-wage and had high turnover, and the move was necessary to keep the plant competitive, according to the source. He said the plan would save the company $65 million a year.
President-elect Trump replied that those savings would be dwarfed by the savings UTC would enjoy from corporate tax-rate reductions he planned to put in place. During the recent campaign, Trump threatened to slap tariffs on Carrier imports from Mexico.
What that means is that the tax cuts Trump is promising will dwarf the $65 million/year UTC would save from moving those jobs to Mexico. That kind of approach – providing corporate tax cuts to incentivize companies to stay in the U.S. instead of imposing tariffs/taxes on those who leave – is exactly the approach favored by Speaker Paul Ryan and Trump’s incoming Treasury Secretary Steven Mnuchin. So that explanation has the ring of truth. The end result is that it looks like our president-elect just offered UTC an amount of money in excess of $65 million/year in order to save 1,000 jobs. They could have just as easily offered to pay each of those workers more than $65,000/year.
Meanwhile, what effect does that have on workers? In the case of Carrier, there are two things to note. First of all, while Trump/Pence will celebrate saving 1,000 jobs, this is still going to happen:
Some 1,300 jobs will still go to Mexico, which includes 600 Carrier employees, plus 700 workers from UTEC Controls in Huntington, Ind.
In other words, all of the promises Trump/Pence made didn’t include the other 1,300 jobs the company is still planning to outsource to Mexico.
Secondly, what about those 1,000 that were saved? John Mutz suggests that there is still a question about how long they’ll stay. Ehrenfreund notes that the company had already built a new plant outside Monterrey, Mexico – so one has to wonder if they’ll simply abandon it now.
It’s clear that, regardless of these facts, Trump has scored a PR victory because the media is determined to report it that way rather than ask questions. But we should all know better by now. Our president-elect has demonstrated over and over again that, rather than the “art of the deal,” he is proficient in the “art of the con.”