Trump's Carrier Swindle Is Setting a Scary Tone for the Future of Business in America

This deal doesn't represent a bold, innovative approach to putting a stop to outsourcing, but rather a retrenchment of practices that clearly aren't working.
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December 6, 2016
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politics, corporate america, Donald Trump

Between staffing his cabinet and having lengthy phone calls with the President of Taiwain, the president-elect has managed to carve out some time to singlehandedly save American manufacturing. Like actually this time, instead of lying about a Ford factory he had nothing to do with that wasn't moving in the first place.

His grand "deal" with Carrier Corporation, which specializes in HVAC and refrigeration equipment, is setting the tone for the future of corporate incentives in America. The company announced earlier this year that it would be moving production from Indiana to Mexico. Some backroom dealing (and a hefty incentive package) convinced Carrier to keep some of those jobs in the U.S. — but not all of them, no matter what Donald Trump would have you think.

This incident is a big deal, and not because Our Lord and Savior is already fighting the good fight before even taking office, protecting the interests of hardworking, everyday Americans. Rather, it's a big deal because of what it tells us about how Trump will run his administration, and how he can slide a pack of lies and broken campaign promises right past everyone's eyes if he tarts it up enough. This deal doesn't represent a bold, innovative approach to putting a stop to outsourcing, but rather a retrenchment of practices that clearly aren't working.

It's also a reminder that Donald Trump is trying his hardest to start a trade war, which will end in crying before bedtime for the U.S. of A.

Putting the chill on Trump's thrill

Here's what actually happened with Carrier: The company announced that it would be exporting 2,100 jobs to Mexico to cut production costs, which is an extremely common practice and one Trump has railed against throughout his campaign. After a series of negotiations, the company shifted its plans, sending "just" 1,300 jobs to Mexico instead.

In exchange, Carrier got a nice package of 7 million dollars to ease the pain of keeping production in the U.S., and it got the very sweet incentive of retaining the federal contracts Trump attempted to dangle over the company's head. Senator Bernie Sanders had actually joined those commenting that such contracts shouldn't be awarded to U.S. companies that move jobs to Mexico.

Carrier's CEO knows that when 10 percent of your income is courtesy federal contracts, you can't afford to bite the hands that feed you. He also knows that production in the U.S. is more expensive, which is why he jacked up prices by about 5 percent as soon as the deal was sealed.

In summation: Carrier threatened to move jobs to Mexico, "negotiated" for a deal that included millions of taxpayer jobs, moved a ton of jobs to Mexico anyway, retained juicy federal contracts, and managed to increase its prices. As an embittered Senator Sanders put it, the company "took Trump hostage and won." (Perhaps you should give up on the calls to work with The Donald now, Bernie.)

The winner of this particular artful deal was not the United States and it shouldn't have been Donald Trump either — except that reporting on the Carrier deal has focused heavily on the saved jobs, and not on the niceties, turning it into a PR coup for the president-elect.


How jobs actually work, for grownups

When Donald Trump screams about other companies taking our jobs, he's not acknowledging two things. The first is what the labor market is willing to bear — people move operations to foreign countries because it keeps payroll down, and they pass that savings on to consumers. This is presumably why Donald Trump manufactures the bulk of his branded goods overseas.

The second is the role of automation. When we say that there are fewer manufacturing jobs in America, that's not just because jobs are shifting out of the country. It's also because we're increasingly automating dirty, dangerous, repetitive jobs, freeing people for other pursuits — like designing the systems that power that automation. In fact, we actually make more now than we ever have before, with fewer workers, thanks to the power of robots.

Are robots stealing our jobs? Well, yes, but that's not necessarily a bad thing. Look at the history of agriculture; historically, it took a whole lot of people to grow, handle, and transport food. Automation reduced the number of people needed while increasing yields, and the job market shifted to accommodate those laborers. In 1950, 12 percent of the workforce were employed on farms. Today, it's less than one percent. Those farm laborers shifted into other professions — like developing agricultural equipment, improving seed genetics, and revolutionizing food storage.

Shifts in labor have really been illustrated in the Obama Administration, which hasn't just pushed unemployment down after the recession. It's also engaged in tremendous job creation, especially around green technologies. Under President Barack Obama, the United States created 15 million jobs — despite all those nasty companies moving overseas.

Crony capitalism for kids

The most apt criticism of the Carrier deal and its implications comes from a surprising source: Governor Sarah Palin. She bluntly referred to it as "crony capitalism," and she's absolutely right. When the president selects companies to incentivize seemingly at random, and when those companies are located in his vice-president's home state, that is a problem.

In her words:

When government steps in arbitrarily with individual subsidies, favoring one business over others, it sets inconsistent, unfair, illogical precedent. Meanwhile, the invisible hand that best orchestrates a free people’s free enterprise system gets amputated. Then, special interests creep in and manipulate markets. Republicans oppose this, remember? Instead, we support competition on a level playing field, remember? Because we know special interest crony capitalism is one big fail. Politicians picking and choosing recipients of corporate welfare is railed against by fiscal conservatives, for it’s a hallmark of corruption.

She argues, correctly, that if Donald Trump wants companies to keep their business in America, the tool for doing that is not through cushy incentive deals that teach corporations to whine and scream like a spoiled puppy until they get fed. It is through policy.

For example, the government could formalize the threat of only awarding federal contracts to companies that exclusively work within the United States — and could in fact do so via executive order, as President Obama has done with other matters pertaining to federal contracts in the past. I'm not saying it would be a smart move — for one thing, sometimes services are only available overseas — but it would be a move.

Similarly, the government could formalize tax credits and incentives — something I do not actually support, though it is a common proposal. The government already does so through the tax code and measures like the (ineffective) R&D tax credit and San Francisco's "Twitter tax break." Creating a clear, consistent framework for incentives would at least level Palin's playing field, rather than leaving it to the luck of the draw and whether a company would generate a good PR opportunity.

Giving companies money when they threaten to pull out is a common tactic — and a bad one. The solution to a regulatory climate that permits and encourages companies to act this way is not to buy them off, but to address the regulatory shortcomings that are causing the problem. (Hint: Establishing a 35 percent tariff on products from expatriate American companies would not be a good approach to this issue.)

We aren't having that conversation and pushing Republicans to make good on their pledge to keep jobs domestic, though. Instead, the people who should be most critical of this practice are applauding the can-do spirit of the president-elect and congratulating him for "doing something," even though it was the worst possible thing to have done.