image via Wikimedia Commons
by Jack Davidson
One of Donald Trump’s first moves after being elected was to strike a deal stopping 800 jobs at a Carrier plant in Indianapolis from moving to Monterrey, Mexico. Carrier, a brand of United Technologies Corporation, has manufactured heating, ventilating, and air conditioning systems in the United States since 1915. The agreement has prompted a variety of reactions from across the political spectrum. Despite its significant public support, Trump’s deal is bad for taxpayers, the economy, and the country in the long run.
The first concern is how much Trump conceded to make this deal possible. The specifics of the agreement are still murky, but information released so far suggests that the State of Indiana will give Carrier $7 million in tax rebates over ten years to keep 800 jobs at the plant. The underlying logic of such an arrangement is clearly faulty; using taxpayer money to put a state’s citizens to work is unsustainable in the long run and cannot possibly be replicated on a large scale. A closer look at the Carrier deal reveals even deeper flaws. Its most problematic aspect is the suggestion that the president-elect’s team used United Technologies’ government defense contracts as leverage in its negotiations. After the deal was announced, United Technologies CEO Greg Hayes told Jim Cramer, the host of CNBC’s Mad Money, “I was born at night, but it wasn’t last night. I also know that about 10 percent of our revenue comes from the U.S. government.” Hayes was clearly implying that his company agreed to the Trump’s Carrier deal in part out of concern that they would lose the US government’s business if they did not comply. This could set a dangerous precedent, as the ability to negotiate defense contracts independent of partisan maneuvering is vital to ensuring that the government uses taxpayer money efficiently and that our military receives the highest quality equipment.
Even if Trump had not promised Carrier $7 million in tax rebates, and even if he did not use United Technologies’ defense contracts as political leverage, this is still a bad deal for Americans. To understand why, we must examine the market conditions that motivated Carrier to move the jobs to Mexico in the first place. Over the past few decades, automation has increased individual workers’ productivity, lowering the number of employees required to do the same tasks. At the same time, consumption patterns have changed, and high US manufacturing costs have risen, leading many companies to off-shore hundreds of thousands of jobs or simply shut down their US manufacturing plants. These higher costs are likely forcing Carrier to charge less competitive prices in their market, decreasing their sales and depressing their revenue stream.
The market conditions outlined above, in conjunction with the fact that Carrier is still sending 600 jobs from Indiana to Mexico, suggest that jobs at the plant are not sustainable in the long run. What’s more, it seems likely that Trump realizes he cannot replicate the negotiating tactics he used with Carrier, as he has threatened “retribution” against other companies who move jobs overseas. This reality raises the question of whether we prefer to spend our money creating make-work jobs, or trying to find more sustainable jobs for Carrier employees and others in their situation.
Trump campaigned on the promise to save US manufacturing jobs, so it’s unsurprising that he has focused on the Carrier deal in the early days of his presidential transition. However, his campaign promise was based on a faulty premise – the idea that bringing back manufacturing jobs is the best way to create work for millions of unemployed (or underemployed) Americans. In reality, there is no one move that will solve the problem of unemployment in the US. Rather than using taxpayer money to hold on to jobs that number in the hundreds, Trump should focus on formulating structural reforms to ensure that the millions who voted him into office are employed in the long term, whether in manufacturing or in another industry. While it is not as flashy to announce a budget bill as it is to negotiate one-on-one with corporate America, well-crafted legislation would be far more useful for Americans hurt by manufacturing contraction. The Carrier deal has revealed that Trump is willing to pay lip service to fighting job loss and unemployment, but it remains to be seen whether he has the attention span and the policy-making abilities to create lasting change for the men and women who voted for him.