Trump is lending credibility to his claims that he'd put people he'd called "killers" to help American workers
State and local governments offer companies tax incentives to locate, expand or remain there all the time
Donald Trump staked his credibility as a negotiator – the underpinning of his grand entrance to politics – on a very specific claim.
He wouldn’t just stop the trend of globalization and outsourcing. He’d convince Carrier – an Indianapolis-based air-conditioning manufacturer – to abandon its plans to eliminate more than 2,000 Hoosier jobs and shift its production to Mexico.
Well before even taking office, he’s delivered – Tuesday night the company announced it would keep about 1,000 of those jobs in Indiana.
And he’s shed light on how he might use the levers of government to pressure companies that plan to ship jobs overseas in the future, too.
It was well-timed victory for Trump, who also rolled out his economic team, tapping Steven Mnuchin for treasury secretary and billionaire Wilbur Ross to head the Department of Commerce.
Both Mnuchin and Ross come with public relations warts – including Mnuchin’s time as a Goldman Sachs partner and hedge fund manager and Ross’ “king of bankruptcy” nickname. But in securing a deal with Carrier, Trump is lending credibility to his claims that he’d put people he’d called “killers” – meant as a compliment – to help American workers.
The details of the Carrier deal remain obscure. Trump’s campaign has deflected questions on exactly how the company was convinced to stay in Indiana – pointing reporters to the company and its much larger parent, United Technologies. The fate of Carrier’s plant in Huntington, Indiana, which employed 700, is also unclear.
Carrier released a few more details later Wednesday in a statement.
“The incentives offered by the state were an important consideration” to staying, Carrier said, though the company didn’t specify what the incentives were.
And while Trump’s campaign pledges to lower corporate taxes and ease regulations likely played a role, it was not Trump – but Vice President-elect Mike Pence – who was key to Carrier’s decision.
His status as Indiana’s governor positioned him to offer Carrier tax breaks to stay in the state.
It’s not a new strategy: State and local governments offer companies tax incentives to locate, expand or remain there all the time.
In fact, Pence’s Indiana Economic Development Corp. has faced sharp criticism for handing millions of dollars to companies that sent jobs overseas even after receiving those tax breaks.
Trump himself had even blasted the practice on the campaign trail, including in October remarks in Pennsylvania.
“I’ve been watching these politicians go through this for years. I’ve been watching them give low-interest loans. I’ve been watching them give zero interest loans,” Trump said in Wilkes Barre, later adding that “the whole thing is crazy.”
He made a similar case in Erie, Pennsylvania, in August.
“Our states – I watched. Remember, they’d give the low-interest loans,” Trump said, mocking state officials for handing out tax incentives. “‘Here’s a low-interest loan if you stay in Pennsylvania. Here’s a zero-interest loan. You don’t have to pay. Here’s a this. Here’s a tax abatement of any kind you want. We’ll help your employees,’” he said. “It doesn’t work, folks.”
In Carrier’s case, it does appear to have worked.
It’s the second time Trump has claimed credit for a company’s decision to keep jobs in the United States. But when a Ford plant in Louisville, Kentucky, said it would not produce a sport-utility vehicle in Mexico, the decision was a facade in terms of Trump’s involvement: No jobs were on the line, and none were saved.
Trump’s strategy with Carrier might not be an exact model for his broader trade and manufacturing efforts.
For one, it puts states and municipalities at risk of facing threats from other manufacturers that they’d leave unless offered major tax breaks of their own.
Subsidizing businesses is also a practice protectionists in the United States have long decried from foreign governments including China, and risks provoking a trade war.
Trump’s broader strategy appears to be his promise to cut taxes and make it easier for companies to shift profits earned overseas back into the United States. On the campaign trail, he has also threatened companies that manufacture goods in foreign countries with stiff tariffs – the types eliminated through trade deals like the North American Free Trade Agreement.
But his willingness to use government incentives as muscle in negotiations offers a preview of how Trump might handle similar situations in the coming years.
“The President-elect and the Vice President(-elect) picked up the phone and called the CEO of the United Technologies and told them we want to keep jobs here. Can’t remember the last time a president did that,” Mnuchin told reporters in the Trump Tower lobby Wednesday.
United Technologies – Carrier’s parent company – earns about 10% of its income through federal contracts for products including engines for F-35 fighter jets.
If tax breaks are Trump’s carrot, the threat of losing government contracts – risky as it is when national security-related products are involved – could be his stick.