Economy

This Tweet Points out a Big Problem With Trump's Carrier Deal

For the second time since being elected president, Donald Trump used Twitter to claim he almost single-handedly prevented American corporations from outsourcing jobs to other countries. 

On Wednesday, President-Elect Trump announced that he and Vice President-Elect Pence had stopped another American company from closing a plant. And like previously tweeted Ford deal, it turned out to be much more complex and problematic than at first glance.

 

Trump had pledged to keep the air conditioner company from moving two Indiana plants and their 2,000 jobs to Mexico, as a symbol of his commitment to prevent outsourcing of current jobs, and to bring back jobs that have already left the country. On Tuesday, the company indeed announced that they had "reached a deal" with Trump and Pence to keep half of the jobs in the US.

A day later, the details of this deal still hadn't been revealed, nor had the extent of Trump's involvement.

Carrier Air conditioner

Sources close to the deal indicated that Pence negotiated directly with the CEO of Carrier's parent company, United Technologies, and that he offered the company financial incentives to stay, along with a pledge from Trump to cut corporate taxes. CNBC also quoted sources who said that United Technologies didn't want to jeopardize lucrative government contracts, which would cost them much more than they'd save by moving the plants to Mexico.

But economist and author Justin Wolfers brought up a possible unintended consequence of the Carrier deal.

Wolfers said the deal might actually provide an incentive for companies to move jobs out of the country:

Essentially, Wolfers believes that all companies will have to do to get a quick payout from the government is to publicly threaten to leave the country — whether they intend to or not. Then, to keep his promises to prevent jobs from leaving, Trump will have to step in with incentives or tax cuts. This will encourage companies to explore outsourcing, essentially holding governments and taxpayers ransom. 

Whether or not the US or individual states can afford more of these kinds of payouts is unknown, but with 4.5 million manufacturing jobs having vanished since the early 1990s, it might get extremely expensive very quickly.

Even with Carrier's apparent deal with the government, Indiana is far from out of the woods when it comes to job loss. At the same time as Carrier announced its layoffs last year, UTX announced it would also be laying off 700 workers at a different plant. And it's not clear if those jobs were included in the Trump/Pence "deal" or not.

Featured Image:Flickr/Matt Johnson