Carrier Corporation Jobs Deal

Trump made the preservation of American jobs, particularly manufacturing jobs, a staple of his 2016 presidential campaign. During the campaign, Trump said he was trying to convince the Carrier Corporation (Wikipedia entry) to change their plans to move some factory jobs to Mexico. Carrier is a brand of United Technologies Corporation Building & Industrial Systems and its products include HVAC (Heating, Ventilating, and Air Conditioning) systems. As of December 2016, it had approximately 45,000 employees. As of 2014, Trump had an investment in United Technologies.

Over the November 2016 Thanksgiving weekend, Trump claimed responsibility for Carrier's decision to keep factory jobs in Indiana rather than moving them to Mexico. The Carrier jobs deal gave him an early opportunity to show factory workers he would make good on this promise to create "25 million jobs." (See Jobs.) However, a relatively small number of jobs were involved and the state of Indiana had to offer substantial inducements keep them in the U.S. The deal did not create new jobs; it kept existing jobs from being moved away. It does not seem that such deals could be sustained to keep a significant number of jobs in the U.S. Moreover, many manufacturing jobs are currently being lost to automation and not foreign trade.

Timeline

Analysis

Mike Pence, while still holding the office of governor of Indiana before taking the vice presidency, was in a position to extend incentives to Carrier to induce them to stay.

Trump implied he would motivate Carrier to keep the jobs in the U.S. by punitively taxing them, but in fact the deal hinged on offering Carrier tax breaks.

Number of jobs involved

The specific number of jobs that Carrier planned to move to Mexico has varied in different accounts. An IndyStar article from Feb. 12, 2016, gave these numbers:

  • 700 jobs to be moved from Huntington manufacturing plant to Mexico
  • 1,400 jobs to be eliminated over the next three years from its facility in Indianapolis
  • 2,100 jobs total to be lost

A Washington Post article on Dec. 8, 2016, quoted union president Chuck Jones:

I’m a union leader in Indianapolis. In February, corporate officials came to our plant and announced that they were closing the facility. They would move 1,300 jobs to a plant in Mexico. (Three hundred and fifty positions would remain in Indianapolis, mostly filled by research and development staff.)

A transcript of Trump's speech on Dec. 1, 2016, indicates that 1,100 jobs would be "saved."

TRUMP: But I will tell you that United Technologies and Carrier stepped it up and now they’re keeping—actually the number’s over 1,100 people, which is so great, which is so great (ph).

A Washington Post article on Dec. 6, 2016: After the Trump speech, Chuck Jones said he learned that the 1,100 number was incorrect:

... the union leader heard from Carrier that only 730 of the production jobs would stay and 550 of his members would lose their livelihoods, after all.

The same article mentions that, "A Carrier spokesman confirmed that 800 factory jobs once earmarked for Mexico are staying." It also says:

United Technologies still plans to send 700 factory jobs from Huntington, Ind., to Monterrey, Mexico.

So the number of jobs the deal that were previously going to move to Mexico, and may now stay in the U.S. for the time being, appears to be 700–800 jobs. This is less than the "over 1,100" figure which Trump used in his speech at Carrier's plant.

It is unclear what sort of commitment Carrier is making regarding those 700–800 jobs. Carrier is not moving them to its Mexican operations, but presumably those American jobs could still be lost for other reasons, especially automation. CEO Greg Hayes indicated this in an interview on Dec. 12, 2016, and also suggested that it does not make immediate economic sense for the company to keep those jobs in Indiana:

We're going to make a $16 million investment in that factory in Indianapolis to automate to drive the cost down so that we can continue to be competitive. Now is it as cheap as moving to Mexico with lower cost of labor? No. But we will make that plant competitive just because we'll make the capital investments there.

Terms of the deal

The Dec. 6, 2016, Washington Post article describes the deal between Carrier (and its parent company, United Technologies) and the state of Indiana:

In exchange for downsizing its move south of the border, United Technologies would receive $7 million in tax credits from Indiana, to be paid in $700,000 installments each year for a decade. Carrier, meanwhile, agreed to invest $16 million in its Indiana operation.

Trump had threatened imposing a 35% tariff on goods shipped back to the U.S., but the New York Times indicated, "he held off on using a stick with Carrier."

A CNN Money article on Dec. 1, 2016, broke down the deal as follows:

Carrier is getting a modest $7 million in financial incentives over the next 10 years from the state of Indiana to keep 1,000 jobs at an Indianapolis plant, sources familiar with the deal tells CNN.

That is just a fraction of the estimated $65 million a year it expected to save if it had moved those jobs to Mexico. It suggests that the incentives cited by Carrier were not the only factor in its decision to stay put.

The company will get $500,000 per year in state income tax refunds, as long as it keeps at least 1,069 manufacturing jobs in the state.

It will also get about $200,000 a year to retrain workers, funding which is generally provided by the state. Carrier actually had to return some retraining funds to the state when it announced plans to move to Mexico earlier this year, and this deal reinstates that money.

For comparison, the Obama administration has added 15.5 million jobs to the economy since the recovery from the Great Recession began in February 2010. (American Progress) 

Assessments

Paul Krugman, New York Times

Krugman concludes that the deal is too small to be meaningful:

One tactic, which we’ve already seen with this week’s ostentatious announcement of a deal to keep some Carrier jobs in America, will be to distract the nation with bright, shiny, trivial objects. True, this tactic will work only if news coverage is both gullible and innumerate.

No, Mr. Trump didn’t “stand up” to Carrier — he seems to have offered it a bribe. And we’re talking about a thousand jobs in a huge economy; at the rate of one Carrier-size deal a week, it would take Mr. Trump 30 years to save as many jobs as President Obama did with the auto bailout; it would take him a century to make up for the overall loss of manufacturing jobs just since 2000.

He expressed a similar point in a tweet:

If Trump did a Carrier-style deal every week for the next 4 years, he could bring back 4% of the manufacturing jobs lost since 2000.

In a longer analysis of Trade and Manufacturing Employment, Krugman looks at the U.S. shift away from manufacturing jobs and concludes, "absent the trade deficit manufacturing would be maybe a fifth bigger than it is... That wouldn’t make much difference to the long-run downward trend, but looms larger relative to the absolute decline since 2000." 


Lawrence Summers — personal blog

Former U.S. Treasury Secretary Summers suggested that Carrier was both cajoled and threatened into accepting the deal:

He deployed some combination of carrots and sticks at his disposal to lever Carrier into doing what he wanted. Implicitly or explicitly, there must have been sticks, as press accounts suggest that the tax benefits provided offset only a small part of the savings forgone by staying in Indiana. It is not hard to see from the point of view of United Technologies, the parent of Carrier, that for a company with more than $50 billion in revenue it's surely worth $60 million to not be on the wrong side of a possibly vindictive president of the United States.

Jim Tankersley, Danielle Paquette, and Max Ehrenfreund — Washington Post

Their article indicates:

It's also not clear how much personal involvement Trump had in the deal, versus Pence or other officials...

Chuck Jones, president of the United Steelworkers 1999, which represents Carrier employees, said neither Trump nor Carrier involved the union in the process...

While it is common practice for governors and local officials to offer special treatment to companies that locate facilities in their jurisdictions, many economists say that doing so amounts to government interference in the free market... These deals, they say, discourage companies from making the most productive and efficient decisions from a business point of view, while draining public coffers through tax breaks and other favors.

George Will — Washington Post

In an opinion column on Dec. 7, 2016, Will claims that, "Trump’s Carrier deal is the opposite of conservatism":

So, this is the new conservatism’s recipe for restored greatness: Political coercion shall supplant economic calculation in shaping decisions by companies in what is called, with diminishing accuracy, the private sector. This will be done partly as conservatism’s challenge to liberalism’s supremacy in the victimhood sweepstakes, telling aggrieved groups that they are helpless victims of vast, impersonal forces, against which they can be protected only by government interventions.

When Republican leaders denounce the free market as consistently harmful to Americans, they are repudiating almost everything conservatism has affirmed... Friedrich Hayek warned against the “fatal conceit” of believing that wielders of political power can supplant the market’s “efficient mechanism for digesting dispersed information.” The Republican Party is saying goodbye to all that.

Mike Kwatinetz — Fortune

In a Fortune column, venture capitalist Mike Kwatinetz looked at the jobs deal in terms of its payoff to the government versus its costs, and concluded the deal is positive for the federal government:

... The annual benefit adds up to about $9.8 million. Since Carrier is getting a $700,000 annual subsidy, the governmental revenue derived is over 14 times the cost. And that is without including a number of other benefits... As an investor, I’d take a 14 times return every day of the year... Shouldn’t the government? This is not a sweetheart deal for Carrier. I won’t go into all the math, but it indicates that Carrier will spend tens of millions of dollars more by keeping workers in the U.S. rather than moving them to Mexico.

Chris Isidore and Eric Bradner — CNN Money

In a Dec. 1, 2016 article, they cite Nathan Jensen, a professor in the Department of Government at the University of Texas:

Most research indicates that economic development incentives rarely change a firm's behavior, according to Nathan Jensen, a professor at the University of Texas. "They are a subsidy to a company with little value to society. Our research shows that offering incentives is a great way for politicians to take credit, or minimize blame, for company decisions."

Even though this package of incentives isn't a lot of money, the practice is worrisome from a policy perspective, Jensen said.

"It's clearly a small deal. But you have a business that made a threat getting $7 million it doesn't need," Jensen said, "while there are small businesses paying the full tax rate." He added that "there's the concern that this only encourages more companies to make this kind of threat to move, if not to Mexico then to another state."

Further research

  • What official documents reference the deal and its terms?
  • This article suggests that Trump threatened "to cancel the government contracts Carrier’s parent company holds." Did he say that, and when?