President-elect Donald Trump’s recent intervention to convince the Carrier corporation to keep hundreds of jobs in the United States was a public relations coup. While on the campaign trail, Trump repeatedly blasted Carrier’s plan to move its Indiana plant to Mexico, using the decision as a high-profile example of the deterioration of the U.S. manufacturing sector.
But there’s more than meets the eye to this story. Politicians and commentators from both sides of the political spectrum raised questions about the deal. Moreover, in the days after the deal was announced, details emerged that made the decision seem less than the unqualified triumph it first appeared.
To help sort through the issues, here is a closer look at the Carrier deal and what it means for the manufacturing industry.
The Carrier Deal Explained
A few weeks after the general election, President-elect Trump and Carrier announced a deal had been reached to prevent the loss of 1,400 manufacturing jobs to Monterrey, Mexico. Carrier was given millions of dollars in state tax incentives to revise their original decision to relocate.
Not all of the jobs were saved, however. Even after the deal, the Carrier plant still stands to shed around 600 positions.
Additionally, Carrier’s parent company, United Technologies, was not able to reach a deal with the new administration, and announced it would be moving ahead with a second plant closure in Indiana that will result in the loss of 700 jobs.
So although the deal still represents a major win for the incoming Trump administration and hundreds of Indiana workers, it is perhaps not the total victory first reported by the media.
Crony Capitalism or Smart Business?
In the wake of the Carrier announcement, criticism emerged from both liberal and conservative quarters. Sarah Palin, who had been vocal in her support for Trump during the campaign, called the deal “crony capitalism.”
Other politicians and commentators—from both parties—claimed the deal sets a dangerous precedent for an interventionist government that picks winners. The American public, however, strongly supports the action, according to recent surveys.
A Revival in U.S. Manufacturing
The Carrier deal comes at a time when U.S. manufacturing is exhibiting signs of life after decades of offshoring. Nike announced in 2015 it would move 10,000 jobs back to the United States after making a calculating that the benefits of operating stateside outweighs higher labor costs.
Although wages in the America have been stagnant, they reached an all-time high last year in China. This means a gap in manufacturing costs between the two countries is no longer as large as it once was, making domestic manufacturing more appealing.
These larger economic developments, combined with the incoming administration’s desire to rebuild U.S. manufacturing capacity, can potentially mean greater job growth in the future.
Whether the Carrier agreement represents a major shift in U.S. manufacturing depends on the nature of the deal. If this is simply a case of an incoming president making good on a campaign promise—only to revert to a more non-interventionist posture for the duration of his term—then the deal will have little impact.
If President-elect Trump plans to intervene on a regular basis, however, the stakes could be enormous. The unparalleled purchasing power of the U.S. government allows it to exert tremendous influence via “carrot and stick” negotiations. Should the new administration take an aggressive stance that includes tougher trade regulations and interventionist actions, we could see fewer jobs cross the border, but also greater uncertainty among corporate leaders.