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Analyzing the long-term value of Trump’s Carrier agreement

December 1, 2016 at 6:40 PM EST
President-elect Donald Trump’s deal with United Technologies will preserve 1,100 jobs in the state of Indiana, thus appearing to validate a central promise of his campaign. But questions remain: Is this sort of agreement viable? What is the future of American manufacturing? Judy Woodruff speaks with Greg Ip of the The Wall Street Journal and Scott Paul of the Alliance for American Manufacturing.
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JUDY WOODRUFF: President-elect Trump’s trip today to the Carrier plant in Indiana was a moment to celebrate the jobs that were saved, but it has also led to more questions about whether this kind of deal could be replicated and to concerns about the state of the industry.

To break it down, I’m joined by Scott Paul of the Alliance for American Manufacturing, which represents some leading companies in that field, and Greg Ip of The Wall Street Journal.

And we welcome both of you to the program.

Greg Ip, remind us, first of all, why was Carrier going to move these jobs to Mexico in the first place?

GREG IP, The Wall Street Journal: Cheap labor, basically, in Mexico. They can pay workers $24 per day, plus benefits. In Indiana, they are paying $30 per hour.

So, they were coming to the same conclusion that so many other manufacturers over the last few decades have come to, which is that it’s cheaper to make that product elsewhere.

JUDY WOODRUFF: So, Scott Paul, what’s your understanding of why this company changed its mind?

SCOTT PAUL, Alliance for American Manufacturing: Well, I think it’s pretty clear there was a whole lot of pressure exerted by the president-elect of the United States and the vice president-elect of the United States.

JUDY WOODRUFF: Who happens to be the governor.

SCOTT PAUL: Who happens to be the governor of Indiana.

JUDY WOODRUFF: Right.

SCOTT PAUL: Trump had started tweeting about this in February and talking about it consistently, wanted to make, I think, a point of holding a company accountable for offshoring.

It’s something that he said he would do during the campaign. And I think that there was just a convergence of factors that made Carrier the right case in which to make some progress.

JUDY WOODRUFF: It’s been reported today, though, that the $6 million, $7 million in tax incentives that the state of Indiana is offering Carrier is something that was offered to them before and Carrier turned it down. So what’s different now?

SCOTT PAUL: Well, I think what’s different now is that there was no one in the state of Indiana who was in a position to offer both carrots and sticks.

And whether it was directly or indirectly, certainly, the knowledge that there are billions of dollars in defense contracts, that there is the ongoing exposure that the president of the United States is going to focus on this company is not helpful and probably causes their executives and their board to say, let’s see if we can work something out here.

JUDY WOODRUFF: Greg Ip, is there any precedent for this kind of move on the part of a president or president-elect?

GREG IP: You can sort of see elements of it in different walks of life.

Back in the ’60s, for example, just as inflation was beginning to be a big problem, Presidents Kennedy and Johnson would often publicly browbeat companies for raising prices and threatening to move federal defense purchases to different countries.

And we see this in other countries all the time. Brazil and France, to name two examples, have a long history in intervening in business decisions to protect local jobs. What I don’t think we see is much evidence that in the long run those types of tactics make much difference, when the economics of production are pushing in the other direction.

JUDY WOODRUFF: How do you see that, Scott Paul? Is this something that could be replicated company by company by company in this country?

SCOTT PAUL: Right.

Well, there’s a company around the corner from Carrier, Rexnord, which still plans to offshore production to Mexico. And so from a case management perspective, there were about 1,600 plant closures or notices over the last two years that are related to trade.

It’s impossible to work through that list. But I will also say that I think an intervention like this sends shockwaves through corporate boardrooms. When they’re making sourcing decisions, they’re considering the labor cost factor that Greg indicated.

They also consider some the risks that would result from exiting the United States and whether there could be other consequences for that as well.

JUDY WOODRUFF: And consequence, excuse me, is a term, Greg Ip, that the president-elect used today. He said there will be consequences when other companies announce they are leaving and moving jobs out of this country.

What consequences could there be?

GREG IP: Well, he hasn’t been specific, but if you go back over some of the campaign rhetoric, well, obviously, there’s the bully pulpit, just publicly shaming these companies.

And that again is not new to Trump. If you remember, back in 2004, John Kerry was making noises about Benedict Arnold CEOs in a similar context. So, that’s got a long and gloried tradition.

He can, for example, imply the threat that federal business will be withheld from some of these companies. That’s possibly dangerous precedent. You know what I mean? When — the Pentagon has very specific guidelines, for example, when it goes out and does procurement.

You don’t want them buying a jet engine which is actually inferior to another jet engine simply because that other company outsourced some jobs. The final thing that Trump could do is he could impose tariffs on any products that are imported once they have been outsourced to another country.

It’s not clear how they could do it. The legal authority is somewhat murky. But there’s not much question that he could do it if he wanted to do it. And that’s why people do worry that we end up with a trade war as a result of these tactics.

JUDY WOODRUFF: Is that a concern for the manufacturing sector, Scott Paul?

SCOTT PAUL: Well, I think a full-blown trade war is unlikely. There are a lot of safeguards in place to prevent it from escalating to that point.

I think that there are a lot of domestic businesses that would argue we’re in a trade war with China now. We haven’t pushed back all that much. And, again, the signal that this sends to corporate America and to our trade partners is that we’re going to drive a tougher bargain.

I don’t know that we have always done that. And depending on how it’s managed, it could yield some returns for American businesses and American workers.

JUDY WOODRUFF: And that’s what I’m trying to understand, Greg Ip.

On balance, is this move today and maybe a few other moves down the road likely to alter the health of the American economy, the well-being of American workers across the board?

GREG IP: There’s no question that protectionist or sort of moral suasion efforts like this can make a difference on a case-by-case basis. We have seen it in the past. It will probably save a few thousand, possibly more, jobs this time.

But, as we were discussing earlier, if the economics are saying that this is an expensive place to produce stuff, it’s very hard to see that turning that around.

That’s why it would be more useful to focus on some of the other points that I think Mr. Trump was making today about making this a better place to manufacture. And that’s not really about like threatening or bribery, which is what incentives really are. It’s about lower tax rates, less regulation and better education.

There are 300,000 manufacturing jobs that are vacant right now because employers are having trouble finding the right skilled workers. Back when the Carrier announcement was made earlier this year, the union representative got a phone call from Boeing saying, hey, we need 60 skilled workers, are your guys available?

Unfortunately, very few of those people had the skills necessary that Boeing was looking for.

JUDY WOODRUFF: That’s interesting.

So, Scott Paul, again, same question. On balance, is something like this — if Donald Trump is talking about tax reductions for corporations, talking about doing away with a lot of regulations, is that going to create an environment where many American companies will decide not to send jobs overseas?

SCOTT PAUL: Yes, I think Greg is right that the macro environment is going to be critically important here.

And it’s a combination of the corporate tax code, the strength of the dollar, which is very important to our exporters, the work force, the investments that we’re making in our infrastructure, because labor, quite honestly, is becoming a smaller component in the cost of manufacturing. Energy, the materials make a big difference.

And the other factor here is that these countries compete for business with us by offering these subsidies all the time. If they see the United States is in the game of this, it could change the equation.

JUDY WOODRUFF: Scott Paul, Greg Ip, we thank you both.

GREG IP: Thank you.

SCOTT PAUL: Thank you.

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