Keep Calm and Carrier On
The President-and-Vice-President-Elect, Donald Trump and Mike Pence, will take a trip to Pence’s home state of Indiana today as part of their “Thank You Tour” after an upset victory that shook the political world on November 8th.
As part of this visit, Trump will meet in Indianapolis with executives from Carrier, an air conditioning company owned by United Technologies company, and is expected to announce that, through his team’s, and his personal, intervention, Carrier will scrap its plans to move its Indianapolis manufacturing operation to Mexico. The deal comes after some negotiations between Trump and Carrier over the Thanksgiving holiday in which the government is poised to give incentives to the company to keep the majority of Indianapolis workforce on the job.
While this is certainly a positive development for Carrier’s Indianapolis workers, the reason why the saving of 1,000 jobs has grabbed national headlines is because it is a direct fulfilment of a promise that Trump made on the campaign trail. He explicitly stated that the Carrier plant in Indiana would stay if he were elected to the nation’s highest office. Trump’s forceful rhetoric about Carrier (who he often singled-out for derision about their outsourcing of manufacturing) led him to be criticized by both the left and right. The common narrative was that Trump, even if he were to be elected President, wouldn’t have the power to stop American companies from outsourcing manufacturing.
Enter President-Elect Trump.
Certainly we have to realize at the outset that Trump is a master of using the media and optics to his benefit. This isn’t meant as a derision of the achievement of getting a company to continue plant operations in the United States, but it does show that Trump understands how important of a messaging win keeping this particular plant in this particular city will be. It really can’t be overstated the positive optics and messaging that this will carry in the industrial Midwest. Donald Trump ran on a populist, pro-American/pro-manufacturing message that some skeptics thought was a mere ploy to get white working class voters in the rust belt to consider voting against the union-backed Democrats in favor of a protectionist Republican. Before the Carrier deal, the cynics suggested that Trump was on course to shrug off his industrial promises and fall into the “Acela Corridor rut” of giving his primary attention to Washington DC and New York.
However, Trump kept his promise. Sure, it still looks like this Carrier plant will trim its workforce, but it also means that a thousand people will be able to keep their jobs. Regardless of politics, this is a win. It’s also a win for Carrier, a company that found itself on the constant defensive against the Republican nominee for President’s scorn and bully pulpit. Along with Ford Motor Company and Nabisco, Carrier was the posterchild of Trump rallies for corporations choosing profit over Americans.
The Carrier deal cuts deeper than merely saving a thousand jobs and keeping a campaign promise. The real success of the deal, again, has to do with the marketing mind of Donald Trump. Rather than cynicism, this is savvy. If we take Trump at his word that one of his chief goals is to restore American industry, then we have to think that doesn’t start with asking companies to build plants, but rather, it starts with stopping the bleeding of existing jobs overseas. Once this first step is accomplished, then the process of making America lucrative for production would begin. This is an important distinction because it shows an understanding of the current wariness of larger businesses with respect to investing in the United States. What Trump’s deal with Carrier says is: America wants you here and we intend to work with you to make that happen.
Do we think that Donald Trump will start making personal calls to CEOs and board members of every major company weighing an exit from American manufacturing and production? Certainly not. The President of the United States has a full plate and needs to focus on governing the country. However, if the President is able to make symbolic gestures to set the tone for his Administration and put policies in place to reassure business leaders, he won’t have to make those phone calls.
Already we are seeing the development of a very rudimentary “carrot and stick” approach to keeping jobs in the United States. While a President Trump shouldn’t engage in the same type of bully-pulpit-shaming of individual businesses that Candidate Trump did, his threats as President carry far more weight. In the Carrier deal, we see the “carrot” as giving tax breaks and incentives to keep manufacturing in the United States. The “stick” is expressed in several different ways that aren’t nearly as public. The most important stick, and one that Trump can wield with near-absolute impunity, is the power to not award lucrative manufacturing contracts to Carrier’s parent company, United Technologies. Just last year, United Technologies received nearly $6 Billion (far more than 1,000 salaries in Indianapolis, to be sure). A second, and longer-term, “stick” is the threat to put an import tariff on certain goods produced in other countries being sold in America. This means that, even though the, for instance, air conditioner was made in Mexico for half the price of producing it in Indiana, it would actually cost Carrier more to sell it in America.
Certainly Trump’s threat of import tariffs have raise the hackles of free-trade Republicans, but he was elected with a mandate on making America more competitive on trade and commerce. Also, Trump is likely banking on the threat of an import tariff being enough for companies to decide not to test whether Trump is serious about keeping his promise (another reason keeping his promises he made on the campaign trail is important).
While the deal-making that led to the Carrier plant in Indianapolis staying open does not, single-handedly, mean that the American economy has rebounded, it does show an objective, outward commitment of the new Administration to get to work fixing the economy. Trump’s negotiations with Carrier have set the right tone and now it remains to be seen whether business leaders will look to fall in line or test whether Trump will keep his other campaign promise to make them fall in line.