Emboldened by his "victory" with Carrier Corp, which agreed to keep 1,100 workers in the US instead of outsourcing them to Mexico in exchange for $7 million in tax incentives over 10 years, as part of his victory tour in Indiana, Donald Trump on Thursday warned that U.S. companies will face "consequences" for outsourcing jobs overseas.
"Companies are not going to leave the United States any more without consequences. Not going to happen," the President-elect said on a visit to a Carrier Corp plant in Indianapolis cited by Reuters.
Trump, did not elaborate just what the consequences would be but during the election campaign he frequently threatened U.S. firms that his administration would put a 35% import tariff on goods made by American manufacturers who moved jobs offshore. As part of his "Make America Great Again" campaign, Trump has made keeping jobs in the US one of the main aspirations of his election campaign and frequently slammed Carrier for planning to move production to Mexico as he appealed to blue-collar voters in the Midwest.
Trump said his negotiation with Carrier would serve as a model for how he would approach other U.S. businesses that are tempted to move jobs overseas to save money - which likely means providing further tax concessions in exchange for keeping workers in the US.
In laying out the "carrot", Trump also pledged to create a healthy environment for business via lower taxes and fewer regulation: "I just want to let all of the other companies know that we're going to do great things for business. There's no reason for them to leave any more," Trump said.
Should the carrot fail however, there is a "stick" and Trump warned that If that approach did not work, there would be penalties.
The Carrier deal marked a quick, and high profile win for Trump, who has spent most of his time since the Nov. 8 election in New York building his team ahead of the handover of power from President Barack Obama.
Arriving early in the afternoon, Trump toured the plant in Indianapolis and shook hands with workers on an assembly line. Some workers yelled out "Thank you Mr. Trump" and "Thanks Donald" as he greeted them. Carrier confirmed that Indiana agreed to give the company $7 million in tax incentives. A source briefed on the matter said the tax incentives are over 10 years and the company has agreed to invest $16 million in the state, which is run by Governor Mike Pence, Trump's vice president-elect.
Trump's victory however was not without blemishes: Carrier still plans to move 600 jobs from the plant to Mexico, the Wall Street Journal said. Reuters reported earlier this week Carrier also still intends to close a factory in Huntington, Indiana, that employs 700 people making controls for heating, cooling and refrigeration and move the jobs to Mexico by 2018.
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And while Trump was enjoying the first stop of his victory parade, he was slammed by Bernie Sanders who, in a WaPo op-ed, warned that the Carrier deal is incomplete and leaves the incoming Trump administration open to threats from companies, echoing a concern we noted last night.
Sanders' concerns were actually quite valid, by highlighting the shift in the negotiating calculus between corporations and the new administration. In the very worst case, Sanders is right that companies will now feel empowered - with a vivid case study - to demand concessions in order to keep jobs in the US.
"Trump has endangered the jobs of workers who were previously safe in the United States. Why? Because he has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives," Sanders wrote in a Washington Post opinion piece on Thursday. He is not wrong. Sanders also noted that Trump had originally said he would save 2,100 jobs that Carrier planned to move to Mexico.
"Let’s be clear: It is not good enough to save some of these jobs," Sanders said although it was unclear what his alternative - if any - would be to keep jobs in the US.
Sanders wasn't the only one to slam the Trump deal. Moments ago, Reuters reported that according to a senior Mexican state official, Trump's intervention to stop jobs at a plant in Indiana going to Mexico "is typical of what happens in countries that Americans call "banana" republics."
Trump's deal with Carrier created an "uncomfortable" situation for the company, and went beyond politicians' remit, Fernando Turner, economy minister for Nuevo Leon, said in an interview. "It's not our job. It's up to companies to take their own decisions, not politicians; that's what's done in Latin American countries that they call banana (republics) in the United States," he said, laughing.
"It's not something that was done up until now in the United States. But anyway, things change."
Turner also said that Mexico had not been a winner from NAFTA. The trade deal had both failed to lift Mexican economic growth and had cost the country millions of jobs, he argued. In that case, we can only add, since both the US and Mexico are against NAFTA it should probably be scrapped immediately.
"(Trump) is sending a message to (U.S.) workers, to unions that they don't need to change, that everything is fine, that Mexico is the problem. But the problem is not Mexico," Turner added. "They're barking up the wrong tree."
Still, Turner said Trump was "intelligent" and his ambition to grow the U.S. economy would benefit Mexico if it came off. "Trade between Mexico and the United States did not begin with NAFTA," he said.
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While it remains to be seen how Trump will deal with Mexico - whose ambassador to the US Carlos Manuel Sada Solana told the Arizona Republic that "we have said time and again Mexico is not paying for the wall" - Trump may have to to resolve other domestic issues first: despite Trump's deal, employers elsewhere in Indiana are laying many more thousands of workers because of foreign competition. If Trump is indeed serious about them facing "consequences", we may soon find out just what these will be.