Trump Warns Firms Will See Penalties if Jobs Leave the U.S.


Shutterstock photo

President-elect Donald Trump threatened Thursday to punish U.S. companies that shift jobs overseas as he praised a deal that would save about 800 factory jobs in Indiana.

"Companies are not going to leave the U.S. anymore without consequences," Mr. Trump said at a Carrier Corp. furnace plant in Indianapolis. "Leaving the country is going to be very, very difficult."

After receiving a phone call from Mr. Trump and a package of $7 million in state tax breaks, Carrier's parent, United Technologies Corp., agreed to keep open the furnace factory it had planned to move to Mexico and retain another 300 research and management workers in the state.

Mr. Trump used the Carrier announcement to repeat his criticism of the North American Free Trade Agreement and his promise to revise the agreement.

He offered a carrot-and-stick approach to enticing companies to remain—a plan to lower the corporate tax rate to 15% from the current 35%; a drastic cutback in regulations; and steep penalties such as import tariffs for companies that move jobs out of the U.S.

Like presidents including Ronald Reagan and Barack Obama before him, Mr. Trump is trying to take credit for using the leverage of the government to save industrial jobs. But Mr. Trump's gambit is unusual, both for the way he zeroed in on a single company, and the fact that the inducement will be provided by the state of Indiana, before his term even begins.

What Mr. Trump described as his ability to bring outsourcing corporations to heel has emerged as a compromise that will see a break on corporate taxes in exchange for a commitment to keep some, but not all, manufacturing jobs from leaving.

"CEOs are trying to figure it out," said Hal Sirkin, a senior partner at Boston Consulting Group in Chicago, adding he had discussed with half a dozen executives how Mr. Trump's administration might affect their plans to move production outside the U.S.

Many firms are likely to take their chances for the cost savings of cheap labor and robust supply chains in Mexico, China and elsewhere. Several companies—including at least three with plants in Indiana—this year have announced plans to lay off workers or phase out factories to move production abroad.

It is unlikely that these firms would change their plans, according to Jeffrey Hammond, an industrial sector analyst for KeyBanc Capital Markets. "The labor cost savings are significant and the disincentive to not move would have to be pretty good," he said.

Sen. Bernie Sanders said Mr. Trump "has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives."

Government and union officials say Carrier has previously said it expected to save about $65 million a year by shifting the Indianapolis plant's operations to Monterrey, in the state of Nuevo Leon, where wages average about $11 a day. The average wage of the Indiana jobs that will be retained is more than $30 an hour, according to a document reviewed by the Journal.

Caterpillar Inc. is moving forward with a plan to cut 230 jobs by 2018 at the Joliet, Ill., factory where workers make oil pumps and valves, a spokeswoman said. Some of the plant's production has been slated to move to Mexico.

Industrial conglomerate Rexnord Corp., commercial kitchen equipment maker Manitowoc Foodservice Inc. and electronics component maker CTS Corp. have announced plans this year to move some operations abroad from Indiana. Rexnord intends to move production of industrial bearings from Indianapolis to Monterrey. The move, expected by the middle of next year, would eliminate about 300 jobs in Indianapolis.

The United Steelworkers union, which represents hourly workers at the plant, said Rexnord rejected the union's proposals for wage freezes and other concessions to lower costs. The union said the hourly wages at the plant, which currently range from $18.82 to $30.81, would have to drop below the U.S. minimum to match the company's estimated costs savings in Mexico. Rexnord didn't respond to requests for comment.

Manitowoc is moving production from a plant in Clark County, Ind., to Mexico. About 84 jobs will be eliminated by early next year. Manitowoc, which split from its Wisconsin-based construction crane parent early this year, is consolidating plants throughout the world. The company declined to comment.

Mr. Obama has defended his administration's bailout of the auto industry as a keystone of his economic legacy, and suggested it preserved millions of jobs. Mr. Reagan slapped a tariff increase on foreign-built motorcycles in 1983, aiding Harley-Davidson Motor Co., then the only domestic motorcycle manufacturer.

As much as Mr. Trump celebrated Carrier's decision to keep jobs in the U.S., the president-elect didn't back down from his tough talk on the campaign trail over penalizing companies that move offshore. He said Thursday he would seek to heavily tax companies that fire U.S. workers, move production offshore and try to import goods across the border.

Some economists called Mr. Trump's actions, including an earlier agreement with Ford Motor Co. to keep some production at a Kentucky plant, an unsustainable intervention in the economy.

"If this is what the Trump team thinks macroeconomic policy is, then they don't understand the scale of the economy," said Justin Wolfers, a professor of economics and public policy at the University of Michigan.

The economy currently loses nearly 7 million jobs a quarter through the churn of companies failing, closing or leaving the U.S., Mr. Wolfers said, citing data from the Bureau of Labor Statistics. "Firms contracting or leaving a market is the natural state of business."

The more pressing issue for the incoming administration would be to find ways to encourage more private job creation, rather than trying to intervene to prevent individual firms from leaving or shutting down. "Deal-making is not macroeconomic policy," Mr. Wolfers said. "We should understand it's politics, not economics."

"I want to tell all of the other companies—know that we are going to do great things for businesses," he said. There is "no reason for them to leave anymore."

While the incoming administration has stopped about 800 Carrier jobs from moving to Mexico, it would have to stop 14,000 additional jobs from leaving the country this year to reverse the effects of Nafta.

A study published by the Peterson Institute for International Economics estimated that imports from Mexico have displaced 203,000 jobs a year, but the two-way trade has also supported 188,000 jobs due to U.S. exports headed to Mexico. That's a net 15,000 jobs lost annually—a tiny fraction of U.S. employment, according to the 2014 study.

Some economists, pointing to the $61 billionU.S. trade deficit with Mexico, say Nafta is responsible for a higher number of job losses. But most agree that imports from China, where the trade deficit measured $367 billion last year, are a bigger problem for the U.S. economy.

"If this is a sign of enforcement of trade laws and wanting to have domestic manufacturing, we welcome it," said Leo Gerard, president of the United Steelworkers union, in an interview late Wednesday. Mr. Gerard said the union kept the planned Carrier plant closing "as a hot-potato political issue."

Democratic Sen. Joe Donnelly of Indiana said the company was seeking cheaper labor—not relief from regulation—when it decided to close the Carrier factory. Mr. Donnelly said he called Carrier executives the day the closure was announced, after seeing press reports that said the closure was driven by unhappiness over government regulation.

"I had never gotten a call from anybody in the company about any regulation problems or any issues they had regarding regulations," Mr. Donnelly said. "It was basically an excuse that was used. This has been about chasing three-dollar-an- hour wages in Mexico from the start."

Bob Tita, Andrew Tangel and Will Mauldin contributed to this article.

Write to Ted Mann at ted.mann@wsj.com, Damian Paletta at damian.paletta@wsj.com and Andrew Tangel at Andrew.Tangel@wsj.com


  (END) Dow Jones Newswires
  12-02-160155ET
  Copyright (c) 2016 Dow Jones & Company, Inc.



This article appears in: Commodities
Referenced Symbols: AAPL , CAT , CTS , F , HOG


More from Dow Jones Business News

Subscribe






See headlines for AAPL

Follow on: