Donald Trump and the Indiana Carrier factory, explained

A huge PR coup for the Trump Show that’s almost certainly economically irrelevant.

The plants weren’t closing because Carrier was losing money hand over fist or because the products they made were obsolete. It was simply cold-hearted medium-term economic planning — it would be cheaper to do it in Mexico.

.. And as liberal economist Dean Baker writes, it is roughly correct that facilitating the relocation of industrial activity from the US to Mexico was one of the goals of the NAFTA deal.

.. It’s true that something abstract like a 0.25 percentage point cut in the federal funds rate or a temporary partial suspension of the payroll tax would do a lot more to create jobs than jawboning a single company about a single factory. But Trump’s willingness to roll up his sleeves and get involved in the problems of one American community indicates an obsessive focus on boosting the fortunes of working-class Midwesterners — even as his administration’s big-picture policy focus remains on deregulating Wall Street, enacting an enormous tax cut for rich people, and slashing spending on assistance to the poor.

.. The free media Trump is going to garner from this deal is worth many, many millions of dollars of television ads, so letting Trump have his win could simply be a highly cost-effective way to earn some goodwill from the president-elect.

.. undertakes a major effort that’s pretty clearly aimed more at a PR win than a particular policy goal is there’s always the risk that he’ll be inclined to give away the store in his negotiation for the sake of the photo op.

.. Trump has arguably laid out a blueprint for large-scale blackmail.

 

Donald Trump Warns of Penalties If U.S. Firms Take Jobs Abroad

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.

.. 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.

.. 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

.. 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.

.. 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.”

.. 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.