Plant closing might be first test of pledges made by Trump
On Thanksgiving Day, president-elect Donald Trump hinted he is in contact with Carrier, a manufacturing company that has been in the spotlight for plans to move 2,000 jobs from Indiana to Mexico.
The tweet followed a pledge during the campaign to stop Carrier from moving the jobs overseas, which Trump made after a viral video circulated of Carrier officials announced the job losses earlier this year. “It’s not like we have an 80-percent chance of keeping them or a 95-percent. One hundred per cent,” Trump said at a rally in Indianapolis in April.
Whether the president-elect succeeds will be one of the first big tests of whether he will be able to stick by his campaign promises.
It also is a window into the unusual new world of a president-elect intervening on behalf of workers at one company that, though important in the communities it operates in, is small in the context of the entire economy.
“It basically violates the notion of ‘The free market knows best.’ It’s an unusual thing for a Republican, that’s for sure.” LAWRENCE MISHEL ECONOMIC POLICY INSTITUTE
Local politicians regularly meet with corporate leaders to negotiate tax credits and other incentives to encourage businesses to locate in a particular jurisdiction, but modern presidents have typically not micromanaged the economy in this way.
“It basically violates the notion of ‘The free market knows best,’ ” said Lawrence Mishel, president of the liberal Economic Policy Institute in Washington. “It’s an unusual thing for a Republican, that’s for sure.”
Mishel described the negotiations as “an important test” for Trump — of whether he can fulfil his bold promises to voters through a combination of experience in business and a new style of leadership. “I really hope the factory doesn’t close,” said Mishel, adding that Trump has “laid claim to a magic wand to be able to reverse” trends in global trade.
“His fingers are going to be in a lot more decisions,” Nick Heymann, an analyst at the investment firm William Blair, said of Trump. “That kind of business perspective will be brought to how the federal government’s run.”
Carrier confirmed Thursday that the company’s representatives had “had discussions with the incoming administration,” but spokespeople declined to comment further.
The Carrier plant in Indianapolis builds furnaces. United, the firm that owns Carrier, will also close a plant nearby in Huntington, Ind., that manufacturers microprocessors for heaters, ventilators and air conditioners. The planned closures are part of a broader strategy on the part of United Technologies to reduce costs. The company’s plan is to spend about $1.5 billion (U.S.) over three years to improve efficiency, Heymann said, including by shifting manufacturing to locations where labour is less expensive.
“They’re, kind of, running in place at best in a tough economy,” he said.
Representatives of the company have told state officials that the company will save about $65 million a year by moving production from Indiana to Mexico. United had about $55.7 billion in sales last year.
Analysts suggested that Trump could offer to seek special tax benefits for United Technologies, either at the state or the federal level, to help preserve the jobs. United Technolo- gies has benefited from such largesse in the past. The firm received some $400 million in additional tax breaks from the state of Connecticut, where United Technologies is headquartered, in 2014. The company also received $500,000 in grants from the administration of Indiana Gov. Mike Pence. After announcing that the plant in Indianapolis would close, Carrier reported that it had repaid those cred- its. Pence is now the vice-presidentelect. As Trump’s running mate in their successful campaign, he has a second opportunity to entice Carrier to stay.
Another potential source of lever- age for the new administration could be United Technologies’s military contracts. Besides Carrier appliances and Otis elevators, the firm also makes Pratt & Whitney engines for aircraft, including the engine used in the air force’s controversial new F-35 Joint Strike Fighter.
“There’s no question that as United Technologies’s main military customer, the government has some leverage over the decision it makes in other areas,” said Loren Thompson, chief operating officer of the Lexington Institute in Arlington, Va., and a defence industry consultant.
That said, Thompson added, the Trump administration might need United Technologies as much as United Technologies needs Trump.
“It’s not likely that Trump would use military contracting as a point of leverage because the government must have United Technologies engines in order to power its aircraft,” Thompson said.
Others were more optimistic that Trump’s entreaties would be successful. Ivan Feinseth, the director of research at Tigress Financial Partners in New York, said that while labour in Mexico might be cheaper, energy is more expensive there and shipping finished air conditioners across the border could be costly.
He noted that General Electric’s appliance unit — now owned by the Chinese firm Haier — manufacturers most of its products for the U.S. market domestically, and that Whirlpool and other appliance makers have recently expanded some production in the United States as well.
For these reasons, it might not take much of a financial concession to persuade United Technologies to keep the Carrier plant open in Indianapolis, especially given how high the stakes are in terms of public relations.
“It would be good for both Trump and the company to keep the plant here,” Feinseth said. “This is going to happen. It’s very simple to put together.”