We don’t know yet, for certain, how Donald Trump and Mike Pence convinced Carrier to reverse course and decide not to ship close to 1,000 Indiana jobs to Mexico. What did the president- and vice president-elect offer the manufacturer? What did they threaten it with, if anything? Will taxpayers be ponying up?
Those questions don’t matter much to the workers who will keep their jobs, and who will celebrate the deal. They’re tangential at best to Trump, who gets a big symbolic win here.
But for the future of American economic policy, they’re everything.
One possibility is, Trump won the company over with smooth talk and broad policy promises. He’s going to cut taxes, he’s going to (vaguely) reduce regulation, life will be better, this will be a huge PR win for the company. Carrier changes course, he stops criticizing them, deal made.
Another possibility is Trump is doling out company-specific promises. He’ll roll back a specific regulation that affects the company in particular, or muster up some federal loan guarantees or worker training dollars, or maybe, as CNBC reported in the Carrier case, he might cajole a state governor into offering new corporate subsidies.
He also could be swinging a hammer of government. Maybe he’s whispering about canceling military contracts (Carrier’s parent company, United Technologies, relies heavily on those) or about levying very targeted tariffs on imports from the company’s operations overseas.
This is a sliding scale of government interference in the market.
At one end of it, Trump would be acting like a lot of governors, who throw state subsidies at companies that announce plans to skip the state. That’s typically not a great strategy for states in the aggregate – as the group Good Jobs First has relentlessly documented, corporate subsidies tend to under-deliver on jobs promises, and they often advantage big corporations over small businesses and start-ups. It would immediately create some perverse incentives for multinational companies, as the economist Justin Wolfers noted on Twitter: “Every savvy CEO will now threaten to ship jobs to Mexico, and demand a payment to stay. Great economic policy.”
The other end of the scale is much more involved, in a way that might particularly alarm conservatives. In it, Trump would be heavily involved in picking economic winners and losers. The economist Tyler Cowen sketched such a scenario in a column this week on how Trump might move to block companies from moving capital overseas.
“It’s not hard to imagine a Trump administration using such regulations to reward supportive businesses and to punish opponents,” Cowen wrote. “Even in the absence of explicit favoritism, companies wouldn’t know the rules of the game in advance, and they would be reluctant to speak out in ways that anger the powers that be.”
If these arguments sound familiar, it’s because Republicans raised them time and again through the early years of the Obama administration – particularly the debate over the president’s signature economic stimulus bill, and his accompanying move to bail out the U.S. auto industry.
In February 2009, Obama flew to Indiana to tout the stimulus, which had not yet passed Congress. He said it would “save or create” 3 to 4 million jobs, including 80,000 in Indiana alone.
Two days later, a Republican congressman blasted the stimulus bill on the House floor. “This back-room deal is simply a long wish list of big government spending that won’t work to put Americans back to work,” he said. “It won’t create jobs.”
That congressman was from Indiana. His name was Mike Pence.
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