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Donald Trump and the Indiana Carrier factory, explained

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

GOP Presidential Nominee Donald Trump Holds Campaign Rally At Collier County Fairgrounds In Naples, Florida Photo by Joe Raedle/Getty Images

Carrier, the HVAC company that since 1979 has been a subsidiary of the larger United Technologies conglomerate, announced several months ago that it was going to close two facilities in Indiana and shift production to a new plant the company is building in Mexico. The move was telegraphed well in advance as part of the company’s obligations to its workforce, but in a practical sense that only made the sting worse.

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.

On the campaign trail, the Carrier plant closures became a signature talking point for Donald Trump. He argued that it was one concrete example of the overwhelming harm done to American interests by bad trade deals. 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.

Then this week came some amazing news: Trump, and Vice President-elect Mike Pence, convinced Carrier to stay in Indiana. It was a huge PR coup for Trump and set the stage for a triumphant public event in Indiana on Thursday.

It’s worth noting that the state of Indiana was never close electorally, and there's little evidence that trade with Mexico is overall a major contributor to any kind of big problems in the American economy. But research does show that the huge influx of imports from China that followed the establishment of permanent normal trade relations with China in 1999 really did reshape the American economy. Most Americans benefited at least a little from cheaper goods.

But many specific communities were devastated, and a new study by David Autor shows that those communities experienced an increasing tendency to vote for ideologically extreme congressional candidates and, ultimately, Donald Trump. Those communities were located primarily in the Midwest, a politically crucial region that, as we now know, gave Trump the White House even as he got nearly 2.5 million fewer overall votes than Hillary Clinton.

Americans still don't know exactly what Trump and Pence offered or threatened. And the larger implications of the move are hotly disputed. Is this a first step toward Trump governing as a true champion of production workers? An alarming slide into crony capitalism? Or something worse?

Most likely it’s something much more boring — a relatively minor piece of presidential public relations in which an important politician uses his Twitter feed to highlight a relatively small development that nonetheless reflects well on him. This is neither a scandalous thing for Trump to do nor a particularly unusual or brilliant thing for him to do. President Obama tweets about his small-bore initiatives all the time, and while previous presidents have not had access to that particular platform, trying to draw the public’s attention to one or another small bit of good news is one of the most banal tricks in the presidential playbook. The main difference is that Trump has done such a good job of sucking the country into nonstop Trump Show viewership that his gambit is drawing much more attention than its very small scale merits.

Donald Trump scored a huge PR coup

Having lambasted Carrier on the campaign trail, and then indicated in November that he was working on trying to save the plant and the jobs, Trump rather dramatically announced success on Twitter on Tuesday.

Trump frequently says things that aren’t true, so a prudent person might have wanted to seek out more actual information before simply taking Trump’s word for it. But the New York Times, which enjoys a mutually beneficial pseudo-feud with Trump, decided to just write it up as an example of Trump helping workers by standing up to big business.

Michael Goodwin of the New York Post proclaimed that “Trump’s already winning” and he’s not even president yet, citing both the Carrier deal and the broadly similar arrangement he struck with Ford a couple of weeks ago.

Now, the overall scale of this move relative to the size of the American economy is pathetic. In Indiana alone, there were 672,000 manufacturing jobs at the 1999 peak, falling to 425,000 in the summer of 2009 and bouncing back to 513,000 as of this fall. Which is just to say that broad Obama-era policies aimed at overall economic recovery have “brought back” almost 90 times as many jobs as are at stake in the Carrier deal. Getting all the way back to the Clinton-era peak would require Trump to pull off about 160 Carrier-scale moves in Indiana alone, to say nothing of the millions of manufacturing jobs in other states.

But the very small-scale nature of the Carrier situation is part of what makes it such appealing public relations. 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.

It’s not entirely clear what happened

For all the political hubbub, it remains remarkably unclear exactly what it is that Trump did to change Carrier’s mind. But the moves seem to fall into three broad buckets:

  • One aspect of the deal is that Carrier is getting some new tax incentives from the state of Indiana, whose governor happens to be Mike Pence, who happens to be the vice president-elect of the United States. Companies shake down state governments for corporate welfare all the time, and it’s fairly common for state governments to give in. The Carrier story is clearly a bit more than that — an earlier round of negotiations along these lines had failed to convince Carrier to stay — but it also seems to include a heavy dose of this kind of fairly banal state politics simply being elevated to a big new level.
  • Another aspect of the deal is that Carrier’s parent company, United Technologies, is a major defense contractor. John Mutz, a former lieutenant governor of the state who now chairs the Indiana Economic Development Corporation, tells the Indianapolis Business Journal that the main factor was fear that angering Trump would jeopardizing defense contracts.
  • Big companies generally try to play an influence-peddling game. They often do that by hiring lobbyists who have ties to important politicians or by donating to important politicians’ election campaigns. 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.

It’s also, importantly, not entirely clear what Carrier promised to do. How long are the jobs safe for? Under what terms? We don’t really know. And one problem with a president-elect who 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.

The larger implications could be menacing or banal

The fundamental smallness of what actually took place here relative to the enormity of the narratives being hung on it creates a somewhat strange situation. The Carrier plant is clearly intended by Trump to be a synecdoche for a larger strategy aimed at boosting high-wage manufacturing employment and broad revitalization of secondary cities in the Midwest. But it’s hard to extrapolate this story out to the millions of jobs scale without it becoming alarming.

For one thing, as Tyler Cowen notes, an actual legislative framework aimed at entirely preventing US-based firms from exporting capital to lower-wage countries would end up needing to be disastrously draconian. And because international flows of capital and goods need to balance out, “a Trumpian plan to limit capital outflows, through whatever means, is also — if only indirectly and without such intent — a plan to boost the trade deficit.”

Another problem, as Sen. Bernie Sanders writes in a Washington Post op-ed, is that Trump has arguably laid out a blueprint for large-scale blackmail. After all, “the company will be rewarded with a damn tax cut” for having threatened to move to Mexico, a step that “should send a shock wave of fear through all workers across the country,” since everyone’s jobs could be jeopardized through these kind of extortion tactics.

Last but by no means least, there’s a hint of systemic corruption in the idea that Trump got Carrier to change its mind about where to locate furniture production based on a threat to abusively politicize the defense contracting process. In the short term, it’s hard to be sad about a major US defense contractor facing pressure to save American jobs. But in a general sense, what we want the Pentagon to do with its contracts is to obtain useful military equipment at a reasonable price so that America's armed forces can perform their jobs effectively.

And the same is true for America’s extensive civilian contracting. You can extrapolate out this deal in an alarming way such that the entire federal government becomes a vast patronage mill for Trump. What Trump wanted Carrier to do to stay in his good graces was keep a single factory open and let Trump get a political win. But maybe tomorrow he’ll expect companies that do business with the federal government — which is to say most big companies — to take advantage of his massive conflicts of interest by bribing him, or by making sure that no executives donate to opposition political figures.

On the other hand, it’s far from clear that any of these wild extrapolations make sense. The specific scenario that was playing out with the Carrier plant — a company shutting down an existing US-based factory to replace it with a new one located in Mexico — is already pretty rare, in part because companies fear public relations and political blowback. If Trump simply chills that a little with an implied threat to defense contracts or encourages it a little with an implied incentive to seek tax benefits, the overall net impact is likely to be small.

Depending on the exact balance of incentives, it might be good in a minor way or it might be bad in a minor way. But either way, it’s likely to be minor. Unless, that is, Trump really does try to massively scale it up and use this kind of move as the centerpiece of his economic strategy.

Trump wins when his tweets set the agenda

Barack Obama has a Twitter account that he frequently uses to try to highlight small-scale things that he believes reflects well on himself and his administration.

Here is Obama talking about a White House initiative to engage men in the fight against sexual assault:

More directly comparable, here is Obama talking about using the federal government’s leverage over government contractors to impact family leave policy:

Reporters and editors generally understand that while the words and actions of the president of the United States are important things to keep track of, the president’s Twitter feed is a public relations tool controlled by the most powerful man on the planet. If we, as a profession, allowed whatever Obama chose to tweet about on any given day to dominate the political news cycle, we would have been handing him an enormous advantage.

Trump has done a good job over the years of making his Twitter feed livelier and more exciting than Obama’s feed. But it’s still the case that allowing him to set the media agenda via Twitter is an enormous win for him. Very few people will be affected by the Carrier move — many fewer, for example, than the million or so people impacted by Obama’s leave for contractors initiative — whereas huge numbers of people will be affected by things Trump doesn’t like to tweet about, including rolling back Dodd-Frank and slashing taxes for millionaires.

Touring the country looking for factories to cheerlead or small interventions to help particular communities is a perfectly legitimate thing for a president to do. But a PR stunt is a PR stunt, not a major economic policy initiative.

If Trump actually does try to make this kind of stunt the centerpiece of his economic agenda, that will be a disaster. But the much more likely scenario is one in which he continues with his stated policy agenda of tax cuts and deregulation while using a handful of PR stunts to maintain an image as an champion of the working class. The big question is will he get away with it?