As president-elect Donald Trump celebrates his deal with heating and air-conditioning manufacturer Carrier to keep roughly 1,000 jobs in Indiana, economists and critics are questioning the politics behind the agreement.
Speaking at the factory in Indianapolis on Thursday, Trump lauded Carrier’s parent company, United Technologies, for keeping jobs on U.S. soil versus shipping them to Mexico.
“United Technologies has stepped up. And I have to say this, they did it in such a nice and such a professional way,” Trump told factory workers and reporters. “Companies are not going to leave the United States any more without consequences. Not going to happen.”
Although the details behind the Carrier agreement have not been fully revealed, the Wall Street Journal reports Trump and Vice-President-elect Mike Pence — the governor of Indiana — agreed to give about $7 million in tax incentives over a roughly 10-year period to save the 1,000 jobs, which include headquarters and engineering staff.
The Journal also reports that 400 jobs will still be cut in Indianapolis and another 700 will be lost at a United Technologies plant in Huntington, Ind., which is scheduled to close.
‘Disastrous’ in the long run
William Watson, associate professor of economics at McGill University, called the Carrier deal “great PR” for the incoming Trump administration.
However, Watson said this decision could be “disastrous” for the U.S. economy in the long run.
“It’s essentially going to mean firms don’t choose where’s the most efficient place in the world to produce things, they choose on the basis of who pressures them the most,” Watson said.
Mohan Tatikonda, a professor at Indiana University Kelley School of Business, also called the deal a “massive win” for Trump but said it’s a “spot solution” for a larger problem facing manufacturing.
“It’s for one facility, one group of employees for a certain point in time. It’s not a policy, it’s not a framework. It’s a one off,” Tatikonda told Global News. “It gets at the symptom, but it doesn’t get at the underlying cause. There isn’t any underlying relief here for Carrier and its employees or for other manufacturing employees.”
WATCH: Carrier to keep nearly 1,000 jobs in U.S. following deal with Trump
There could be other factors at play in the Carrier deal as well.
The New York Times reports United Technologies, based in Connecticut, receives US$5 billion in defence contracts from the government annually. Losing those contracts would result in a 10 per cent loss in revenue, according to the Times.
“That’s real money,” Watson said. “If I’m a CEO and I’ve picked a fight with the president and some subordinate in the defence department is trying to figure ‘who should we give this contract too?’ I don’t think it would be a good idea to pick a fight with the president.”
Vermont senator Bernie Sanders lashed out at Trump’s deal which he called a “dangerous precedent” as other companies could threaten to move jobs overseas and be rewarded with a tax break.
“In essence, United Technologies took Trump hostage and won. And that should send a shock wave of fear through all workers across the country,” Sanders wrote in an op-ed for the Washington Post.
“Trump has endangered the jobs of workers who were previously safe in the United States. Why? Because he has signalled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives.”
Meanwhile, Republicans, including House Speaker Paul Ryan, defended the president-elect.
“I think it’s pretty darn good that people are keeping their jobs in Indiana instead of going to Mexico,” Ryan told reporters Thursday.
Manufacturing jobs not coming back
When looking at the bigger picture, the 1,000 jobs represent just 0.2 percent of all Indiana manufacturing jobs.
On Friday, U.S. Bureau of Labor Statistics reported that the U.S. added 178,000 jobs in November while the unemployment rate hit a nine-year low of 4.6 percent.
While Trump repeatedly accused NAFTA and China of stealing American jobs during the campaign, the reality is that automation at U.S. factories is a much bigger factor than foreign trade in the loss of jobs.
A 2015 study from Ball State University’s Center for Business and Economic Research found 88 per cent of American factory jobs were taken by robots and other homegrown factors that reduced the need for human labour.
“The proportion of the U.S. labour force that works in manufacturing has been on a pretty much steady decline for 75 years,” Watson said. “The share of output from manufacturing has not been declining nearly as much because manufacturing workers have become more productive.”
The U.S. has lost roughly five million manufacturing jobs since 2000, according to the Bureau of Labor Statistics.