Donald Trump's Carrier Deal Is Pure Crony Capitalism

Donald Trump with worker Sadieka Alexander at a Carrier factory in Indianapolis, Indiana, December 1. Claude Barfield writes that the lesson for the U.S. manufacturing sector is to threaten to move jobs to Mexico and rake in the goodies. Mike Segar/reuters

This article first appeared on the American Enterprise Institute site.

The term "goon squad" has gone through a modernizing evolution since its 19th century origins as a group of criminals or mercenaries associated with union violence or anti-union violence.

More recently, it has become thugs or persons hired to threaten or terrorize political or industrial opponents.

With the clash between the Carrier Corporation (along with its parent company United Technologies) and the incoming Trump administration, the term has evolved further to encompass situations where the (veiled) fist of government is utilized to force a company to knuckle under to the will of government.

We don't know all the facts, but here is a brief rundown of the history of this sorry, unfolding episode.

Related: Robert Reich: Trump's Populist Economics Won't Work

Carrier, which is a leading manufacturer of air conditioners and other cooling and heating equipment, had announced some time ago that it was closing several plants in Indiana and moving production to Mexico (the company has paid back to the city of Indianapolis some $1.2 million in tax incentives).

During the presidential campaign, Donald Trump, as part of his vow to "Make America great again," promised to stop U.S. firms from moving jobs abroad, particularly to Mexico. He railed against politicians who had "pursued a policy of globalization—moving our jobs, our wealth and our industries to Mexico and overseas."

And he specifically zeroed in on Carrier, vowing that he would thwart its planned move: "That's what's going to happen. It's not like we have an 80 percent chance of keeping them, or a 95 percent. One hundred percent."

After the election, Trump dispatched his vice-presidential running mate, Mike Pence, who is also the governor of Indiana, to broker (read "force") a deal.

The result is now partially public: Carrier and United Technologies have agreed to save about 1,000 jobs of the 1,400 originally slated to be terminated. It is unclear whether United Technologies will also rescind a prior decision to close another 700-worker Indiana plant. In return, numerous news sources report that Carrier/United Technologies will receive substantial new tax incentives from the state of Indiana (read "Governor Mike Pence"), plus the promise of new national tax and regulatory policies favorable to the companies—the total of which will far exceed the estimated $65 million that would have been saved from the move.

I will leave to others and other accounts to show the futility of the larger goal of this intervention: to bring back the thousands of manufacturing jobs that no longer exist in the United States.

Suffice it to say that trade policy and trade agreements had little to do with this shift in our economy: economic research has demonstrated that some 80 percent of the manufacturing jobs lost in the past two decades came from technological advances (automation) that have also produced an increase in U.S. industrial output of some 30 percent since the year 2000.

I want to focus on the political and political economy implications. First, despite the triumphant hype, not least from the Bernie Sanders/Elizabeth Warren wing of the Democratic Party, the Trump/Pence intervention is a lawless action.

I am not naïve here and, yes, I know that at times the U.S. government has initiated ex parte actions (viz.., late night call from U.S. commerce secretary to warn Sprint against contracting with Huawei for alleged security reasons). But the distinction here is that there is every indication that this will become the modus operandi when Trump and Pence actually come to power.

Trump has already challenged the Ford Motor Company and Apple regarding their vital and highly efficient supply chains that involve moving parts and components back and forth across borders (Mexico, Canada and East Asia).

In the present case, Trump picked up the phone and coerced the United Technologies CEO directly. Absent a highly improbable legislative assent from Congress, he will no doubt continue to act with unilateral executive actions. Or as Treasury Secretary-elect Mnuchin put it in defending the Carrier action: "[We are] going to have open communications with business leaders."

Second, another larger implication is that, if Trump is serious, his minions in government will have to monitor thousands of actions like those of Carrier, as modern competition demands sourcing from the most efficient producer. This will entail a huge number of public interventions, tracking and punishing companies with supply chains that are fed by workers in other countries.

But as noted above, the government payoff for companies that reverse course will be substantial. Obviously, the lesson for the U.S. manufacturing sector: Threaten to move jobs to Mexico and rake in the goodies.

Third, ironically, as noted above, the loudest cheerleaders for Trump's actions here are leaders of the anti-global Democratic left, who favor a European, dare I say French, dirigiste regime.

It is no coincidence that Sanders and liberal economist Jared Bernstein have applauded Trump's action. By chance, I flipped on CNN's Anderson Cooper to find Paul Begala ecstatic over the Carrier put down and crowing that this is just what Democrats have been demanding for years—and harkened back to Franklin Roosevelt's clashes with corporations.

Finally, as my colleague Mark Perry has noted with derision, there is the sheer hypocrisy of Trump personally: "When it comes to political hypocrisy and intellectual consistency, Donald Trump deserves a gold medal."

Having criticized Ford, and now Carrier, for moving to Mexico, Trump himself "has made significant investments in companies around the world, including Panama, Brazil, Canada, India, Turkey, Uruguay Philippines and South Korea…[and] for Trump to operate, outsource and invest globally while criticizing companies like Ford for doing the same is the ultimate hypocrisy."

Pundits are calling the Carrier incident a great coup for the president-elect. The extent of the loss to the U.S. economy from this lurch to crony capitalism will only become evident in future years.

Claude Barfield, a resident fellow at the American Enterprise Institute is a former consultant to the office of the U.S. Trade Representative who researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property and science and technology policy .

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