The costs of protecting 800 American jobs

Last week President-elect Trump announced that he had convinced Indiana-based Carrier not to outsource about 800 U.S. manufacturing jobs to Mexico.
Since then in a series of tweets Mr. Trump has:
  • publicly attacked another firm, Rexnord, for considering outsourcing jobs to Mexico;
  • made clear his approach to Carrier and Rexnord is the beginning of a broader policy;
  • threatened all American firms with “retribution” if they outsource jobs; and
  • proposed a 35% import tariff against U.S. firms that do so.
What, then is so bad about President-elect Trump paying, telling, or forcing Carrier, Rexnord, and American firms generally not to outsource American jobs to Mexico?
About 800 Americans now working for Carrier benefit from the President-elect’s actions. Here are five costs of his approach.
  1. It is unfair to other Americans.
  2. It weakens American firms relative to their foreign competitors.
  3. It does long run economic harm to the U.S.
  4. It abandons any pretense of free trade on a level playing field.
  5. It is easily abused.
President-elect Trump’s approach is unfair to other Americans: consumers, taxpayers, and employees of other firms.
  • Forcing Carrier to pay higher labor costs than they could pay in Mexico will make Carrier gas furnaces more expensive. Some American Carrier employees win, while everyone in the market to buy a gas furnace loses. Many of those losers are American consumers. Mr. Trump is helping a few American workers a lot and hurting many more American consumers a little. These consumer losses increase the more one replicates this policy.
  • Some Americans (Hoosiers in this case) will pay higher taxes to subsidize the wages of others. Why should the employees of Eli Lilly (10,000 Indiana employees), Rolls-Royce and Roche (~4,500 each), and countless other Indiana employers subsidize the wages of Carrier employees because the President singled out this particular firm? That is unfair to those taxpayers.
  • A one-off beating with a government stick is unfair to that firm, while a one-off taxpayer-financed carrot for one firm is unfair to others.
President-elect Trump’s approach weakens American firms relative to their foreign competitors.
  • Mr. Trump’s threatened import tariff applies only to firms that (a) shut down U.S. manufacturing capacity and (b) set up a foreign plant to replace the closed U.S. facility. He would punish movement. Setting aside the difficulty of monitoring this, this disadvantages firms that today employ U.S. workers, since movement is measured relative to your […]
By | Monday, 5 December 2016|