The Sweeping Effects of Trump's Deal With Carrier

In following through on a major campaign promise, the president-elect can shake up the political landscape in several major ways.

Air conditioners stacked outside a Carrier factory in Indianapolis, Indiana
Air conditioners stacked outside a Carrier factory in Indianapolis, Indiana (Darron Cummings / AP)

Donald Trump’s vow to stop Carrier from closing a factory in Indiana wasn’t the most ambitious promise he made during the presidential campaign, and it wasn’t the most prominent. But it was one of the most persistent. The tale of the company deciding to shut down the plant and move the jobs to Mexico became a standard element of Trump’s stump speech. It wasn’t just the Carrier plant, of course: His vow either to convince the company to stay in the United States or else slap it with a huge tariff was symbolic of the protectionist view he expounded for trade. It was also a key test for his claim that the negotiation skills he said he’d honed in years of business could produce results.

That makes the deal that Trump has apparently struck to keep the jobs in Indiana a major political win—the president-elect fulfilling a major promise well before he takes the oath of office. He is a successful bully even before he takes his pulpit. It’s a sign that the theatrical, blustery persona that Trump struck on the stump can be translatable, in at least some cases to the presidency.

As my colleague Alana Semuels writes, there’s still a great deal to question about the deal and its implications. For one, Trump had unusual bargaining power in this case, because Carrier’s parent company, United Technologies, depends heavily on federal-government contracts. For another, Trump seems to have gotten the deal by promising tax credits to Carrier. That creates a potential moral hazard, since while some executives may decide not to outsource to avoid a public battle with the president of the United States, others may reason that by threatening to move jobs out of the country, they may also be able to extract profitable benefits. Meanwhile, Fortune reports that Carrier is still moving 1,300 jobs to Mexico, versus 1,150 that will be preserved in Indiana.

Even if the long-term benefits are limited, however, the immediate political win for Trump is big. The workers whose jobs are preserved, and their families, and everyone else in the community, will feel the immediate impact of those jobs staying, while the pain will be spread widely and over time.

It may be a qualified win, but the Carrier deal suggests that Trump’s promises of greater federal intervention in the economy were not just posturing. It could open the door for Trump to take a much more active role in the economy, not simply through fiscal policy but through direct involvement with specific companies.

To see just what a shift this is, it’s useful to look back to the end of George W. Bush’s presidency and the beginning of Barack Obama’s. Late in George W. Bush’s term, the federal government reached a deal to bail out financial institutions. Shortly after taking office, Obama reached a deal to save General Motors. Each of these cases was treated as exceptional, a view that was generally accepted even by those who opposed the actions the government took. The argument for these serious deviations from orthodoxy was that both the financial system and GM were systemically important to the American economy, and that allowing either to fail would have grave domino effects.

Carrier is different. The case at hand involves a single factory, with a limited number of jobs that, while important to those involved, are not a linchpin of the national economy. The strongest case for national impact that can be made is that Carrier can be made an example that will dissuade others, a tenuous argument.

Trump’s direct involvement is striking because the Republican Party has traditionally been so resistant to government meddling in private enterprise. But even the Democratic Party, which is generally far more friendly to regulating business, has avoided many direct interventions as public as Trump’s in this case. That held true even at the height of the recent financial crisis.

Trump may have more political leeway to act for a few reasons. Unlike Obama, he is not likely to be labeled a socialist. Moreover, despite then-Obama aide Rahm Emanuel’s famous declaration that “You never want a serious crisis to go to waste,” Trump may paradoxically benefit from the fact that the economic sky is not falling. At the height of the crisis, panic constrained Obama’s ability to act. After eight years of stability and slow but steady economic growth, however, there’s no longer the same sort of constant scrutiny on government actions.

There’s one other element that makes Trump’s negotiation with Carrier politically intriguing. One of Trump’s innovations was to espouse economic populism without actively courting unions, which are both loathed by many Republicans and deeply enmeshed the the Democratic Party. Instead, he looked to court voters who were members of unions, splitting them from labor’s leadership, which was largely telling them to support Hillary Clinton.

During the GM bailout, the United Autoworkers were a central player in negotiations. Autoworkers agreed to a pay cut as part of the deal, and a health-care trust for UAW retirees, whose leaders are partly appointed by the union, received shares in the reorganized company. In contrast, the head of the union representing Carrier workers complained on Wednesday that he and other leaders had been kept entirely in the dark about the deal. If Trump demonstrates that he can and will save manufacturing jobs without union involvement, it will further undermine the strength of organized labor. In the long run, that may be bad for workers, since higher rates of unionization correlate with a range of benefits for workers. But in the short term, it will be much worse for the Democratic Party, because it will sap strength from one of the party’s most important constituencies.