Trump’s Showdown With Manufacturer Exposes Obama’s Weakness on Outsourcing

Every tool Trump could possibly use to persuade Carrier to keep open its Indiana plants has been available to Obama. He just chose not to use them.

A closed down factory, one of many, lied idle in Huntington, Indiana on April 29, 2016. Huntington is the home of UTEC, a manufacturing firm that recently announced they are moving to Mexico and taking approximately 700 jobs with them. Photo: Michael Robinson Chavez/The Washington Post via Getty Images

Donald Trump is in negotiations with Carrier to keep two Indiana air conditioning and furnace plants from moving to Mexico, eliminating 2,100 U.S. jobs. A video of executives informing workers of the plant closures went viral in February, leading Trump to vow to stop the outsourcing. Now president-elect, he is exerting his new leverage to make that a reality.

But someone else already holds that power. His name is Barack Obama. He just doesn’t seem to care.

The most Obama has said about Carrier, at a June town hall in Indiana, is that some jobs “are just not going to come back.” He cited automation in manufacturing, enabling many fewer workers to staff a production line than in previous decades, though that’s a separate issue from Carrier’s outsourcing.

Later in the discussion, Obama challenged Trump’s promises to keep Carrier’s plant open. “He’s going to bring these jobs back. Well, how are you exactly going to do that, what are you going to do? There’s no answer to it.”

In fact, every tool Trump could possibly use to persuade Carrier to keep operations in Indiana has been available to Obama since the day of the company’s announcement. He has just chosen not to use them.

For example, Carrier is a subsidiary of United Technologies, an aerospace and defense firm and one of the 10 biggest federal contractors as of 2014. The company had $56 billion in revenues last year, and over 10 percent came from the U.S. military.

Obama could have used those lucrative contracts as a condition of maintaining the Carrier plant, just as Trump is now being urged to do by Sen. Bernie Sanders. “I call on Mr. Trump to make it clear to the CEO of United Technologies that if his firm wants to receive another defense contract from the taxpayers of this country, it must not move these plants to Mexico,” Sanders said in a statement last week.

It’s precisely the kind of hardball Obama has consistently played with federal contractors in other contexts. He has signed executive orders to raise the minimum wage for federal contract workers to $10.10 an hour, ensure paid sick leave, and promote from within the company. He also signed an order to make companies ineligible for federal contracts if they violated employment and labor law over the past three years. He has no compunction against using the government’s leverage as a large purchaser of goods and services to get better outcomes for workers. But this power has been set aside with respect to Carrier — and outsourcing in general.

During the campaign, Trump vowed that he would slap a 35 percent tariff on any goods coming in from that Carrier plant in Mexico. Critics described this as the stirrings of a counterproductive trade war. But reducing the benefits of outsourcing is substantially similar to what President Obama tried to do to prevent corporate inversions, where companies merge with an overseas firm and shift their nominal headquarters to that country (though none of their workers) to avoid the higher U.S. tax rate.

Obama’s Treasury Department issued regulations to make inversions a less lucrative tax avoidance scheme. The main element seeks to prevent earnings-stripping, the shifting of income into low-tax countries through loans from the corporate parent. Other provisions nullified the tax benefits of inversions by cracking down on “serial inverters” and making the mergers unprofitable.

These rules stopped a merger between drugmaker Pfizer and Irish firm Allergan earlier this year, showing that the chief executive can intervene in corporate maneuvering. But Obama has shown more willingness to do so to protect U.S. tax revenues than U.S. jobs.

Labor unions have criticized Obama virtually his entire presidency for lax attention to outsourcing, citing actions he could have taken without congressional input. These include declaring China a currency manipulator to reduce the attractiveness of Chinese goods and ending trade deals that hurt American workers rather than promoting them. Critics point out that the head of Obama’s Jobs and Competitiveness Council was GE CEO Jeffrey Immelt, whose company has a legacy of outsourcing stretching back decades.

Some observers argue that a president of 320 million shouldn’t involve himself in individual situations involving just a couple thousand jobs. But the bully pulpit can have effects on other companies as well. And local politicians routinely work with companies in their backyards to encourage them to stay put, typically by offering them tax incentives. Trump appears to be doing something similar with Carrier, discussing a massive tax cut that would allow major corporations to bring back money held overseas at a low rate. Carrier’s has $6 billion stashed abroad.

Such a massive tax amnesty as a carrot for keeping a handful of jobs in America is obviously disproportionate.

But Obama has talked about using the tax code to entice companies to invest in American jobs repeatedly; it’s not unique to Trump. Obama promised to remove tax deductions for outsourcing and provide incentives for bringing manufacturing back home — a core Democratic promise since the 2004 John Kerry presidential campaign. It never got done.

Obama has also proposed to double tax incentives for advanced manufacturing, offer $5 billion in clean energy manufacturing tax credits, extend the 100 percent expensing on investment in plants and equipment, and creating a Manufacturing Communities Tax Credit specifically for places like Indianapolis that experience job loss from outsourcing. Some of these tax credits were part of the 2009 stimulus.

Sanders, who routinely criticizes the excess profits and corporate welfare earned by companies that ship jobs overseas, recently vowed to introduce the Outsourcing Prevention Act, which would prevent companies that outsource from receiving federal contracts, tax breaks, grants, or loans, and would claw back a decade’s worth of those federal benefits from any company that outsources more than 50 jobs in a given year. Sanders would also tax companies that move jobs offshore, and tax the bonuses, stock options, and golden parachutes of executives of outsourcing companies.

At that Indiana town hall, Obama did not show this kind of fight. “You cannot look backwards,” he said then. “And that doesn’t make folks feel good sometimes, especially if it was a town that’s reliant on a couple of big manufacturers. But they’re going to have to retrain for the jobs of the future, not the jobs of the past.”

Workers at the Carrier plant, while skeptical of Trump in other contexts, supported his presidential campaign because he signaled that he would at least fight for their livelihoods. Even if they don’t fully believe Trump can get it done, they at least found him willing to try.

Democrats lack an answer for these working-class manufacturing communities. Telling them to be realists certainly isn’t working.

Top photo: A closed-down factory in Huntington, Indiana.

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