After railing against air conditioning and heating manufacturer Carrier on the campaign trail for its announced plan to move production to Mexico — and therefore about 2,000 U.S. jobs — President-elect Donald Trump and Vice President-elect Mike Pence will announce on Thursday that they have struck a deal to keep about 1,000 of those jobs in Indiana.
But while Trump is already bragging about the deal, the details expose it as a raw one for a lot of Americans.
Late on Tuesday night, Trump hinted at the coming announcement, tweeting, “We will keep our companies and jobs in the U.S. Thanks Carrier.”
Big day on Thursday for Indiana and the great workers of that wonderful state.We will keep our companies and jobs in the U.S. Thanks Carrier
— Donald J. Trump (@realDonaldTrump) November 30, 2016
But Carrier is not in fact keeping all of the jobs on American soil. According to the company’s own statement, fewer than 1,000 will remain.
We are pleased to have reached a deal with President-elect Trump & VP-elect Pence to keep close to 1,000 jobs in Indy. More details soon.
— Carrier (@Carrier) November 30, 2016
Fortune reports that the actual sum is even smaller. The company has pledged to keep 850 jobs in the U.S. that would otherwise have gone to Mexico, while also retaining some headquarters and engineering jobs that would have moved to Charlotte, North Carolina.
Since the company had originally put more than 2,000 at risk — 1,400 at the Indianapolis plant and 700 at the Huntington plant owned by Carrier’s parent company, United Technologies — the difference between those numbers mean that at least some production will move south of the border and more than half of the jobs will go with it. Fortune reports that 1,300 jobs will go to Mexico: 600 from the Indianapolis plant and the 700 in Huntington.
The details of how Trump and Pence managed to convince Carrier to keep some production in the United States are also dubious. Neither side has officially released the terms of the deal they struck, and the union that represents the workers at the plants, United Steelworkers Local 1999, wasn’t involved in the negotiations and doesn’t have any information on the deal. “At this point the Union is in dark on the details. We don’t know any more than what has been reported so far,” Kelly Ray Hugunin, local business representative at 1999, said in an email to ThinkProgress.
But according to media reports, Carrier will be given financial incentives by both the federal and state government to keep those jobs in Indiana. According to the New York Times and Fortune, it has received assurances from the incoming administration that it will seek an overhaul of the corporate tax code and an easing of business regulations. Fortune reported that Trump himself promised a reduction in its tax rate that would dwarf the potential savings from moving production. Previous reporting noted that the two sides were discussing Trump following through on plans to reduce the corporate tax rate and implement a tax repatriation holiday.
The last time the country tried such a tax holiday, however, the evidence showed that companies simply used it to enrich their shareholders, rather than invest in American jobs or the economy. Many even laid workers off in the process.
The Times and CNBC both also reported that the deal includes a promise of state economic incentives, something easier to deliver immediately because Pence is governor of Indiana. Fortune put that figure at $700,000 a year for a period of years through tax incentives.
Pence has a lot of experience in giving out financial perks to corporations, handing out tens of millions over his tenure. But an analysis by IndyStar in August found that they have not necessarily been effective at keeping jobs in the state or even in the country.
According to the paper, since Pence came into office in 2013, the Indiana Economic Development Corporation — under his leadership — has doled out $24 million in incentives to 10 companies that then offshored jobs. Those very companies laid off or planned to cut 3,820 jobs in the state because production moved to another country, such as Mexico and China.
These state incentives come with requirements to create and retain jobs, and the ten companies were supposed to create more than 1,000 jobs collectively. But the rules are often crafted in a way that they only apply to one facility, allowing a company to eliminate American jobs elsewhere. So while four companies had some incentives clawed back for failure to adhere to the requirements, the remaining six were actually in compliance.
The forthcoming deal with Trump and Pence is also not the first time Pence has given Carrier and United Technologies incentives. In 2013 and 2015, also according to IndyStar, Pence’s administration approved $500,000 in economic incentive grants.
And by the agency’s own admittance, these incentives are often not terribly cost effective. In a 2014 report, the agency says that the current cost to the state for each job a company commits to retaining was nearly $9,000 — which, it noted, is a reduction from nearly $12,000 in 2005.
This is a common phenomenon among state tax incentive programs trying to lure or create jobs. A host of research has found that these programs do little to increase jobs and simply expend taxpayer money that could be used elsewhere. One found “the best case is that incentives work about 10% of the time, and are simply a waste of money the other 90%.”
So while Carrier may not see the entire $65 million annual savings it had anticipated from moving everything to Mexico, it will still capture some of those savings while also getting a package of financial incentives from the government.
Meanwhile, it apparently won’t suffer the stiff tariffs that Trump had promised during the campaign if the company moved production to Mexico. At an April rally he pledged to impose a 35 percent tariff on all air conditioning units the company produced in Mexico and imported to the United States. That penalty appears to have disappeared in negotiations despite the fact that some of the company’s production will leave.
It will also, it seems, be able to retain all of its government contracts even as some of its jobs leave the country. United Technologies is one of the largest military contractors and gets more than $5 billion in business a year from the federal government, or 10 percent of its overall revenue.
Trump and Pence will announce the full details at a press conference on Thursday, where much more will become clear. But if this amounts to a package of financial incentives simply for keeping some jobs in the country, it offers a perverse incentive to other companies to threaten to move jobs elsewhere in the hopes of striking their own lucrative deals with the government.
Every savvy CEO will now threaten to ship jobs to Mexico, and demand a payment to stay. Great economic policy. https://t.co/t2WAJOgh8F
— Justin Wolfers (@JustinWolfers) November 30, 2016
That could foretell many more such agreements in the future that offer incentives at the taxpayer’s expense.
This piece has been updated with further reporting by Fortune on the details of the deal.