By Scott Calvert and John W. Miller
A day after Donald Trump helped engineer tax breaks to save 800
jobs at an Indiana plant, some local officials worried it set an
unhealthy precedent, while business leaders scrambled to decide how
to engage with the president-elect.
The deal involving Carrier Corp., which included $7 million in
tax breaks, could intensify competition between states to hold on
to jobs, and exacerbate a rush to grant tax incentives that have
taken big chunks out of state budgets in some places.
"Our prime competition used to be in Central America and
Southeast Asia, " said South Carolina Republican state Sen. Wes
Climer. "Now, some of our fiercest competition comes from
neighboring states."
Subsidies offered by states to companies have been on an upward
trend for decades, apart from periodic economic downturns. An
analysis by a professor at the University of Missouri-St. Louis
about a decade ago found that states offered a total of $70 billion
in subsidies annually.
Greg Albrecht, chief economist at the nonpartisan legislative
fiscal office in Louisiana, said the Carrier deal could prompt some
U.S. companies to threaten to move jobs to Mexico as a way to
extract financial benefits. "I think we're creating a moral hazard
issue that's bigger than we've got now," he said.
In Louisiana, which hands out about $1 billion a year in annual
tax exemptions to companies that meet certain targets, a $1 billion
annual budget gap looms, he said.
"At this point in time, I truly have no idea what to expect,"
said Tom Stanton, chief executive of telecom-gear maker Adtran Inc.
"It's unclear how what was said on the campaign trail is actually
going to translate into legislation," he said.
The company employs about 1,000 workers at its Huntsville, Ala.,
factory and mostly competes with overseas rivals. Asked about
potential consequences for moving jobs offshore, Mr. Stanton said,
"It's probably better to incentivize than to punish."
On Friday, Ford Motor Co. CEO Mark Fields said he would move
ahead with plans to shift production of the Focus small car from a
Michigan factory to a facility in Mexico, despite repeated
criticism from Mr. Trump.
"We have made the decision to move the Focus out, and we're
making that investment now," Mr. Fields said in an interview.
"That's to make room for new products -- zero jobs affected, zero
jobs impacted."
On Friday, Mr. Trump announced that he would take economic
counsel from a panel of business leaders that includes CEOs from
Wal-Mart Stores Inc., General Motors Co. and private-equity firm
Blackstone Group LP.
With the Carrier deal, Mr. Trump showed he was willing to make
good on a populist campaign promise to keep jobs from leaving the
country, and he repeated plans to impose import tariffs and scrap
trade deals. With the CEO panel, Mr. Trump moved to confer with
some of America's top companies, many of which have vast
international operations with thousands of employees overseas and
are proponents of free and open markets.
"Free and fair global trade is important, and it definitely
creates U.S. manufacturing jobs," Boeing Co. CEO Dennis Muilenburg
said after a speech in Chicago on Friday. "We want to make sure
that doesn't get lost in the political rhetoric."
For Todd Becker, CEO of Green Plains Inc., a Nebraska-based
company that runs 17 ethanol plants, mainly in small U.S. towns,
Mr. Trump's actions show that "there's a path in" for U.S.
corporations. "I like having a guy, who's somebody who thinks like
we do, in the White House," Mr. Becker said.
David Loveland, a financial executive at Maze Nails, a nail
maker in Peru, Ill., with about 60 employees, didn't think Mr.
Trump's tactics with Carrier would have broad implications. Carrier
is part of United Technologies Corp.
"He can't strong-arm companies into staying here long-term --
jobs for two, three, four, years, that's not going to do us any
good," Mr. Loveland said. "Changing the landscape is more important
for the business climate, as opposed to carving out these deals
with politicians."
In the Rust Belt, U.S. plants often tend to be outdated and need
modernization. They are likely to use the threat of moving abroad
to request "modernization money," said Charles Bradford, an
industry analyst. "I don't think an American steelmaker has built a
mill since the 1990s without major state help."
Steelmakers including Nucor Corp., AK Steel Holdings Corp. and
Steel Dynamics Inc. have all received incentives from state
governments. This year, Big River Steel started making metal at a
new $1.1 billion plant built in northeastern Arkansas, thanks in
large part to state aid.
The question is whether Mr. Trump will make good on other
campaign promises like imposing import tariffs on companies that
move offshore. "If we were to put on import duties, I assume China
would retaliate and you'd create a series of problems," said Edward
Holland, CEO of plastic-resins distributor M. Holland Co. in
Illinois, which recently purchased a distributor in Mexico.
Joseph Bartolacci, CEO of Matthews International Corp., a
Pittsburgh-based maker of coffins, said his decision to move 500
jobs to Monterrey, Mexico, in 2005 wasn't about jacking up profit
margins. It was about competing with Chinese imports.
The full cost of employing each of the 6,000 workers at
Matthews's four plants -- two in Indiana, one in Pennsylvania and
Tennessee -- is $35 an hour, he said. In Mexico, it is $5 an hour.
"And in China, it's way less than $5," he said.
The CEO applauded Mr. Trump's support for U.S. manufacturers.
What allows Chinese producers to compete, he said, are generous
subsidies from their government. He would like the same help from
U.S. federal and state governments.
"We're not making exorbitant profits," he said. "We're just
remaining competitive."
Drew FitzGerald, Christina Rogers, Valerie Bauerlein, Andrew
Tangel and Kris Maher contributed to this article.
Write to Scott Calvert at scott.calvert@wsj.com and John W.
Miller at john.miller@wsj.com
(END) Dow Jones Newswires
December 02, 2016 19:30 ET (00:30 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.