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The Journal Gazette

  • Associated Press President-elect Donald Trump and Vice President-elect Mike Pence wave Thursday as they visit the Carrier factory in Indianapolis.

Friday, December 02, 2016 10:10 pm

Carrier to get $7 million in incentives

Ylan Q. Mui and Max Ehrenfreund | The Washington Post

INDIANAPOLIS – Carrier would receive a $7 million package of incentives to keep its factory here from moving to Mexico, the company said Thursday, under a deal negotiated with the state after an unusual intervention by President-elect Donald Trump that could reshape the relationship between the White House and private enterprise.

Carrier said the package would extend over several years and was contingent on employment, job retention and capital investment. It previously said it planned to keep about 1,000 of the factory’s workers in the state, though the company is moving forward with plans to shift production to Mexico from another Indiana facility that employs about 700 people.

Trump was slated to tour the factory and deliver remarks here Thursday afternoon before kicking off his "Thank You" tour in Ohio later in the day. Carrier has been a staple of the local business community since the 1950s, and the 550,000-square-foot plant processes 100 million pounds of raw steel each year.

"Our union at every level, including our local union leadership, fought to keep that plant open," said Leo Gerard, international president of the United Steelworkers, which represents the factory’s workers.

Gerard said in an interview Wednesday that the union was still waiting to hear details of the agreement. Though it did not endorse Trump, Gerard said the union supports crucial aspects of the president-elect’s agenda, including preservation of manufacturing jobs, scrapping free trade deals and spending on infrastructure.

"If this step is any indication of what’s to come, we look forward to working with him," Gerard said.

But Trump’s move was already coming under fire from both conservatives concerned about government distortion of free markets and liberals who considered the move another corporate subsidy. Vermont Sen. Bernie Sanders, who ran for the Democratic nomination, accused Trump of reversing course on a pledge to punish companies that outsource manufacturing jobs. Instead, Sanders said, Trump is rewarding them.

"In essence, United Technologies took Trump hostage and won," he said. See his full column on Page 11A.

House Speaker Paul Ryan, however, defended the deal during a press conference with reporters. He emphasized that Republicans are hoping to pass comprehensive tax reform that would lower corporate tax rates, providing a boon to all businesses beyond any individual deals.

"I think it’s pretty darn good that people are keeping their jobs in Indiana instead of going to Mexico," he said.

Just down the road from the factory, the lunchtime crowd was starting to file into Sully’s Bar and Grill. Quan Carswell has worked at Carrier for 15 years and said he hopes his wages and benefits stay the same.

"I’ve been here a long time," he said. "I’m kind of committed, you know?"

His coworker, Taylor Howard, said she had started looking for jobs in the medical industry before learning the factory would stay open. She was still wary of the terms Trump may have negotiated but hoped for the best.

"It might be a little bit of a publicity stunt, to tell you the truth," Howard said. "But if it ends up on the up and up, that’s noble of him."

One of the restaurant’s bartenders, Jennifer Volheim, said she was "heartbroken" when the factory was on track to shut down.

"We were gonna lose a lot of business," she said. "They worked their whole lives there. They knew nothing but working there."

The bar has been operating for roughly 25 years, serving up its traditional crispy chicken wings and beer during the factory’s lunch and dinner shifts. Even on weekdays, it stays open until 3 a.m. to accommodate late-night workers.

"Everybody that was in here, you consider them a friend," Volheim said.

But, she said, she voted for Trump and knew he would make a difference.

"We knew Trump was on it," she said. "He’s not even in office yet and he’s saving ... jobs."

Trump has repeatedly pointed to the factory’s planned move to Mexico as a prime example of the perils of globalization: Workers at this unionized plant reportedly earn as much as $25 an hour, while Carrier was expected to pay employees roughly $5 an hour at the new 645,000-square-foot factory currently under construction outside of Monterrey.

On the campaign trail, Trump has threatened to impose punitive tariffs on imports from Mexico and China, though two of his top economic advisers said Wednesday those moves would only be a last resort. But they emphasized that the new administration plans to follow through on its promise to move away from broad multinational trade deals such as the Trans-Pacific Partnership with Asia in favor of one-on-one agreements with individual countries.

"The problem with regional trade agreements is you get picked apart by the first country. Then you negotiate with the second and you get picked apart. And you go with the third one, you get picked apart again," said Wilbur Ross, Trump’s nominee for commerce secretary who invested heavily in the steel industry in the early 2000s, in an interview on CNBC. "We need to treat other countries as good suppliers, not as determining the whole show."

Trump personally called the chief executive of United Technologies, the parent company of Carrier, to negotiate the arrangement. Timothy Bartik, an economist at the nonpartisan W.E. Upjohn Institute for Employment Research, said the intervention was unprecedented for a modern president. While President Obama stepped in to rescue car manufacturers after the 2008 financial crisis and President Kennedy intervened to prevent steel producers from increasing prices, these actions affected entire industries, not decisions at a specific plant, he said.

Jeff Windau, an analyst at the investment firm Edward Jones in St. Louis, argued that Trump may not have the "bandwith" to keep up this kind of dealmaking once in the Oval Office.

"Having a current president-elect focus on a specific company and a specific location – it’s a pretty micro view of the world," he said.

On Twitter, Trump celebrated the deal in a string of tweets this week. In one, Trump painted an optimistic – but inaccurate – future for the factory. "They will sell many air conditioners!" he wrote. The plant manufacturers gas furnaces.

Carrier had rejected an incentive package from the state earlier this year. But that was before Trump won the election and Indiana Gov. Mike Pence became the vice president-elect. United Technologies does significant business with the federal government, with contracts accounting for roughly 10 percent of its annual sales.

"The dynamics changed," said John Mutz, a board member of the Indiana Economic Development Corp. and a former state lieutenant governor.

Defense analysts said that Trump could not legally steer any contracts to United Technologies or punish them through the Pentagon’s highly regulated acquisition system. The Federal Acquisition Regulations are thousands of pages long and run through an often stifling bureaucracy that determines requirements, puts out requests for proposals from industry, then embarks on a lengthy selection process that can take months, if not years.

"The Pentagon is United Technologies’ biggest customer, but military purchases are tightly controlled by laws and regulations," said Loren Thompson, a defense consultant at the Lexington Institute, who counts many of the largest contractors as his clients.

"If there is a quid pro quo for keeping jobs in Indiana, it would probably involve a commitment to improve the tax and regulatory environment in which manufacturers operate. Over time, President Trump may secure greater discretion in rewarding companies that do what he wants, but right now the president has relatively little latitude without being accused of favoritism."

Mackenzie Eaglen, a defense analyst at the American Enterprise Institute, said the acquisition system can’t be used as a bargaining chip: "The short answer is no, and it would be highly illegal. Period."