Despite Trump’s Carrier Deal, US Manufacturing Jobs Remain at Risk

President-elect Donald Trump’s deal with Carrier to keep the Indiana air-conditioning manufacturer from moving a plant to Mexico has been one of the most discussed of his pre-presidency moves. Mr. Trump contends he has saved more than 1,000 U.S. jobs.

However, experts -- including Greg Hayes, the CEO of United Technologies (UTC), Carrier’s parent firm -- indicate the decision will ultimately result in fewer jobs.

Moving to Mexico would save Carrier $65 million annually

Carrier was considering the move to save the company $65 million annually.  Many of the jobs are lower-wage positions with a high turnover rate, resulting in crimps on productivity. Mr. Hayes spoke to CNBC’s Jim Cramer about the move in a Dec. 5 interview: “We have a very talented workforce in Mexico. Wages are obviously significantly lower: about 80 percent lower on average. But absenteeism runs about 1 percent. Turnover runs about 2 percent. [It's a] very, very dedicated workforce.”

Instead, Carrier will keep its plant in Indiana thanks to a deal that reportedly includes an annual $700,000 tax break for the firm for 10 years, along with the promise of future tax breaks and regulatory relief that Mr. Trump hopes to implement when he becomes president. The president elect also is said to have threatened to impose tariffs on the firm’s products that would be imported into the U.S. from Mexico if the plant was relocated south of the border.

One observer sees Mexico as the winner in the Carrier deal

At least one Mexican observer sees keeping Carrier in the U.S. as a good thing for Mexico. Writing in the Spanish language publication Diario Judío México (Mexican Jewish Daily), Daniel Ajzen opined that Mexico will be the winner in the Carrier deal.

In the short term, he agrees that U.S. workers will benefit, But in the long term, he says they will be “locked up in low-tech jobs instead of training for the new economy.”

Ajzen believes his country’s response to a Trump policy that reduces U.S. manufacturing in Mexico will be to create relationships with Europe and develop the high-tech jobs of the future for its workers. He wrote that U.S. companies will suffer the consequences of the Trump strategies to return manufacturing to the U.S. because they will become “less competitive than their international competition.”

United Technologies is the 19th largest U.S. manufacturer and a firm that, according to its website, “serves customers in the commercial aerospace, defense and building industries.” Products include elevators, turboprop engines, heating and air conditioning products, and advanced aerospace components. With 197,200 employees and $56.5 billion in sales, the Carrier deal was small potatoes in the scale of the corporation’s business. However, its products are also purchased by the U.S. government, accounting for approximately 10 percent of its revenue, making it sensitive to the new administration’s point of view.

Carrier focused on training people for jobs of the future

Mr. Hayes told CNBC that the firm is not working on training people for today’s jobs. “Our focus is: How do you train people for the jobs of tomorrow?” he asked rhetorically, reflecting the same thoughts as Mexican writer Ajzen.

The decision to stay in the U.S. will result in UTC making a $16 million investment in Carrier’s Indianapolis plant. That investment will be used to automate production, reduce costs and make the plant more competitive. Hayes told CNBC that it won’t be as cost effective as moving the plant to Mexico, but “we will make the plant competitive because we will make the capital investments there,” he said.

Automation brings with it greater production using fewer people, meaning that in the long run the Carrier agreement is a deal about cost-effective production, not jobs. Hayes said UTC believes that “a better regulatory environment, a lower tax rate can eventually help UTC in the long run.”

Technology is eliminating jobs on the factory floor

Fortune Editor Alan Murray in his Dec. 1 CEO Report says that if Trump is successful in reducing corporate taxes, other big companies could make a decision to invest in the U.S. as did Carrier. However, he doesn’t think the Carrier jobs will still be in Indiana in 10 years. “Even if a cut in corporate taxes sparks a resurgence in U.S. manufacturing, technology is rapidly eliminating jobs on the factory floor,” Murray wrote.

In a Dec. 7 CNN interview with Erin Burnett, United Steelworkers Local 1999 President Chuck Jones said he was appreciative that 800 jobs were saved in Indianapolis, a lesser amount than reported by Mr. Trump. The difference, Mr. Jones explained, is 350 research jobs that the firm announced in February were staying in the U.S. prior to the deal. However, the union leader added, 550 jobs are still going to Mexico from the Indianapolis plant in question, as well as another 700 from Huntington, Indiana.

The questions that surfaced following the Carrier agreement have included the appropriateness of making one-off deals with companies to keep them in the U.S. as opposed to developing policies and practices that allow all companies to take advantage of those benefits on a level playing field.

In some statements, presidential hopeful Sen. Bernie Sanders seemed to agree with Trump that the U.S. should protect manufacturing jobs and bring back those jobs that have gone offshore. However, in a Dec. 1 Washington Post editorial, Sanders said that Trump has endangered the jobs of workers who were previously safe in the United States.

“He has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives,” Mr. Sanders wrote. “Even corporations that weren’t thinking of offshoring jobs will most probably be reevaluating their stance this morning.”

Image credit: Flickr/Gage Skidmore