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Trump's Carrier deal is not living up to the hype — jobs still going to Mexico

  • Carrier's plant in Indianapolis is preparing to lay off 600 employees beginning next month.
  • Carrier, a division of UTC, will employ about 1,069 people for 10 years in exchange for $7 million in incentives. But there are crucial details in the fine print.
  • State and local governments spend at least $70 billion on corporate incentives each year to lure companies, according to Good Jobs First.

More than 600 employees at a Carrier plant in Indianapolis are bracing for layoffs beginning next month, despite being told by President Trump that nearly all the jobs at the plant had been saved. The deal, announced with great fanfare before Trump took office, was billed not only as a heroic move to keep jobs from going to Mexico but also as a seismic shift in the economic development landscape.

Nearly seven months later the deal has not worked out quite as originally advertised, and the landscape has barely budged.

"The jobs are still leaving," said Robert James, president of United Steelworkers Local 1999. "Nothing has stopped."

In fact, after the layoffs are complete later this year, a few hundred union jobs will remain at the plant. But that is far different from what then-President-elect Trump said just three weeks after the election.

"They're going to have a great Christmas," Trump said to cheering steelworkers and local dignitaries on Dec. 1. The plan to close the plant and lay off 1,400 workers had become a frequent topic in the Trump campaign. He said 1,100 jobs would stay in Indianapolis, thanks to the deal.

"And by the way, that number is going to go up very substantially as they expand this area," he said. "So the 1,100 is going to be a minimum number."

But as in any deal, there are crucial details in the fine print.

The heart of the deal

The agreement does guarantee that Carrier, a unit of United Technologies Corp., will continue to employ at least 1,069 people at the Indianapolis plant for 10 years in exchange for up to $7 million in incentives. In addition, the company has promised to invest $16 million in the facility.

But fewer than 800 of those 1,069 jobs — 730 to be exact — are the manufacturing jobs that were always at the heart of the debate. The rest are engineering and technical jobs that were never scheduled to be cut.

"To me this was just political, to make it a victory within Trump's campaign, in his eyes that he did something great," said T. J. Bray, a 15-year Carrier employee who will keep his job due to seniority. "I'm very grateful that I get to keep my job, and many others, but I'm still disappointed that we're losing a lot."

As for Trump's claim that the $16 million investment in the plant would add jobs, United Technologies CEO Greg Hayes told CNBC in December that the money would go toward more automation in the factory and ultimately would result in fewer jobs. That is not lost on the union.

Robert James, president of United Steelworkers Local 1999
Harriet Taylor | CNBC
Robert James, president of United Steelworkers Local 1999

"I don't see Carrier hiring anytime in the near future," James said.

Hayes said in an interview this week that the company is meeting its commitments "to keep the 800 jobs in Indianapolis to keep the factory open."

"The Indianapolis situation was difficult," he said.

Hayes said the laid-off workers would be offered jobs at other factories across the country.

"We're going to be hiring something like 5,000 people this year," he said.

But union officials say they have heard nothing from the company about any job offers elsewhere within the company. All they have received is the official notice, as required by federal law, that the first round of cuts — 338 jobs — will take place on July 20, with an additional 290 employees terminated on Dec. 22, three days before Christmas.

Elaine Bedel, the president of the Indiana Economic Development Corp., which signed the agreement with Carrier, calls it a "victory" for Indiana. She believes that without the deal, the company would have eliminated not only all the manufacturing jobs — including the 730 that were saved — but the engineering and technical jobs as well.

"Obviously, having those jobs here — high wages jobs — is helpful to our economy," she said.

Bedel points out that the agreement allows the state to claw back some of the $7 million in subsidies if the company does not stay for 10 years. But union officials say there is little real incentive for Carrier to stay. United Technologies booked $57 billion in revenue last year.

"I don't think they built that facility in Monterrey, Mexico, just to have four departments in there. It's a little too large for that," James said.

Shoring up US jobs

In announcing the deal with Carrier, Trump said he was sending a signal to corporate America that the rules would be changing in his administration. Moving jobs to Mexico or elsewhere offshore would no longer be tolerated.

"They can leave from state to state, and they can negotiate good deals with the different states and all of that. But leaving the country is going to be very, very difficult," Trump said.

But experts, business leaders and economic development officials agree very little has changed since then. Ford announced this week that production for its next-generation Focus is being moved out of Kentucky, and will be going to one of Ford's existing plants in China.

Trump took credit when Ford announced earlier this year that a factory planned for Mexico to build the car was being canceled.

And Bedel acknowledges that the Carrier deal, once held up as a prototype for the new way of doing things, was "a special situation" because it involved paying a company not to leave.

"We offer incentives for businesses to grow here, to add jobs to what they already have or to bring a full new company here," she said. "We don't do retention very often, because you don't want to get into that situation where a company says, 'I'm going to leave if you don't.'"

Of course, that was exactly the situation with Carrier.

"If companies know they can do it and get money that's laying around on tables, money that's there for the taking, that hurts the tax base," said Greg LeRoy, executive director of Good Jobs First, a nonprofit Washington, D.C., watchdog group that is critical of state subsidies to business.

The big payoff

LeRoy estimates state and local governments are spending at least $70 billion a year on incentives. He says the money states are spending to lure companies like Carrier and others could be better spent on schools, infrastructure, training "and all the things that really do grow the economy over the long run, because they benefit all employers, not just those few that can game the system."

Even United Technologies' Greg Hayes acknowledges that the subsidies have limited impact on site selection.

"Frankly, the states are offering incentives, but at the end of the day, you want to be close to where your employees are, and [relocating] it's terribly disruptive," he said. "So unless you have a compelling cost reason to do it, it's really tough to do."

Nonetheless, he says, "A month doesn't go by when I don't hear from the economic development group from one state or another."

But Hayes says the contacts have not increased since Trump issued his call for more deal-making, and Bedel says it is business as usual at her agency as well.

"It really hasn't changed anything," she said. "We have been doing this since 2005."

And that means there are victories as well as defeats.

The Indiana Economic Development Corp. says already this year it has landed commitments for 80 new projects, adding more than 5,700 jobs. And that does not include the jobs saved at Carrier.

But at the same time, industrial manufacturer Rexnord is moving forward with plans to move 350 jobs out of Indianapolis, most of them going to Mexico.

Correction: This story has been revised to reflect the fact that Ford is moving production for its next generation Focus to an existing plant in China.

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