The announcement by air conditioner manufacturer Carrier and President-elect Donald Trump that the company will be staying in the U.S. after all, saving 1,000 jobs in Indiana, could wind up being a sea change in world history, that moment when the process of economic globalization suddenly stopped, before it receded.
The decision to stay in the U.S. followed pointed criticism of the company by then-presidential candidate Donald Trump on the campaign trail this year, when Trump promised to hit the company with a 35 percent tariff if it moved its operations to Mexico.
Thus, the optics of Trump making the announcement at Carrier’s facility in Indianapolis were surprising to say the least, where he reiterated that “companies are not going to leave the United States any more without consequences. Not going to happen. It’s not going to happen, I’ll tell you right now. We’re losing our — we’re losing so much.”
And then, over the weekend, to emphasize the point on Twitter, Trump issued a statement in a series of tweets that, “The U.S. is going to substantia[l]ly reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is wrong. There will be a tax on our soon to be strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units etc., back across the border. This tax will make leaving financially difficult, but these companies are able to move between all 50 states, with no tax or tariff being charged. Please be forewarned prior to making a very expensive mistake! The United States is open for business.”
Love it or hate it, for the first time in recent history there is going to be an American President using the bully pulpit to take certain actions, in this case, promoting and encouraging companies to do business and produce things in the U.S. — and issuing powerful disincentive to doing so overseas.
Many have criticized Trump’s proposed 35 percent tariff, for example Sen. Ben Sasse (R-Neb.), who tweeted, “Pres-Elect Trump means well. But won’t his 35 percent tariff idea raise prices on American families? How would it not be a new 35 percent tax on families?” Here, Sasse has a point, which is that if a company like Carrier were taxed, the costs would be passed on to consumers.
Yet, companies that produce overseas and then ship to the U.S. are subsidized, too, gaining the benefits of currency devaluations against the U.S. dollar abroad, lower taxes and fewer regulations. Also, U.S. exports are taxed by those very same countries via the same exchange rate policies and other de facto tariffs that somehow were never addressed by the same trade agreements often touted as having reduced tariffs on U.S. exports.
The reason this can happen to multinational corporations is because they have become so thoroughly entwined with governments, seeking all sorts of subsidies in order to do business, many leaving the U.S. for better deals. Outsourcing is real, it has resulted in millions of jobs being shifted overseas, and so it is not surprising that eventually it created political circumstances ripe for a politician like Trump to take advantage of.
Plus, Congress over the years has granted the President limited authorities under Title 19 of the U.S. Code to impose tariffs under certain circumstances, which remain ready for any President to use should he choose to do so, much like the President’s authority to close the border to immigrants from specific regions under existing statute, 8 U.S.C. 1182(f).
What form these tariffs might take remains to be seen.
Congress could certainly try to repeal these authorities if it wanted to consider tariffs on an individual basis. But members probably should not act surprised if Trump vetoes such legislation. Such is the administrative state we live in. In reality, Congress outsourced much of its own Article I authority to have much of a say on matters like trade and immigration decades ago.
Should President-elect Trump now use these authorities to impose tariffs — based on U.S. laws passed by Congress years ago — there will be little wonder how it happened. Congress authorized them, and then passed trade agreements that guaranteed one day they might be invoked.
Leaving that aside — here we’re talking about companies that do business all over the world — yet it is small businesses based here that employ the vast majority of Americans, and who may have a lot to like about Trump’s other plans to reduce corporate taxes and regulations. As Trump noted, they won’t be facing any new taxes.
As it is, we do not know if Trump ever will implement any 35 percent tariff, either through an executive act under Title 19 or via new act of Congress. But love it or hate it, what is clear from the Carrier episode and his latest tweets is that the President-elect wants to keep his hand on the threat as a stick to potentially be wielded — along with his tax cut and regulatory reduction carrots. My guess is most businesses will opt for the carrots.
This is a guest post by Robert Romano senior editor of Americans for Limited Government.