Donald Trump

Why Was Carrier Considering Moving to Mexico in the First Place?

Trump won't be able to make "deals" with every company that seeks to relocate because of onerous federal regulations. Here's why Carrier nearly left.

|

Lora Olive/ZUMA Press/Newscom

Donald Trump stepped on stage at the Carrier plant in Indianapolis on December 1 and took credit for keeping 1,000 jobs in the state.

That's the part of the story that everyone knows. In the days that followed Trump's announcement, the airwaves and WiFi signals of America were crammed with explanations, criticisms, and defenses of Trump's "Carrier Deal." Depending on your perspective, it was either solid proof that Trump would be the protectionist deal-maker he promised to be during the campaign, or a short-sighted example of crony capitalism that looked good on television but foreshadowed a presidency where executive power would be wielded against private business in a disturbing way. (Here at Reason, we were, and remain, firmly in the second camp.)

In all the hubbub surrounding The Carrier Deal, though, there was one question that went unasked. Why did Carrier want to move those jobs out of Indiana in the first place?

There's probably not a single, definitive answer, of course. Any business decision as significant as the relocation of a major production facility is the result of many factors. Still, one factor stood out when the Carrier executives met with Mike Pence, then the governor of Indiana, in March of last year. After the meeting, Pence told an Indianapolis TV station that Carrier CEO Robert McDonough said decision to relocate had nothing to do with the business climate in Indiana, but that they were frustrated with the "rising red tape" in Washington D.C.

Around the same time, Jim Schellinger, president of the Indiana Economic Development Corporation, wrote a letter to Sen. Joseph Donnelly, D-Indiana, claiming that "extensive federal regulations were the leading factor of the decision to relocate 2,100 manufacturing jobs" to Mexico, according to The Washington Post.

This is the story behind the Carrier story. Federal regulations, and lots of them, helped push the company towards Mexico. Those same regulations could push other companies to do the same—the "deal" that saved those 1,000 jobs in Indianapolis did nothing to make life easier for other, similar businesses.

"People don't realize how much that affects not just manufacturers but consumers as well," Francis Dietz, a vice president for the Air Conditioning, Heating, and Refrigeration Institute, a trade group, said in a phone interview last week. Trump's deal with Carrier should put more of a spotlight on those regulations, he argued, calling them "something that usually flies under the radar."

Dietz said the U.S. Department of Energy has approved 52 new regulations since 2009 that affect the manufacturing of heating and air conditioning products. A list he provided to Reason includes rules for everything from industrial-sized boilers and rooftop A/C units to ice machines and pool water heaters.

It's unlikely that any single one of those regulations would have forced Carrier's hand, or would do the same for another company. In the aggregate, though, they drive up costs and limit what manufacturers can offer to consumers.

"It's not like these regulations are creating new classes of products, they're just forcing people to buy a certain efficiency level," Dietz said. "That's not to say that people wouldn't get around to doing that on their own, but our members want their customers to have a wide range of choices with a wide range of price points."

Most of the DOE rules approved during the Obama administration apply to any heating or cooling equipment purchased or sold in the United States. That means that moving production to Mexico would not relieve a company from having to comply with these regulations, assuming they wanted to continue selling their products in the United States.

Still, facing higher regulatory costs can force businesses to find other ways to save money, including looking for cheaper labor overseas.

The federal government is aware of the potential costs of these regulations, but that doesn't seem to have stopped the list from growing. Small businesses—ones that don't have the clout to negotiate special deals like the one that saved Carrier's Indiana plant—seem to have been particularly hard hit by some recent rules.

"It is possible that the small manufacturers will choose to leave the industry or choose to be purchased by or merged with larger market players," wrote the Department of Energy in an analysis of new regulations issued in January 2016 for air conditioners and furnaces.

In set of rules for residential heaters issued in March 2015, the DOE noted that regulations would cost small businesses an estimated 18 percent of their revenue while larger companies would take a 3 percent hit.

A September 2015 rule-making from the DOE setting new standards for vertical air conditioning units estimated that 65 percent of existing products would not meet the new standards. While larger companies would be able to adjust to the changes, regulators noted, smaller manufacturers would "need to redesign it entire product offering or leave the market."

Air conditioning and heating manufacturers have lost one-third of its workforce since 2001, according to AHRI. Those losses aren't all due to federal regulations, the group says, but regulations played a significant role.

Trump's deal with Carrier—the details of which are still a bit hazy—included $7 million in taxpayer-funded incentives from the state of Indiana and a vague promise of regulatory reform at the federal level. There's already some doubt whether the government intervention will really save those 1,000 jobs, as Trump promised last month.

In a broader sense, this is a foolish way to run an economy. The United States gained more than 178,000 jobs in November (December's numbers aren't available yet). In a country of 300 million people, jobs will come and go by the thousands on any given day. A president can't play whack-a-mole with every company that seeks a better situation somewhere else.

What Trump could do, and what he's promised to do, is fix the underlying conditions that caused Carrier to look to Mexico.

"There's no reason for them to leave anymore because your taxes are going to be at the very, very low end, and your unnecessary regulations are going to be gone," Trump promised in Indianapolis to roaring applause.

A special deal stopped one company from moving and earned the president-elect cheers from thousands of workers. Millions more could benefit from a broader, less cronyist approach from the White House.

NEXT: John Carpenter to Nazis: Dammit, Stop Treating They Live As a Metaphor for The Jews

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. but that they were frustrated with the “rising red tape” in Washington D.C.

    Mexican bureaucrats work cheaper than American bureaucrats.

    Make American Bureaucracy Great Again!

  2. Carrier said they didn’t choose to stay because of a “deal.” It’s obvious that the stated incentives are too small to be the deciding factor.

    They said they were optimistic about Trump changing the regulatory climate. Which meshes very well with their earlier statements about why they were leaving.

    1. So Carrier were just leaving because they’re racists. I mean, everyone knows white Hooisers are racists.

      1. +1 birthplace of the KKK /sarc

    2. And which meshes very well with Trump’s promises to reduce regulations, which he’s talked about repeatedly, and which are on his website. The subhead of this article could be: “Trump’s promises to reduce regulation have already started to get results.”

    3. That’s what I was wondering, if Trump’s negotiating boiled down to him promising that he was actually serious about whittling down federal regulation.

    4. There is as also that with a better regulatory outlook, the realization that cheap Mexican labor is cheap for very good reasons. I have heard thst many HVAC manufzcturer who move production out of country get quality issues.

    1. In six months, that will be five points.

    2. Does this mean Trump would have won by even more?

    3. It might be slightly less useless if they bothered to calculate the electoral college result.

      1. Popular vote is all that matters, didn’t you hear? THREE MILLION MORE VOTES!

      2. I think if Trump outpolls Obama by 1, he carries every state except California and Massachusetts.

        1. Probably by at least +8

    4. Are we talking about basketball?

  3. Well, Trump did say he’s going to cut the corporate tax rate down to where we’re at least competitive with other nations. And he seems to be putting people in charge of things who are more than willing to start cutting regulations. Maybe we just have to wait and see what happens? We know that if even the tiniest most inconsequential thing in government is cut that the left will be in sackcloth, wailing, gnashing their teeth, dumping ashes on their own heads, and going on about doom. But is that going to be enough to stop the Trumpster? We’ll see.

    1. Cutting taxes? GREAT!
      Cutting regulations? GREAT!
      Increasing spending? Does more harm than the two good things above combined.

      The net effect is “Make America Collapse More Slowly Again!”

      1. I think Trump’s biggest fight in the first year or two will be with Republicans in Congress. Paul Ryan is completely worthless and McConnell isn’t much better. They are looking at a bill to repeal Obamacare AND increase spending.

        http://www.washingtonpost.com/amphtml…..obamacare/

  4. I’m surprised they had any American workers to retain.

    1. I’m sure they’re 90% Mexicans. I worked for a company in Indiana and we had a 2nd shift, staffed by about 50 Mexicans. One day immigration came and the next day only 2 people were left on the 2nd shift, the one non-Mexican who was supervising and the one Mexican who actually had a valid SSN. The HR guy was in his office crying because he couldn’t replace the Mexicans, who actually worked hard, with the local trailer trash who would just goof off and smoke weed all shift long.

      1. Some of the commentariat here assure me that there are hordes of hardworking domestic workers that should have been chomping at the bit to take those sweet jobs at parity efficiency and value. Now I don’t know who to believe!

        1. I’m talking about jobs that pay barely over minimum wage. Very few people here will take those jobs, they do better on the welfare. Now, you take away generational welfare for all who just don’t want to work but are perfectly capable, and that all changes.

          I guess what I’m trying to say is, bring all the jobs you want back to Murika, but as long as we have a massive welfare state and we send all the Mexicans home, there will be no one to take those jobs, unless they are paying more than 30K a year.

      2. the local trailer trash who would just goof off and smoke weed all shift long

        #Evansville

  5. Trump is an idiot. Doesn’t he know all the Carrier workers in Indiana are Mexicans?

    1. Doesn’t he know all the Carrier workers in Indiana are Mexicans?

      FIFY

      1. Incorrect. A lot of them are Sikhs and Hindus. Though those tend to be the doctors, along with the Nigerians.

  6. DOE noted that regulations would cost small businesses an estimated 18 percent of their revenue while larger companies would take a 3 percent hit.

    Not fucking acceptable. Fuck.

    1. This is insane. I get the requirement to prevent pollution, etc. But the proactive regulatory burden is unacceptable. If the small business dumps a ton of sludge in the river, but someone in jail. You don’t prevent small companies from existing in the first place.

      1. The value of the efficiency standards themselves are, in my mind, highly questionable to begin with. That kind of a kick in the nads to revenue flow is completely outrageous, and that’s just the administrative agency’s own estimates. Fuck.

        1. Seems like mission creep associated with survival of the bureaucracy mentality.

          Although there are other ways to handle pollution, it’s easy to understand why the first environmental regs were put in place in the 1970s. But now it’s becoming very marginal.

          1. The regulations aren’t about pollution, but about new minimum required energy efficiencies of the HVAC equipment. Catastrophic Global Warming because we use too much energy, don’t you know?

  7. Fuck Carrier for sending jobs to Chihuahua.

    He’s likely a motherfucking spring-steel butt-switch in a jiggered human body oddly capping the pyramid of powerful American things but if this strange president cracks the balls of bloodless corporate executives in strategic attempts to encourage the homing of American jobs I say ‘Presto Trump- Make her great, buddy!”

    Fuck corporate goddamn America and their noxious void of shame illustrated perfectly through China’s eternal building booms. I’d place the lot of them in a trash barrel rocket with fucking socialists/dictators and send the entire stank package deep into swirling star cemetery.

  8. So, Carrier wants to move to Mexico because of heavy regulatory burden. Trump, in convincing them to stay, promises regulatory reform, and Reasontarians still can’t do anything but complain about Trump.

    A president can’t play whack-a-mole with every company that seeks a better situation somewhere else.

    Obviously not and it would be idiotic to think Trump doesn’t know that (but no accusation of ignorance or bad faith is ever left unmade when lefties are busy demonizing Trump), but Trump knows the power of a symbol, something Boehm doesn’t seem to comprehend.

    1. “(but no accusation of ignorance or bad faith is ever left unmade when lefties are busy demonizing Trump)”

      Why should Trump be given the benefit of the doubt? Why should any leader be given the benefit of the doubt?

      If you want shilling for Trump, breitbart.com is that way —>

      But as far as I can understand the Reason folk, they are generally anti-authority. So individuals in positions of authority don’t get the presumption of good faith.

      Besides, Trump himself has, on numerous occasions, demonstrated his idiocy. See: “judges sign bills”, “lines around the states”, “Constitution has 12 Articles”.

      1. Why should Trump be given the benefit of the doubt?

        You realize that, at some point, making every conceivable accusation of ignorance or bad faith isn’t just “not giving Trump the benefit of the doubt”.

        And, like it or not, if people suspicious of Trump continue to beclown and de-legitmize themselves with hysterics and bad faith of their own, then that only helps Trump.

        Bottom line: be rational, be fair, be skeptical. Here we have a business owner saying what libertarians have long said, and a PEOTUS who is repeatedly signalling he will actually do some things that libertarians have long wanted. Assuming without evidence that they are lying BECAUSE TRUMPUTIN is not helpful.

        My prediction: Trump will do many things I deplore, and probably more things that I don’t than any President any recent memory. Ima make my calls case-by-case, based on what he does, not what he fucking tweets.

        1. Look, we aren’t talking here about absurd claims like “Trump = Hitler!!!!”.

          This is a response to Cloudburst’s whining that the statement “A president can’t play whack-a-mole with every company that seeks a better situation somewhere else” is somehow unfair to Trump. That we should all OBVIOUSLY see that Trump is playing some fancy game of chess in some Scott Adams-esque fashion when he chooses to target individual companies for his wrath and public humiliation when they make economic decisions that Trump doesn’t like. Well it sure does look like whack-a-mole when he *chooses* to go after individual companies for their decisions that he doesn’t like. No one forced Trump to do that.

          And this has nothing to do with the larger question of regulatory reform, really. I’m just expected to believe that his individual belittlement of individual companies is part of some grand strategy? That is the benefit of the doubt that I won’t give to Trump.

      2. Just because you ran yourself off of a right wing site with your nevertrumpsm doesn’t mean you can show up here and start dictating who can stay new guy.

  9. “[E]xtensive federal regulations were the leading factor of the decision to relocate 2,100 manufacturing jobs to Mexico”

    If true, this is sort of a damning indictment of the US business climate. I could see a company preferring Mexico’s lower labor costs, but this suggests that the corruption and arbitrary contract enforcement there (not to mention narco violence) are not considered to be as problematic as regulation here.

  10. The federal government is aware of the potential costs of these regulations, but that doesn’t seem to have stopped the list from growing. Small businesses?ones that don’t have the clout to negotiate special deals like the one that saved Carrier’s Indiana plant?seem to have been particularly hard hit by some recent rules.

    In set of rules for residential heaters issued in March 2015, the DOE noted that regulations would cost small businesses an estimated 18 percent of their revenue while larger companies would take a 3 percent hit.

    So Carrier being a larger company (see parent), took a 3% hit. For that they were going to move 1000 jobs.

    And Drumpf promised them low taxes, and a break on that 3%.

    Cool, we will soon be back to the times when deficits and the national debt does not matter.

    1. Radio in application and evolution in theory, together at last.

  11. I think the actual purpose of excessive regulations are to force jobs to move to third world countries. That’s wealth redistribution on a global scale which is a goal of the left. Plus creates more people dependent on Democrats

    1. More regulations create more jobs for regulators and enforcement agencies. Thanks to the ever-growing regulatory state, we will soon have full employment.

      1. That’s also the part where they run out of other people’s money. WIN/WIN.

      2. They’re “Green jobs” too!

  12. The real economic opportunity in Evansville is the film industry. There are dozens of square miles inside the city limits that are ready-made sets for zombie and post-nuclear/plague apocalypse movies or could easily double for Detriot.

    1. They should have used that for the movie The Stand. Oh wait that was Terre Haute, not Evansville. Anyway, if you’re paying attention, the scene taking place in Terra Haute with the crazy dude, there’s mountains in the background, like the Rocky Mountains type mountains. I can assure everyone, you cannot see any mountains from anywhere in Terre Haute, only corn and maybe some soy beans.

      1. Justified had the same problem. I can assure you all that from no vantage point in Lexington can one see the Sierra Nevadas.

        1. Harlan, KY is definitely in the hills

    2. I think Poughkeepsie NY could give it a run for it’s money.

    3. The real economic opportunity in Evansville is the film industry. There are dozens of square miles inside the city limits that are ready-made sets for zombie and post-nuclear/plague apocalypse movies or could easily double for Detriot.

      We are about due for (another) basketball film both at the box office and in the zombie genre.

      1. Dead people can’t jump

  13. I have to admit, I’m a little bit on the fence about this. So far, all Trump has done is used the bully pulpit to wheedle and cajole companies into keeping manufacturing facilities in the U.S. The threat he’s talked about isn’t company-specific. So, it’s hard to say he’s even picking winners and losers. And if that threat is also matched by dergulatory promises, it kind of seems like a wash.

    If Donald Trump spends the next four years just cutting regulations and cheerleading U.S. manufacturing facilities, he’ll go down as one of the better presidents in my lifetime.

    1. If I think about federal regulations that have been cut, I’m sitting here a while and I’m drawing a blank. Seriously, if Trump cuts even one obscure inconsequential regulation that no one has even heard of, the left will go from TDS into a full suicidal panic. I can actually see them jumping off bridges and slitting their wrists over something that would never have any effect on their life in any way. It’s like their entire sense of well being is tied to these regulations. Remember the meltdown they were having over the thought of the government shutting down for even one day?

      1. I can actually see them jumping off bridges and slitting their wrists over something that would never have any effect on their life in any way.

        You really are trying to tempt me to like Trump.

    2. Sounds like racist talk to me.

  14. What I don’t understand is why the writer of this seems to think “proof that Trump would be the protectionist deal-maker he promised to be during the campaign” isn’t the exact same thing as “a short-sighted example of crony capitalism that looked good on television but foreshadowed a presidency where executive power would be wielded against private business in a disturbing way”.

    They read the same to me. Why is Reason (according to the writer) in one camp but not the other, aren’t acts of protectionist deal-making ~always~ short-sighted examples of crony capitalism??

  15. other than regulations concerning how something is built which I did not see on my quik overview of the list. if they sale the product in the U.S. they would still have to meet those requirements no matter where they are built.

    so in my estimate the regulations are burdensome but they are not the excuse for moving I fall back on the its the cheaper labor cost in Mexico

    1. Labor Regulations
      OSHA
      Obamacare
      EPA regulations on land use, waste disposal, exhaust, etc…
      Accounting and Financial Regulations – Dodd-Frank, SOX, and all their pointless audits, etc…
      Energy use regulations
      Many others

      Then whatever the state and city decides to pile on top.

  16. I’m still not sold on this Eric Boehm guy.

  17. Jobs are fine but yes the regulations are crucial. Federal regs seem intent on making whole sectors of the economy unaffordable in the name of God knows why. Home AC is a good example. Every time they ‘improve’ the SEER requirements it adds several thousand dollars to the cost of replacing the existing unit when it finally has to be replaced. It could run as high as 5 or 6% of the total market value of your home. And the EPA doesn’t allow grandfather ingredients. Imagine a day in the near future where if you have to put an arbitrarily large investment into your home, into the roof or the windows, the new regs make it so expensive it’s pointless to try? What if that kind of thinking is expanded to your car so that it’s now against the law to rebuild the engine in lieu of replacing it with a ‘better’ one?

    1. The new “better” one will, of course, come from recyling parts of previously destroyed engines, but somehow tweaked with unicorn farts to work better than any previous engine.

  18. “There’s probably not a single, definitive answer, of course.”

    Yes there is and it is a no-brainer. Think cost / benefit.

  19. Trump: “High taxes are bad for businesses, and lowering tax rates can entice them to create jobs here in the US… Let’s do this for just a few hand-picked companies!”

    Crap like this “deal” is how most people envision free markets. That has to change.

  20. Yes, you’re right…but at least he did something.

  21. Last year Daiken (Japanese Company) begin building the largest HVAC manufacturing plant in the US right here in Waller ,Texas ..30 mins outside of Houston. The plant is almost a mile long (largest tilt-wall building in the world) and will employ over 4-5,000 people. Daiken purchased Goodman HVAC a few years back because the company couldn’t compete with the big boys and Daiken needed a way into this US market. Trump ignored this fact when beating up on carrier. Apparently Daiken got past the regulations.

    1. Daiken didn’t need to “get past” the regulations. Regulations like these reduce competition by harming small companies more than they harm large companies.

  22. I hope to read the next your article update obat aborsi medan Thank you for sharing in this article obat aborsi semarang i like it!

  23. Bentley . true that Ashley `s blurb is good… last week I got Lotus Esprit sincee geting a check for $5815 this-last/five weeks and-even more than, ten/k lass-month . without a doubt it is the easiest work I’ve ever done . I began this seven months/ago and almost immediately startad earning minimum $77… per-hour . more tips here

    +_+_+_+_+_+_+_+_+ http://www.homejobs7.com

  24. How would moving production to Mexico help Carrier avoid regulations that apply to HVAC systems sold in the US? As long as Carrier is selling systems in the US they are subject to US regulations, regardless of where their manufacturing plants are located.

    And don’t these regulations help Carrier by reducing their competition? Sure, those regulations are a small hit to their profit margin in the short term, but in the long term they mean less competition because smaller outfits won’t be able to absorb the costs, which means these regulations actually protect Carrier’s profits. I wouldn’t be surprised to find out that Carrier actually lobbied for the regulations in their current form, while decrying them publicly. It wouldn’t be the first time a company did such a thing.

  25. Writing a letter to that democrat party rubber stamp vote Joe Donnelly was a waste of time. He could care less what happens as a result of excessive regulation and he has been 100% complicit in making it worse.

  26. Do You want to get good income at home? do you not know how to start earnings on Internet? there are some popular methods to earn huge income at your home, but when people try that, they bump into a scam so I thought i must share a verified and guaranteed way for free to earn a great sum of money at home. Anyone who is interested should read the given article…
    ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, http://www.homejobs7.com

  27. Why was Carrier planing to move production to Mexico? The following are possibilities:

    1. Lower operating costs, that is lower wage rates.
    2. Many fewer government regulations being another possibility.

    Readers may add to this short list, as they see fit.

  28. Raise your hand if you would populate Indiana for twice what you make where you are. Indiana is where the Klan moved to after burning their bridges in the Democratic Party! Indiana is where dead gangsters showed up wrapped in baling wire in car trunks outside of corn sugar plants. Why would Carrier be caught dead there in the first place? The state’s only virtue is the 5% who voted Libertarian!

  29. As with any big body coming up with rules/policies/regulations, there will be inefficiencies. But a lot of them start out for a good reason and due to the size of the company or public organization can get unwieldly. Instead of demonizing regulations wholesale, we need to have articles which actually focus on the regulations that went too far, try to figure out why they were enacted in the first place, and come up with alternatives that would serve the same purpose without having to be of hindrance to the efficiency of our companies.

    Same with the EPA. I keep seeing a lot of people on the right saying we need to get rid of the EPA(some of these same hypocrites have no problem with city codes mandating lawn heights or curbs on adult businesses operating in their cities which is anti-free market). Sure, EPA can get comical at times with certain regulations. But in the wake of Flint type situations, I would like to see a stronger EPA which gets involvement from both sides of the political specturm where the conservatives can invest their own ideas into it finetuning some of the regulations that go too far.

    I think such articles need to focus on the details of the regulations that hinder Carrier type companies and explain why they need to go.

  30. I bought brand new RED Ferreri by working ONline work. Six month ago i hear from my friend that she is working some online job and making more then 98$/hr i can’t beleive. But when i start this job i have to beleived herNow i am also making 98$/hr if you want to try just check this out…..

    +_+_+_+_+_+_+_+_+ http://www.homejobs7.com

  31. At best, the Carrier deal will keep the plant in the US a few more years. The deal in it’s current form, is a kick the can down the road decision, for both government and Carrier. Unfortunately, its about the only business decision that can be made in today’s business climate. Its not just Carrier, but about any business that could move to even stay in business (some businesses don’t have that choice and have to go out of business). When the terms of the deal run out, and the business climate hasn’t changed, which is highly likely, they will make the same choice to leave. And probably leave at that point.

    If Trump wants to keep the Carrier plant in Indiana, and a lot of other plants around the US, and plants that could be (aka built somewhere else from the start), he has a big job. Most businesses (even connected firms) in the US are dying a death of a thousand cuts. It’s not just one thing, but its the one thing after another, that puts a business into crisis. Most business-people know to not allow that to get to that point, but its hard to not have it happen anymore.

    Unless the government attitude that every business is a piggy bank to be raided and over regulated goes away there will someday be no “legitimate” ones left. More people will be willing (or forced) into the grey market or underground economy. One should not have to make a “deal” with a government agency or official to be in business.

  32. Nevaeh. I agree that Richard`s storry is shocking… last wednesday I got a great BMW M3 from earning $5318 this-past/4 weeks and just a little over 10/k lass month. without a question it is the most comfortable job Ive ever had. I began this 10-months ago and pretty much straight away got me at least $83, p/h. see here now

    +_+_+_+_+_+_+_+_+ http://www.homejobs7.com

Please to post comments

Comments are closed.