More Carrier Type Deals Out There
Donald Trump pulled off a masterful deal that saved more than half of the jobs at the Carrier plant that was supposed to be shipped out to Mexico. The deal involved a $7.0 million tax incentive from the state. I assume there was some verbal jabbing with respect to the almost $7.0 billion a year the company’s aerospace and aircraft engines divisions does with the federal government.
Now, there is the anticipation of more announcements as the list of companies moving to Mexico and other countries is relatively long.
Some conservative economic purists on the right like Jonah Goldberg and even Sarah Palin (see box) don’t like the idea of a President or President –elect cutting deals with companies; using taxpayer funds, suggesting its simply crony capitalism.
On the left, Bernie Sanders and Paul Krugman claim that the president bowed to extortion.
The fact of the matter is that companies aren’t inherently anti- American but their bottom line comes from patriotism. On that score, these companies would love lower taxes, fewer regulations, and the ability to save money (being closer to the buyer of their products). America also has an abundance of energy, including cheap natural gas and even cheaper coal.
Still, as recently as Friday, Ford reiterated its intentions of moving small car productions to Mexico. The CEO of the company, Mark Fields, said he was willing to work with the new administration if some things could be done on the Corporate Average Fuel Economy (CAFE) standards and other incentives.
Wink: Tax breaks?
It’s not scheduled to happen for a couple of years, so there’s time for the Trump administration to make America more attractive to manufacturers. However, there are some companies where employees need Trump to work his magic immediately.
The Eye of the Storm
Rexnord Corporation (RXN) is down the road from Carrier. The publicly traded company’s shares are changing hands at $20 from north of $30 back in Mach 2014. The company was on the receiving end of a strongly-worded Donald Trump tweet this past weekend, and it will be under a tremendous spotlight.
Cardone Industries is the largest manufacturer in Philly, but it has been sending workers to Mexico for years despite the pledges not to go a long time ago. Dematic Corporation made their layoff announcement earlier this year. It’s unclear if the workers can be saved, but the company still has 900 workers in America that would love a different fate.
Caterpillar (CAT) is altogether a different beast, which has grappled with this issue for years. As of now, 70% of its business comes from outside the United States. Be that as it may, the Trump win has sent the company’s shares soaring. It’s only a matter of time before the president - elect has the company in his sites.
I think there are economic principles that shouldn’t be ignored, although there are elements that will jumpstart this economy, including an inspiring flyover country. The Carrier deal is not the same as Obama’s solar fiascos in a sense that it didn’t subsidize one industry while punishing another, but there is a danger of appeasing companies with federal favors.
By the same token, the stock will only go so far. No one is going to stay in business to lose money or see profits capped - customers will pay the 35% tariff or go with products they don’t want.
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