Beyond the Art of the Individual Deal

Peter Morici
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Posted: Jan 31, 2017 12:52 PM
Beyond the Art of the Individual Deal

President Trump can’t simply bully large corporations to deliver prosperity for the millions who elected him.

Although the succession of recently announced deals to keep or create jobs in America is impressive — United Technologies, Fiat Chrysler and others have jumped on board — the challenge of boosting growth is too large to be accomplished by simply cajoling CEOs.

The Obama recovery delivered about 2 percent annual economic growth and 185,000 jobs a month. Mr. Trump would have to create at least 100,000 more jobs each month to bring growth up to 3 to 4 percent and substantially improve living standards for blue-collar Americans.

Generally, each deal actually creates only 1,000 to 2,000 jobs — most others were already planned. Calculating generously, he needs at least 50 new deals each month — a Herculean task.

Even if Mr. Trump found the time for so much jawboning and enlisted Secretaries-designate Steven Mnuchin at Treasury and Wilbur Ross at Commerce, the administration would quickly run out of large corporations who could afford to placate the president’s demands.

Ford did not scrap a planned $1.6 billion factory to create 700 new jobs in Michigan because it was its most cost-effective option. Virtually all of the deals announced impose lost profits and competitiveness on the businesses involved or require a government subsidy — United Technologies received hefty tax credits to keep about 1,000 jobs in Indiana.

Still others involved jobs already to be located in America. For example, GM recently announced it was adding 5,000 jobs, but many of those reflected planning decisions dating back to 2014.

In part Mr. Trump is countering foreign government practices that sway multinationals to manufacture abroad even when U.S. locations make good economic sense.

For example, Volkswagen has a major manufacturing presence in the United States. U.S. wages are competitive by German standards, and workers here are just as productive as in Europe and Germany, where the work week is only 35 hours — no trifling cost disadvantage for producing in that country.

VW must restructure to accommodate the next generation of automation and mass-produce electric vehicles. Thanks to German law, the union and the government of Lower Saxony combine to hold a majority of seats on the company board, creating a decided preference for German over U.S. and other foreign locations.

China tightly regulates foreign investment and requires most American companies to take joint venture partners. Often, these deals entail shifting production and R&D to access the Chinese market.

Considering such practices and often higher tariffs abroad, Mr. Trump can’t be blamed for leveling things up a bit by applying pressure on both American and foreign companies to locate more jobs in America.

Still, the scale of the problem remains huge, and Congress must join the president in recognizing that other countries have done a lot to become more competitive.

Mexico has negotiated an extensive network of free-trade agreements. U.S. and foreign automakers can make cars and parts there for sale duty-free throughout North America, Europe and Japan — that is not something automakers can do in the United States.

U.S. corporate tax rates are much higher than elsewhere and business regulations have grown more burdensome in recent years.

Threatening high tariffs on imports can motivate foreign manufacturers to shift some jobs here and leverage the Germans, Chinese and other governments to ease off some practices that unfairly favor producing in their jurisdictions, but it is foolish to think Mr. Trump can create the jobs needed to push up wages by bullying corporate leaders.

Corporate tax and regulatory reforms and comprehensive free-trade agreements that accomplish fair-market access and balanced trade are sorely needed to motivate scores more businesses to keep manufacturing, R&D and administrative activities here without presidential attention.

Unfortunately, the impulse to make individual deals runs deep in the new administration — after all, that’s how Messrs. Trump, Mnuchin and Ross made their fortunes.

As businessmen, they were great at exploiting the system — including controversial records lobbying for protection and outsourcing jobs. Now they must try their hands at accomplishing radical systemic reform and need cooperation from Congress and foreign governments, where leaders have ideas of their own and can’t be fired by Mr. Trump.

Presidential blustering can motivate negotiating partners to offer some quick, token results, but it won’t work well for making the really big deals America needs to prosper again.