January 24, 2017

NY Times: Call to Create Jobs, or Else, Tests Trump’s Sway

President Trump summoned the titans of American business to the White House on Monday for what was billed as a “listening session,” but it was the new president who delivered the loudest message: Bring back domestic manufacturing jobs, or face punishing tariffs and other penalties.

The contrast between Mr. Trump’s talk and the actual behavior of corporate America, however, underscored the tectonic forces he was fighting in trying to put his blue-collar base back to work in a sector that has been shedding jobs for decades.

Many of the chief executives Mr. Trump met with have slashed domestic employment in recent years. What is more, their companies have frequently shut factories in the United States even as they have opened new ones overseas.

Mr. Trump said he would use tax policy, among other means, to deter companies from shifting work abroad. “A company that wants to fire all of its people in the United States and build some factory someplace else, then thinks that product is going to just flow across the border into the United States,” he said, “that’s just not going to happen.”

Union leaders also met with Mr. Trump on Monday afternoon, the same day that Mr. Trump withdrew the United States from the Trans-Pacific Partnership trade agreement. While unions often ascribe the shift of manufacturing jobs abroad to “corporate greed,” the migration is a result of a more complex corporate calculus.

Wall Street is pushing industrial companies to increase earnings at a double-digit rate when the American economy is growing by only 2 percent, and the quickest way to deliver higher profits is by reducing labor costs, whether through automation or by moving jobs to cheaper locales like Mexico or China.

In some cases, Gordon Gekko-like hedge fund managers are to blame, but much of the time, it is the drive for bigger returns on 401(k) accounts, pension plans and other retirement vehicles that depend on steadily rising corporate profits and, in turn, a buoyant stock market.

Just as significant is the desire by multinational corporations to go where the growth is, and many emerging-market economies, as well as China, are growing at more than twice the rate of the United States.

“Global capital doesn’t have a social conscience,” said Kevin W. Sharer, who teaches corporate strategy at Harvard Business School and served on the boards of 3M, Northrop Grumman and Chevron, in addition to running the biotech giant Amgen. “It will go where the returns are.”

A case in point is Dow Chemical, whose chief executive, Andrew N. Liverisleads a panel on manufacturing that Mr. Trump created. Mr. Liveris was at the White House on Monday.

At the end of 2015, Dow employed 49,500 people, about half of them in the United States, nearly 5,000 fewer than it did at the end of 2012. During the same period, the number of domestic Dow manufacturing locations fell to 55, from 58, but increased by five in Latin America and Asia.

Not that Mr. Liveris is necessarily to blame — he and the company were targeted in 2014 by the activist investor Daniel S. Loeb, who called for splitting the company in two to bolster profits and for the ousting of Mr. Liveris. After a multiyear battle, Mr. Loeb essentially prevailed, and Mr. Liveris will exit Dow after it completes a merger with DuPont later this year, with a breakup to follow.

Dow is hardly the only company to reduce its head count in recent years. International Paper, whose chief executive also attended the White House meeting, had its work force in the United States fall to roughly 34,000 in 2015, about 2,000 fewer than at the end of 2010.

The final piece of the manufacturing jobs puzzle is technology, said Bill George, who formerly ran Medtronic, a producer of pacemakers, stents and other medical devices, and who now teaches at Harvard Business School.

Mr. George noted that Ford Motor, which Mr. Trump has tangled with and whose chief executive was at the White House on Monday, employed a fraction of the workers it did two decades ago because its production lines were now highly automated.

Even boosters of the factory sector, like Scott Paul, president of the Alliance for American Manufacturing, an advocacy group, reacted cautiously to Mr. Trump’s initial approach Monday.

“It’s easy to get C.E.O.s to come in on the first day of his presidency and warn them they are on watch,” Mr. Paul said. “I believe a lot of the C.E.O.s in that room want do the right thing and create jobs in America, but the realities of Wall Street pressure and a globalized economy leads them to offshore a lot of these jobs.”

Mr. Paul added that “there are a lot of villains to go around” and that he hoped Mr. Trump would send a similar message to Wall Street chiefs like Stephen A. Schwarzman, chief executive of Blackstone, and Jamie Dimon of JPMorgan Chase, both of whom sit on an advisory panel of private-sector leaders Mr. Trump created last month.

Mr. Trump made clear on Monday that his plan to reshape the economy and revive the manufacturing sector went beyond exhortations, however. Taxes are up next, he suggested, and when it comes to tax policy, one of his top priorities is to punish American companies that move jobs abroad.

To curb such behavior, Mr. Trump said, he plans to impose a “substantial” border tax on such firms. In the past, he has said the tariff could be as high as 35 percent.

The logistics of such a tax continue to befuddle both Republicans and Democrats. Many wonder what penalties companies such as General Motors, which already has a plant in Mexico, might face, or what would happen to a technology giant such as Apple that has contracts with manufacturers in China but does not manufacture there itself.

It also remains unclear whether the threat would be carried out as part of a broader tax overhaul or would be imposed through executive powers. While Congress generally sets tax policy, the president does have authority to impose tariffs under certain circumstances.

Michael R. Strain of the conservative American Enterprise Institute said that Mr. Trump’s idea to punish companies for sending jobs abroad was a protectionist proposal and that he anticipated corporate backlash if it came to fruition.

“Everything he’s said about this has been so vague and ill defined, it’s hard to think about it sensibly,” Mr. Strain said. “It could be that the business community really starts pushing back against this stuff and it becomes a broader fight.”

During the meeting on Monday, Mr. Trump also made the case that building in the United States would soon become a more cost-effective proposition because of his plans to cut the corporate tax rate to 15 or 20 percent and to reduce regulations.

He pointed to onerous environmental regulations as one area where changes could be on the way, and he insisted that, despite the more lax regulatory environment, protections would improve under his administration.

“There will be advantages to companies that do indeed make their products here,” Mr. Trump said.

Of course, financial considerations like taxes and regulations alone do not guide corporate decision making.

Terry Gou, the chairman and founder of the Foxconn Technology Group, the largest contract electronics manufacturer in the world, is weighing a major investment to build a factory in the United States.

Mr. Gou, speaking at a company event in Taiwan on Sunday, suggested that the factory, a $7 billion plant making flat-panel screens, could create 30,000 to 50,000 jobs and that Pennsylvania was the front-runner as a likely location.

Technology analysts were puzzled by the job projections Mr. Gou described because flat-panel displays, like computer chips, are produced in highly automated factories. But if Foxconn does proceed with a factory in the United States, it will be as much a matter of the politics of trade as the industrial economics of high-tech manufacturing, analysts said.

Foxconn is based in Taiwan, but its largest operations are in China. Apple is its biggest customer, representing about half of Foxconn’s sales, and opening an American plant might be a way to alleviate White House pressure on Asian exporters like China and Taiwan.


This article was originally published on nytimes.com on 1/24/17.