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Countless Ordinary Americans Benefit When Companies Move to Mexico

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Tags Taxes and SpendingU.S. EconomyInterventionism

12/02/2016

Matt Drudge has been applauding Donald Trump's efforts at preventing companies from locating their production facilities to foreign countries. 

When Carrier announced it would not be moving 1,000 positions to Mexico, the Drudge headline read:

"AMERICA GREAT AGAIN: CARRIER STAYS ..."

Drudge carried a similar headline when Trump claimed credit for Ford Motor Company's announcement that it would not be moving the production of a Lincoln SUV to Mexico. Ford does plan to move forward with moving more small-car production to Mexico in spite of the fact that Trump had earlier promised to slap a 35 percent tariff on auto imports from Mexico. 

Unfortunately, the Drudge headlines are simply helping to perpetuate simplistic ideas of how wealth is built, and forwards the idea that free trade and free movement of capital somehow make most Americans poorer. 

Indeed, it seems that most pundits and news organizations are treating it as a given that keeping auto production or air conditioning production within the borders of the United States is an automatic "win." 

Most of the criticism of the Trump Carrier deal has focused on the politics and legality of the deal. Some have even claimed that Carrier was essentially bought off with "subsidies" from the State of Indiana, and possibly the federal government as well. 

As Tho Bishop has pointed out, however, what little we know of the deal suggests that it is primarily characterized by tax breaks which cannot accurately be called subsidies. And, if tax breaks are truly behind the deal, there's no reason to criticize the deal because of that. 

What is troubling, however, is the continued insistence by pundits and politicians that it's a great victory to not have a factory move to a neighboring political jurisdiction. 

This is then reinforced by a focus on only what Frédéric Bastiat called "the seen." That is, there's a focus on only the people who will keep their jobs (for now) with the move to Mexico not taking place. This makes for good TV, such as in this case when FoxNews featured a Carrier employee thanking Trump for supposedly keeping the jobs in the United States. 

But what about those "unseen" groups and individuals who would have benefited from a Carrier move to Mexico? 

After all, Carrier had originally stated that the purpose of the move was to save $65 million in labor costs for the company. This would have translated to lower prices for Carrier's customers, and that would have, in turn, helped Carrier maintain market share and profitability. 

It is entirely possible that the deal worked out with the Trump administration and the State of Indiana renders the move unnecessary and will allow Carrier to reduce costs anyway. The fact is we know precious few details in the matter. 

Let's suppose, however, that Carrier elected not to move in order to avoid possible future tariffs threatened by Trump, or that the alleged tax-cut deal does not totally compensate for the $65 million that would have been saved had the company moved. Perhaps the deal was only enough to make the move "not worth it," politically. 

So, let's say now that Carrier saved only $40 million due to the Trump deal. (Again, we don't know the details.) 

If this is the case, then all consumer of Carrier products — except those few who actually work for Carrier —  lose from Carrier staying in the United States. 

All of those small business owners, household owners, and others who purchase Carrier air conditioners and similar products, will now be paying more. Even those who use air conditioners from other producers will ultimately lose as Carrier will now be less competitive and drive fewer price reductions in its competitors. Moreover, with more expensive air conditioners, fewer will be purchased which means fewer jobs for those who repair air conditioners or make parts for them. 

These are the great unseen beneficiaries of free trade and freely moving capital that is so often ignored by the press and the politicians. 

What About the Employers Who Rely on Inexpensive Climate Control? 

After all, air conditioning is not merely some luxury enjoyed by a few rich people. Air conditioning has a myriad of applications in production, meaning that any move by a government official to keep Carrier from lowering the cost of air conditioning will lead to greater costs for many other producers. 

Movie theaters, factories, warehouses, server farms, and countless other producers and consumers devote a non-negligible percentage of their operating costs to climate control. Every time that these costs are increased — or not allowed to fall — through government intervention, it puts pressure on those other employers who may be forced to engage in layoffs in order to remain profitable or competitive. 

But, you won't hear anything on FoxNews if a small business goes out of business or must refrain from hiring new employees because its climate control costs are too high. You won't hear about it when some medium-sized pharmaceutical factory delays an expansion because its profitability has been negatively impacted by expensive air conditioners. 

We will only hear about the tiny number of people (out of a country of 320 million) who will keep their jobs at the expense of unknown multitudes of other employees and producers who would have benefited from cost cutting at the company in question. 

Naturally, this same argument applies to any product that is used by producers and consumers. Which is to say, it applies to all products. Producers buy automobiles from Ford Motor Company, meaning business owners and employers are able to hire more people when they can purchase less-expensive cars produced in Mexico. Producers can hire more people when they can purchase less-expensive uniforms for their staff members from Vietnam. And so on. 

Public policy that increases the cost of clothing and automobiles only increases the cost of living and makes it more difficult for businesses to expand and hire people. But, since it's easier to just put an unemployed auto worker on TV, we ignore the realities of how free trade makes it easier for entrepreneurs and other producers to grow their businesses and hire people. 

Now, if producers like Carrier elect to not move because costs have been reduced domestically, that's all to the good. If companies refrain from moving to avoid the taxes still threatened by Donald Trump, then that's just a net loss for countless consumers, employees, and producers nationwide. 

It's certainly easy to sympathize with Trump when he announces that he'll cut some domestic taxes and regulations on businesses. However, these announcements are often followed in the next breath with disturbingly anti-market statements such as Mike Pence's comment yesterday that "the free market has been sorting it out and America’s been losing." Pence's position that "the free market" means Americans are "losing" betrays a disturbing disregard of basic economics. 

Will every bromide about lowering government regulation be accompanied by threats against private companies and trashing of free markets and free trade? This may be what we should prepare ourselves to expect over the next four years. 

Ryan McMaken is the editor of Mises Wire and The Austrian. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. Contact: email, twitter.

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Contact Ryan McMaken

Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and The Austrian, but read article guidelines first. Ryan has degrees in economics and political science from the University of Colorado and was a housing economist for the State of Colorado. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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