Why Trump's Carrier deal isn't the way to save American jobs

Even setting aside such concerns, incentives like the ones Indiana offered simply aren’t a practical strategy for preserving or creating a meaningful number of jobs in a country of 300 million people. As Justin Wolfers wrote in The New York Times last week, the U.S. economy destroys millions of jobs each month. We can’t save them all — and we shouldn’t want to. Because the economy also creates millions of jobs every month, and that process of creation and destruction is what allows the U.S. economy to become more productive over time. Indeed, many economists are concerned by evidence that that churning process has slowed in recent decades, resulting in an economy that is less dynamic than in the past.

The flip side of the incentives coin is the threat of penalties for companies that outsource jobs. Trump has said that he will propose steep taxes on imports from companies that send jobs overseas or to Mexico. “Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is WRONG!” Trump wrote in a series of tweets Sunday morning. “There will be a tax on our soon to be strong border of 35% for these companies.” There are also other levers potentially available to Trump — Carrier’s parent company, United Technologies has valuable government contracts that could be in jeopardy if it runs afoul of the administration (although legal restrictions could stand in the way of following through on such threats).

There are practical hurdles to enforcing such threats — distinguishing between companies that are outsourcing jobs and those that are expanding overseas operations, or shutting down underperforming U.S. plants, will require complex rules, which companies will then try to work around. But even assuming such rules could be effective, penalizing companies that outsource jobs won’t change an underlying truth: It is cheaper for companies to make many products in Mexico, China and other countries where wages are lower than they are here. If U.S. companies can’t outsource jobs, that won’t stop foreign companies from making products overseas and selling them in the U.S., undercutting American manufacturers on price.