Trump Threatens Companies Thinking About Outsourcing Lombardi Letter 2016-12-06 10:33:17 Donald Trump outsourcing U.S. taxes United States companies Mexico President-elect Donald Trump warns U.S. companies not to relocate production abroad, using a 35% tax threat as a deterrent against outsourcing. U.S. Economy

Trump Threatens Companies Thinking About Outsourcing

U.S. Economy - By |

Trump Tells Companies There’s a Stiff Penalty for Sending American Jobs Abroad

U.S. President-elect Donald Trump engaged in his pre-breakfast barrage of tweets on Sunday morning. This time, he was warning U.S. companies not to make the “very expensive mistake” of relocating their production abroad.

That sounds like a serious warning, given that it could affect a vast majority of American companies. Even New Balance Atheletics, Inc., the maker of athletic shoes, priding itself on its “Made in America” products, maintains significant manufacturing facilities abroad.


Trump stressed that companies can do “business in the United States.” He shamed companies, suggesting they want to take advantage of a cheaper labor force. Trump sent this message throughout the presidential campaign. He reiterated it during his “tour of victory” last week.

As for that tour, Trump launched the celebrations at a Carrier factory in northern Indiana. Carrier is a division of United Technologies Corporation (NYSE:UTX). Trump urged the company to preserve 1,000 jobs, which were slated to move to Mexico, in exchange for a tax deduction.

Trump’s logic is that he will improve the business environment in the United States. He will cut corporate and personal income taxes and corporate regulations. Trump said that a company that leaves the United States for another country dismisses its employees.

If such a company takes advantage of the cheaper labor costs abroad, it must pay a “penalty” when selling goods in the United States. Thus, Trump threatened companies thinking of moving—robbing Americans of jobs—by slapping a 35% tax on these imports. (Source: “Donald Trump doubles down on 35% tax for businesses that ship jobs out of U.S.,” CNN, December 5, 2016.)

The tax is Trump’s intended weapon of deterrence against outsourcing. Trump wants to preserve—and even bring back—manufacturing jobs in the United States. This is one of the reasons why he got the vote from many workers in the November 8 presidential election.

But, to ensure jobs stay in or return to the United States, Trump needs to think more about incentives than deterrents. Indeed, while Trump spoke harshly of Carrier during the presidential campaign, the negotiations to preserve jobs seemed friendlier.

Carrier has not disclosed the details, but some sort of tax incentive was likely part of the negotiation. That said, Trump has not retracted from the idea of dropping the corporate tax rate to 15% from its current 35%, as reiterated by Trump’s proposed Treasury Secretary, Steven Mnuchin. (Source: “Carrier: Trump gave us state ‘incentives’ to save jobs,” CNN, November 30, 2016.)

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