Donald Trump’s deal with United Technologies to keep 850 Carrier manufacturing jobs from going to Mexico provides a window into how he may operate as President. It's clear he intends to be not just Commander-in-Chief, but Negotiator-in-Chief.
Trump called UTC CEO Greg Hayes two weeks ago to ask him to keep the jobs in the U.S. He used both stick and carrot – threatening to slap tariffs on Carrier imports from Mexico while at the same time promising to cut taxes on the company’s hefty overseas earnings. The tactic worked. Here are some questions and answers about the deal:
Could the President really have imposed tariffs on Carrier’s imports? Maybe. Apparently the President has some authority to impose tariffs on companies acting in a way that he deems against the national interest. But the move would have sparked outrage from U.S. businesses as well as the international community.
Could President Obama have cut the same deal? Doubtful. In this case, it was the carrot, not the stick, that carried sway. Trump’s election, along with Republican majorities in both houses of Congress, has raised the possibility that a cut in taxes on repatriated earnings could really happen – a savings for UTC that would be measured in billions and dwarf the $65 million a year saved by the move to Mexico.
Isn’t 850 jobs pretty small in the scheme of things? Yes. But the cut in corporate taxes, if it happens, could lead other big companies to make similar decisions to invest in the U.S.
Will those jobs still be in Indiana ten years from now? Probably not. Even if a cut in corporate taxes sparks a resurgence in U.S. manufacturing, technology is rapidly eliminating jobs on the factory floor. But if the past is any guide, there will be new jobs created, for those who have the necessary skills.
More news below.
• OPEC Cuts, and Shale Rejoices
2016 did for Castro, Prince and liberal feelings of superiority across much of the West, but–oddly enough– it couldn’t polish off OPEC. The cartel announced a deal that could take over 1 million barrels a day of oil off the world market, pushing crude prices up 9% and reminding everyone of its market clout. The stocks of many leading shale companies also shot up, as the end of a two-year price war gives them confidence to drill again, and gives banks more freedom to lend to them–at least as long as the cartel's notoriously shaky discipline holds. Fortune
• Google’s Pixel Phones Take a Bite out of Apple
Google’s Pixel smartphones appear to be making big inroads in the U.S. market. Device activations rose by 112% over the holiday weekend, relative to the four prior ones, while activations of the iPhone 7 rose only 13%. The discrepancy may be partly explained by the fact that the iPhone 7 had a strong launch in September, but research firm Localytics estimated that even older Apple devices outperformed the iPhone 7 in terms of activations. Fortune
• House Passes Major Drug Reform Bill
The House of Representatives overwhelmingly passed wide-ranging legislation meant to streamline the drug approval process, boost biomedical research, and many other significant health-related policies. Most of them will benefit pharma companies. The so-called 21st Century Cures Act, after a year in limbo, now heads to the Senate for consideration next week. Fortune
• One-Third of Student Loans to be Forgiven
The U.S. will forgive an estimated $108 billion in student debts over the next 10 to 20 years, roughly one-third of the $352 billion that American students are expected to take out between 1995 and 2017, according to a report from the Government Accountability Office. The sum could rise further, depending on how many more students enroll in the relevant federal loan program. Whichever way you look at the cost-benefit analysis of giving Americans the skills needed by the economy of the future, there has to be a more efficient and honest (and, for students, less stressful) way of funding it than through a loan program with a 30% default rate. Nothing could say "badly targeted use of taxpayers' money" more clearly. Fortune
Around the Water Cooler
• Mining Recovery Milestones
A year ago, Glencore epitomized everything that was going wrong in the mining sector: too much debt, a cyclical trough in prices, and an array of unprofitable assets that left it with no money for dividends. A year later, surplus assets have been sold, the debt level is manageable and commodities are back in bull market territory. Glencore said Thursday it will reinstate dividend payouts next year, lifting its share price over 2%. But the sector still isn't out of the shadows cast by past excesses: Rio Tinto is facing a probe by the Securities and Exchanges Commission into a $3 billion writedown it took in Mozambique, the Financial Times reported Thursday. Rio also fired two top managers recently in connection with allegations of improper payments over a mine in Guinea. WSJ, subscription required
• Hong Kong Doesn’t Want to Build a Snowman
Disney is going to have to shoulder more of the burden for revamping its struggling theme park in Hong Kong. The city’s legislative council has put off approval for $740 million in support for a $1.4 billion plan that will make the park play more to the themes of ‘Frozen’ and Marvel superheroes. The park, a 53%-47% joint venture between Disney and Hong Kong, has only been profitable in three of the 10 years since it opened. Officials complain that that is partly due to Disney draining high management fees and royalties out of the project, according to the Financial Times. FT, metered access
• Airbnb Accepts Rental Limits
Airbnb said it will impose a limit on the number of nights a year that hosts can rent out their homes through its site, in an effort to appease a regulatory backlash against its business model in the U.S. and Europe. From January, it will automatically block hosts in Amsterdam from renting out entire homes for more than the legal limit of 60 days a year, unless they have a license to do so. The Wall Street Journal reckons the move could be a template for other cities around the world. Cities are concerned that the spread of short-term rentals is limiting housing capacity for long-term residents (as well as undermining local hotel operators who are not shy about using their lobbying muscle). WSJ, subscription required
• One Less Pebble on the Wearables Beach
Fitbit is in advanced talks to buy wearables pioneer Pebble, in what looks like the latest tidying up of a sector that has–so far–largely failed to live up to its initial hype. According to the Financial Times, the deal will expand Fitbit’s product range and give it access to one of the largest app catalogues for wearable devices the PebbleOS operating system. Pebble’s smartwatches are likely to be discontinued, however. According to the FT, Pebble founder Eric Migicovsky was looking to sell for $200 million, but the price is likely to be well below that. FT, metered access
Summaries by Geoffrey Smith Geoffrey.email@example.com; @geoffreytsmith