President Donald Trump’s efforts to sell himself as a mastermind of economic prosperity are under threat. The economy remains strong and growing, but the prospects for American workers do not look particularly great. In the wake of a historically long government shutdown, which has yet to be resolved, Trump’s self-styled image is now threaten by more business drama. Trump had touted Foxconn’s decision to build a factory in Wisconsin as a major victory for Republican leadership, as well as a $4 billion dollar tax “incentive,” but the Taiwanese company is now backpedaling. After speaking to the White House, Foxconn will move ahead with their plans, but the 13,000 blue collar jobs promised will be replaced with a much smaller, unspecified number of white collar jobs. In addition, GM, which US taxpayer bailed out in 2008, has started laying off 4,000 white collar workers as part of its move to close four US plants. It is a development that has earned the rebuke of the President.
While the President and the American People can bemoan the decisions of big businesses to take taxpayer money and/or tax breaks offered with the explicit goal of creating and saving jobs, that is not how business works. Economies and businesses are mechanisms. Only if the underlying mechanisms of an economy and a business make it viable to maintain a given number of jobs and a given level of employee compensation will those things happen. To boot, the fact that large businesses have a significant degree of mobility, i.e. they are able to move their operations to different regions and countries, the underlying mechanisms of an economy and a business must make it more profitable to remain in a location than to shift production elsewhere. The US President can talk to heads of major corporations all day long and the American People can be angry all they want about broken promises, but it is pointless. Business leaders will act to fulfill their perceived interests under economic conditions they often help shape. At times, public pressure and key figures can help business leaders recognize the unrealized costs of ignoring the interests of workers and the community in which their businesses operate, yet the mechanisms determine the outcome.
Consequently, neither the American People nor their leadership should ever take solace in the promises of business leaders. There is no such thing as a promise in business. There are only goals that may or may not be met. To help major businesses reach certain job targets, political leaders, Republicans in particular, have pushed policies that forgo tax collections with the expressed goal of giving businesses room to grow while many workers continue to work without meaningful pay raises in hopes of securing future raises. It is an emotional approach to wage, job, and business growth. Instead of wishful thinking and nativity, a business approach is needed. There needs to be a realistic approach to public policies that are intended to bolster the prosperity of the American People via the prosperity of US-based businesses. Public policies must be shown to change the underlying mechanisms that determine whether or not a business will be profitable enough to justify new facilities and new hires. Most subsidies and tax breaks are only likely to temporarily tilt the economics in favor of big business deals.
With that said, there is a need to change how the economy functions on a fundamental level to ensure big businesses can operate in the United States. There must also be an effort to make it so businesses of all sizes can offer good paying jobs and compete. The mechanisms of the economy must be retooled to blunt the kind of perverse incentives that drive businesses to abandon their workers and communities. Taxes and tariffs are one set of mechanisms that allows the government to engineer the economy. Big businesses like Foxconn and GM receive major tax breaks in order to help them create more jobs. While they certainty receive more of a benefit than smaller businesses in terms of savings, the real problem is that these tax cuts allow the corporations exploiting them to invest more in means to lower their costs, thus their lower-profit competitors, which may not be able to exploit tax breaks, cannot compete. A lack of tariffs allow businesses that can exploit overseas markets and those that are willing to undermine domestic labor to out compete smaller, more localized businesses.
Not only are the costs of Trump’s overly broad, global trade war starting to mount with no visible benefits materializing, his massive cuts, which primarily benefited wealthy businesses and households, have failed to live up to their hype. Aside from the tax benefits given to so-called pass-through business entities and temporary tax benefits given to individuals, the 2017 Trump tax cuts were a massive corporate giveaway. The American People are seeing little to no benefit in terms of personal financial gain and security as well as sustainable economic growth. Trump’s trade war is driving price increases. It can, however, also reshape what kinds of business and business operations are sustainable inside the US in the long-term. Foxconn’s business calculations were shifted by tax breaks then shifted again by the trade war and the geopolitical implications. In contrast, the likes of Apple, which source heavily from Foxconn, are under pressure to find suppliers outside of China and to build more of its products in the US. GM continues to suffer from economic shifts due to structural dysfunctions, but foreign car producers have been able to shift production to the US. Appropriate base tariffs and increased tariffs on uncompetitive trade partners like China will help shift the economics to favor US production. Making US operations the better option for big companies will, in turn, prevent them from undercutting smaller, domestic businesses.
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