OVER THE past four years, Indiana has been ground zero of economic globalization, as the worldwide flow of capital and jobs altered the fate of Hoosier manufacturing workers and their families. We are referring, of course, to the $1.3 billion that Subaru, a Japanese carmaker, has invested since 2012 in its Lafayette, Ind., plant, enabling the creation of 1,400 jobs. Thanks to Subaru’s expansion, the first American-built Impreza compact sedans rolled off the giant factory’s assembly line Nov. 1 — just a week before voters went to the polls and elected Donald Trump to the presidency.
See what we did there? Mr. Trump made it to the White House partly on the strength of his promise to reverse the allegedly unwise free-trade deals that were enabling American companies to shift production abroad. Carrier’s planned move of its factory from Indiana to Mexico was Exhibit A in his case against the North American Free Trade Agreement. He vowed that he would make the company change its mind, possibly through imposing a special tax or by cutting its parent company’s federal defense contracts. Sure enough, Carrier has announced that it will keep half of its 2,000 workers in Indianapolis, in return for $700,000 per year in state tax breaks. Mr. Trump traveled to the state Thursday to celebrate.
Happy as we are for the families whose livelihoods may have been preserved, no one should fool themselves into believing that this is some sort of sustainable paradigm for restoring the American manufacturing base. Sen. Bernie Sanders (I-Vt.) pointed out that the Carrier deal arguably incentivizes other companies to shake down state governments for tax breaks and other corporate welfare by threats to move abroad. And he was right — up to a point. In fact, such interstate and international bidding wars have been going on in more subtle fashion for years, under the euphemism of “economic development.” At roughly $700 per year per job “saved,” the Carrier deal is relatively cheap.
Mr. Sanders’s proposed cure, an actual tax (and other penalties) on corporate exit, would be worse than the offshoring disease. If you impose political controls on capital, whether by ad hoc arm-twisting, as Mr. Trump did in the Carrier case, or by statute, as Mr. Sanders says, the result will be less investment, not more — as job creators refrain from putting their funds at risk in the United States to begin with.
They might go instead to countries such as Japan, whose people are not, apparently, complaining that Indiana just “stole” 1,400 of “their” jobs. Subaru’s expansion represents just a small portion of the $1 trillion that foreigners had invested in U.S. manufacturing as of 2014, according to the Organization for International Investment. That figure grew by $125 billion in 2014 alone. Job-creating capital flows to the United States reflect confidence in American prosperity, property rights and rule of law. Preserving and enhancing those competitive advantages, not selective pressure on politically unpopular business decisions, is how government can best assure growth and economic opportunity.
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