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So far, Donald Trump’s election has made it easier for American jobs to go to Mexico

Brian Easton (left) and Brad Stepp, are two of 1,400 workers at Carrier Corporation (building in background) in Indianapolis, Indiana, February 17, 2016. Easton and Stepp stand to lose their job when the company moves production to Mexico. The Feb 9 announcement by United Technologies Corp's Carrier unit that it was shifting production to Mexico from the U.S. has thrust the long-term trend of U.S. manufacturing job decline to the foreground of the nation's election year agenda. Picture taken February 17, 2016.
Reuters/Nick Carey
These Carrier workers saw their company move production to Mexico. Who’s next?
  • Tim Fernholz
By Tim Fernholz

Senior reporter

Published Last updated This article is more than 2 years old.

Donald Trump won the US presidential election in part on a promise to bring jobs back to the US. But thanks to the reaction in the currency markets, his victory has only made it easier for US companies to send jobs to other countries—Mexico in particular.

Allow former US Treasury secretary Larry Summers to explain.

“The evidence is overwhelming from tracking the data that the Mexican peso is now 10% lower than it would have been as a consequence of Donald Trump’s rhetoric and election…other emerging market currencies are depressed by 3 to 5%,” said Summers, who bailed out the Mexican peso under US president Bill Clinton.

“What does that depressed Mexican peso mean?” he went on. “It means that every export from Mexico to the US is potentially 10% cheaper on sale in the US, it means that every American product on sale in Mexico costs 10% more, and there is a 10% cost advantage that did not previously exist for any producer thinking about relocating in Mexico rather than the US.”

“This has to be seen as a bizarre strategy for protecting Americans from Mexican competition.”

Summers made his remarks Tuesday (Nov. 15) at a conference on “Fighting the Next Recession,” held by the Washington Center for Equitable Growth, a left-leaning think tank that focuses on reducing inequality.

Another speaker at the event, economist Peter Orszag, suggested voters relying on Trump to bring manufacturing jobs back to the US will be sorely disappointed.

“One of the concerns we should have is when the hype doesn’t match up to the reality,” said Orszag, who led US president Barack Obama’s budget team and now works at Lazard, the investment bank. “It’s yet more attractive to go to Mexico…[t]here’s no plausible set of policies that are going to be able to keep those jobs. When people realize that, where does that go?”

Most analysts see the peso falling because of Trump’s threats to dismantle or renegotiate the North American Free Trade Agreement (NAFTA), along with his remarks about halting remittances from Mexican immigrants, increasing deportation of undocumented immigrants, and building a massive wall along the US-Mexican border. Any or all of these measures suggest that Mexico’s currency will be cheaper in the future than it otherwise might be.

That in turn reinforces the decisions of companies like appliance-maker Carrier to move jobs to Mexico, as it did earlier this year in a move that attracted lots of attention during the campaign. The cost-of-business discount the company received is only improving right now, especially if Trump’s tax plan, which includes large breaks for companies operating overseas, goes through.

Would changes to trade law shield Americans from some of these impacts? Trump has suggested punitive tariffs as one solution, but that carries the possibility of economically damaging retaliation. Orzsag suggested that the impact of trade agreements have been “oversold.”

“If you look back over the past three or four decades, trade was driven much more by container shipping than the cumulative effect of every trade agreement put together,” Orszag said. He noted, for example, that some of the same people who were opposed to the Trans-Pacific Partnership also think that we should invest in schemes to deepen ports on the US east coast to facilitate more trade, a mood he characterized as ”Asia trade facilitated by TPP: bad, trade with Asia facilitated with deeper ports: good.”

Trump’s success among working-class white voters has led many pundits to draw a line between the economic hollowing out of the US heartland and the New York real-estate developer’s election. Hillary Clinton’s campaign never offered these voters the promise for a different set of circumstances, largely because changes in the global economy have made low-skilled manufacturing jobs less valuable today. Trump promised to bring those jobs back through some combination of reducing immigration and reducing imports the US, but there’s little evidence that will work anywhere but at the margins in a world of increasingly cheap automation.

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