A Deere in Trump’s Political Headlights

A tariff is the former President’s solution to every economic problem these days

WSJ editorial. 

"Hard to believe, but Donald Trump is giving U.S. companies a reason to think Kamala Harris might be better for their business. On Monday he gave her an assist by threatening tariffs on Deere & Co. for shifting some of its U.S.-based production to Mexico.

“As you know, they’ve announced a few days ago that they are going to move a lot of their manufacturing business to Mexico,” Mr. Trump said in Pennsylvania. “I am just notifying John Deere right now that if you do that, we are putting a 200% tariff on everything that you want to sell into the United States.”

The back story is that Deere this summer said it plans to move manufacturing of compact construction equipment to Mexico from Iowa. The company is also laying off more than 2,000 workers after bulking up during the pandemic recovery. It blamed “lower commodity costs, lower order volumes and a softening construction market.”

Deere is trying to stay globally competitive after striking a costly labor agreement in 2021 with the United Auto Workers that included a 30% raise over six years, cost-of-living adjustments, $8,500 signing bonuses and paid parental leave. Deere also provides health coverage with no premiums, deductibles and coinsurance, plus defined-benefit pensions.

At the time Deere had a $14.8 billion order backlog. But demand for its equipment has cooled amid a slump in commodity prices and rising interest rates. Deere’s rising labor costs have become more of a burden. Laid-off workers can thank their UAW leaders.

What Mr. Trump fails to understand is that U.S. manufacturers compete in global markets. Many customers aren’t in the U.S. and don’t care if a product is stamped “made in America.” Chinese equipment makers are increasingly vying for business in those markets.

Deere’s competitors are also expanding south of the border. Caterpillar has nearly doubled its workforce in Latin America since 2016. Farm equipment manufacturer CNH plans to shift work from Racine, Wis., to Mexico. Bobcat last year announced a $300 million investment in Mexico for compact construction equipment.

Mr. Trump thinks he can bully Deere as he did Carrier, which in 2016 wanted to move air-conditioning manufacturing from Indiana to Mexico. He threatened to impose tariffs on Carrier imports. Carrier scaled back U.S. job cuts after Indiana dangled subsidies.

But Washington and the states can’t afford to subsidize every U.S. manufacturing job, and slapping tariffs on imports from Mexico would violate the USMCA trade agreement. It would also raise U.S. prices. Meantime, his threats help Democrats argue that Ms. Harris would be friendlier to business.

On Tuesday Mr. Trump promised to personally recruit foreign companies to move manufacturing to the U.S., which plays into his self-image as an expert deal-maker. But businesses fundamentally make decisions based on costs and expected return on capital.

That’s no easy feat given the punitive Biden-Harris regulatory and tax policies, and it’s political malpractice for Mr. Trump not to highlight how the Administration’s green-energy agenda harms U.S. manufacturers. Or how Ms. Harris’s proposed increase in the corporate tax rate to 28% from 21% would hit American workers. He sometimes talks about deregulation and extending his 2017 tax reform, but he doesn’t explain how they will help U.S. manufacturers invest more at home and raise wages.

The former President’s biggest selling point is the first-term economy his supply-side policies helped promote. But these days he’s making tariffs his highest priority, and that won’t help the economy if he wins."