Donald Trump has shown his hand. Now, it’s time for CEOs to study up.
The incoming president has upset a few boardrooms by criticizing companies such as Ford (F), General Motors (GM), Carrier and other manufacturers that move US jobs overseas, or build products in low-cost countries to sell in the United States. Trump’s crusades have come full-circle in a few cases: Ford, for instance, just announced a new investment in Michigan, partly in response to Trump’s entreaties. Carrier modified plans to close an Indiana factory and move the whole thing to Mexico, and will now keep some of those jobs in Indiana.
The pattern Trump is establishing sheds light on how he’s likely to impose broader policies meant to bring back jobs from overseas or create new ones, and even renegotiate crucial trade deals. Trump doesn’t always get everything he wants. But he settles for outcomes that look like a win. Here’s the template for Trump’s dealmaking on jobs:
Phase 1: The attack. It’s usually a tweet, calling out an American company for building products overseas that it sells in the United States. It doesn’t seem to bother Trump if US companies build stuff overseas and sell it there as well. And so far, he hasn’t gone after any foreign companies that import to the US. American companies that sell to Americans and could seemingly employ more Americans are his principal targets.
Trump doesn’t appear to be systematic in terms of the companies he targets; there’s no reason to think there’s a detailed list of offending companies he’s working through, one at a time. More likely, he spots something in the news about offshoring or foreign production, and responds spontaneously. Up till now, most CEOs of targeted companies never saw it coming.
Phase 2: The follow-through. Trump has complained about some companies, then dropped it. He urged a boycott of Apple (AAPL) last year, for instance, when it fought an FBI request to unlock the iPhone belonging to a terrorism suspect. But nothing came of that criticism. Trump has also complained about Amazon (AMZN) CEO Jeff Bezos, who owns the Washington Post, which published numerous unflattering stories on Trump during last year’s campaign. Again, nothing has happened (so far). Some companies have battle-ready CEOs and strong reputations that even Trump can’t puncture. Trump seems to know when he’s outmatched, and it’s prudent to fold.
Trump kept up his screeds against Ford and Carrier, by contrast, expanding on his critical tweets in speeches and media appearances. In those cases, Trump arguably had a PR edge because neither is a beloved institution that inspires loyalty among millions of consumers. Trump knew they were vulnerable to negative publicity, and exploited the opening.
Phase 3: The threat. Trump has threatened Boeing (BA) with canceling defense contracts if it doesn’t reduce costs for the next version of Air Force One. He hinted that United Technologies (UTX), Carrier’s parent company, could also lose defense contracts if the company didn’t budge on the Indiana relocation. And he’s gotten automakers’ attention by threatening to withdraw from the North American Free Trade Agreement, which would upend supply chains for virtually every big car company. This is the stage at which CEOs of vulnerable companies need to engage with Trump and seek a deal.
Phase 4: The compromise. Companies that have negotiated with Trump have been fairly shrewd. Carrier said it would keep 1,100 jobs in Indiana instead of moving them to Mexico, in exchange for $7 million in new tax incentives from the state. But it still plans to move 1,300 other jobs from Indiana to Mexico, and possibly more. And the CEO of Carrier’s parent company said keeping those jobs in Indiana—for the time being—would force Carrier to find new ways to automate the work, to save money.
Ford, likewise, made no change to its plan to relocate production of its Focus subcompact from Michigan to Mexico, which is what incensed Trump in the first place. Instead, the automaker canceled plans to open a new factory in Mexico, saying the two it already operates there provide enough capacity for the production it has planned. At the same time, Ford announced a new investment in Michigan that will create 700 new jobs. If you didn’t bother to parse the details, you could easily walk away thinking Ford is killing production in Mexico and moving it to Michigan. Nope.
One test case that hasn’t been resolved yet is Rexnord (RXN), which Trump criticized for its own plan to move 300 jobs from Indiana to Mexico. Unlike Carrier, Rexnord has held firm, announcing no change to its plan. Will Trump back down? Or will he pursue punitive measures against the company once he’s in office? A lot of CEOs are assuredly watching.
Phase 5: The declaration of victory. Trump bends when given an opportunity to claim a win and move on—even if he doesn’t really get what he asked for. The Ford move was good enough for Trump to tweet his approval:
Thank you to Ford for scrapping a new plant in Mexico and creating 700 new jobs in the U.S. This is just the beginning – much more to follow
— Donald J. Trump (@realDonaldTrump) January 4, 2017
And here’s how he praised Carrier after it agreed to keep some jobs in Indiana (and before the CEO made that comment about automation):
Big day on Thursday for Indiana and the great workers of that wonderful state.We will keep our companies and jobs in the U.S. Thanks Carrier
— Donald J. Trump (@realDonaldTrump) November 30, 2016
So here’s the lesson for CEOs who find themselves in Trump’s crosshairs: Defend your company. Gauge who’s likely to win the PR war. And if you must, make a measured battlefield concession that will get Trump off your case. Then you can both declare victory.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.