Trump to take 'carrot and stick' approach to overseas company outsourcing

Trump is preparing what he calls an "economic development" plan that would reward companies that keep operations in the U.S. while punishing those who take work overseas.


"I also have another bill … an economic-development bill, which I think will be fantastic. Which nobody knows about," Trump told Forbes.

Trump says that this was the first time anyone was publicly hearing about the bill, which he defined as "economic-development incentives for companies … to be here." The president said the bill will be, or is, designed to reward companies that keep hiring in the United States.

The president added that companies that sending jobs overseas will "get penalized severely" under this new bill.

"It's both a carrot and a stick," he said.

Trump similarly promised on Sept. 27 that the GOP tax reform bill being built will "bring back the jobs and wealth that have left" the country. Unveiled that day, the Republicans' proposal calls for lowering the corporate tax rate to 20 percent from 35 percent.

The White House did not immediately respond to CNBC's request for comment.

The new economic development bill Trump teased appears to be in addition to the tax reform proposal. Trump said his plan would make it "very tough" for companies who leave and then try to sell products back to the U.S.

NAFTA – the 23-year-old trade agreement with Mexico and Canada – is also on the chopping block in Trump's view.

"NAFTA will have to be terminated if we're going to make it good," Trump told Forbes.

In the same breath, he reiterated statements he has made previously regarding another trade deal, the Trans-Pacific Partnership. Trump called the Trans-Pacific Partnership "a large-scale version of NAFTA," saying "it would have been a disaster." The president formally withdrew the United States from the Trans-Pacific Partnership by executive order on Jan. 23.

Obviously, Congress will be dealing with most of this economic development plan by reforming the tax code.  The number-one "carrot" the government can offer businesses to keep their operations in America is a big reduction in the corporate tax rate.  The U.S. has one of the highest corporate tax rates in the industrialized world, which is why setting up shop overseas is so attractive to many U.S. businesses.  Cutting that rate to place it more in line with other countries will go a long way toward keeping jobs in America.

As for ditching NAFTA, untangling the integration that has occurred with Canada and Mexico will prove to be expensive and may result in counter-moves that would price American products currently being sold in those countries out of the market.  The damaging effects of NAFTA on some  industries is offset by the advantages from the agreement in others.  If, as Trump believes, he can renegotiate the deal, who's to say some firms that benefited from NAFTA won't suffer as a result? 

Trump could always simply scrap the deal.  The resulting chaos wouldn't be good for anybody, least of all for the U.S., whose larger economy would suffer the most.