As presidential candidate, Donald Trump promised he would make really great deals that would bring manufacturing jobs back to the United States. “We will get our people off of welfare and back to work—rebuilding our country with American hands and American labor,” President Trump said in his inaugural address. “We will follow two simple rules: Buy American and Hire American.”
So when Foxconn, a Taiwan-based electronics manufacturer that supplies Apple, announced a $10 billion investment in Wisconsin, Trump was understandably beaming with pride about the biggest deal he’d made as president. “The company’s initial investment of more than $10 billion will create 3,000 jobs, at a minimum, with the potential for up to 13,000 jobs in the very near future,” Trump said on July 26 at an East Room ceremony in the White House, flanked by Foxconn chairman Terry Gou, Vice President Mike Pence, Wisconsin governor Scott Walker, Senator Ron Johnson, and Speaker of the House Paul Ryan. “The construction of this facility represents the return of LCD [liquid crystal display] electronics and electronics manufacturing to the United States, the country that we love.”
Walker gives Trump much of the credit for Foxconn’s plans to build in the United States. “The president convinced them, both through his request and his potential [trade] actions, to make LCD displays in America,” Walker told me in an August 21 interview. “They believe the president and his administration are very likely to put tariffs on things they make elsewhere in the world. So for them, this is part of protecting their interest in a major market. If they make things in America, then they think they’re protected against tariffs or other trade actions.” The company has one million employees, mostly in China, and reported $136 billion in revenue last year.
Once Foxconn had decided to make LCD displays in the United States, Walker says it was up to him and his team to convince Foxconn that “the best place to make them is in Wisconsin.” After a meeting at the White House between Gou and President Trump, Walker says he was told by then-chief of staff Reince Priebus that Gou was seriously interested in building in Wisconsin. To woo Gou, Walker jumped in a turbo-prop plane owned by the state on short notice and flew out to Washington the morning of April 28. Walker says he hit it off with Gou during an initial meeting in Priebus’s office, and he continued to court Gou and other Foxconn officials at meetings in Wisconsin and one in Osaka, Japan, this summer.
“We changed the business climate, the workforce was good. They needed water, so the proximity to the Great Lakes [was helpful]. They wanted to be close to Chicago but not in Illinois,” Walker said. Walker said the executives also appreciated the Wisconsin connection between himself, White House officials like Priebus, and Speaker Ryan. The speaker’s congressional district is the location of the planned facility. “Probably as much as any culture, Asian culture is very interested in making sure that they’ve got people they can talk to in the government,” Walker said.
Under the tentative “memorandum of understanding” signed by Walker and Gou on July 27, Foxconn agreed to spend “up to $10 billion” on buildings and equipment and create “up to 13,000 jobs with an estimated average salary of $53,875.” In exchange, the state of Wisconsin offered a 15 percent tax incentive (read: subsidy) for capital expenditures (that’s $1.5 billion on a $10 billion capital investment) and a 17 percent tax incentive (read: subsidy) for employees’ wages (that’s about $1.3 billion if Foxconn creates all 13,000 jobs).
According to the state legislature’s nonpartisan budget office, if Foxconn creates 13,000 jobs, state taxpayers would have spent $1 billion more than they would have taken back in taxes from Foxconn employees 15 years from now. And taxpayers would break even in about 25 years if the deal goes according to plan. The capital subsidies don’t go out until building occurs, and wage subsidies don’t go out until jobs are created. The deal calls for some “clawback” provisions to get back some tax dollars if Foxconn abandons the plant, but the details of clawback provisions have not yet been negotiated.
Democrats have accused Walker of giving away the store to get the deal. The deal exempts Foxconn from performing an environmental impact study usually required by the state, but Walker points out the company will still have to follow other state and federal environmental laws. The state has typically offered a 7 percent wage subsidy for such deals, while Foxconn is getting 17 percent. But Walker says the deal was just too good to pass up: In addition to the jobs directly created at Foxconn, Walker says there would be another 10,000 construction jobs and 22,000 indirect and induced jobs created by Foxconn’s economic activity, not to mention a possibility that Foxconn would reverse the state’s “brain drain” and bring in venture capital and companies like Corning Glass to the state.
But aren’t Republicans, especially fiscal conservatives like Walker, supposed to oppose deals like this? “Paying out hundreds of millions of dollars directly from taxpayers to an immensely profitable Chinese company sounds problematic from a policy point of view and potentially politically toxic,” Wisconsin-based conservative commentator Charlie Sykes told me.
Asked how the Foxconn deal was different from what Republicans usually decry as “picking winners and losers” or “crony capitalism,” Walker told me: “I respect arguments that say . . . everybody gets the same and we’re constantly trying to improve the business climate.” But he said he had to offer tax incentives because every other state does it, even Texas, which has long been a leader for business and has no income tax. “The reality is we would never be even in the ballpark for being considered for something like this unless we offer [tax incentives]. We offer them again for businesses big and small alike,” Walker said.
The deal sailed through the state assembly in August on a mostly party-line vote, with two Republicans opposing it and three Democrats supporting it. Walker says he expects the state senate to approve it very soon. Democratic U.S. senator Tammy Baldwin, who along with Governor Walker is up for reelection in 2018, has kept pretty quiet about the deal so far—she attended the White House announcement but did not stand alongside Trump, Gou, and Wisconsin Republicans at the podium.
The politics of the Foxconn deal will likely depend on whether it lives up to expectations, and there is a fair amount of uncertainty—both generally for a disruptive industry like electronics manufacturing and particularly for a company that is motivated at least in part by a desire to curry favor with U.S. politicians who happen to be in power at the moment.
As the Washington Post’s Todd C. Frankel reported on March 3, Foxconn has a history of falling short on its promises. In 2013, Foxconn said it would invest $30 million in Pennsylvania and hire 500 workers, but the factory wasn’t built. In 2014, talks between Foxconn and officials in Colorado and Arizona didn’t result in action.
Other countries have had similar experiences with Foxconn. In Indonesia, Foxconn signed a letter of intent in 2014 to invest up to $1 billion, but building has not yet occurred. Foxconn also promised to invest $5 billion in India and create 50,000 jobs, but “Foxconn’s investment in India has amounted to only a small fraction of what it originally promised,” the Post’s Frankel reported. “Similar results were seen in Vietnam, where Foxconn committed to a $5 billion investment in 2007, and in Brazil, where Foxconn spoke of a $10 billion plan in 2011. The company made its first major foray in Vietnam only last year. In Brazil, Foxconn has an iPhone factory, but its investment has fallen far short of expectations.”
That history doesn’t necessarily mean the Wisconsin deal will be a flop. Foxconn has been somewhat tight-lipped about its precise plans in the state. “We are in discussions with Wisconsin officials regarding all aspects of our proposed project and specific project details can only be provided once a site has been selected and details on the project have been finalized,” Foxconn told The Weekly Standard in a statement. But a highly automated factory—where the building and robots have been paid for with a 15 percent subsidy from taxpayers—with high-skilled workers could make economic sense for Foxconn.
Stefanie Lenway, dean of the business college at the University of St. Thomas and author of Managing New Industry Creation, told Wired that many of the employees Foxconn would need at such a plant would be physicists, electrical engineers, and mechanical engineers. But Lenway told me she still thinks “there’s a good chance [the deal] won’t happen.” “It could get bogged down in the courts” over environmental lawsuits, she said. “Grassroots groups can bring suit and stall it long enough.”
Scott Walker says he expects Foxconn to break ground by spring 2018. “They’ll probably do it before the summer,” he says. “Their goal is to have it open and operational by 2020.” If Foxconn lives up to expectations, you can be sure you’ll see Donald Trump strutting around in a hard hat at its Wisconsin facility in 2020. If it ends up being a flop, you can be sure the president will find a way to blame anyone but himself.
John McCormack is a senior writer at The Weekly Standard.
