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Inside Wisconsin’s Disastrous $4.5 Billion Deal With Foxconn
Foxconn’s Mount Pleasant campus can’t make LCD panels itself. The Taiwanese company ships key parts from Mexico. Photographer: Young Suh for Bloomberg Businessweek
A huge tax break was supposed to create a manufacturing paradise, but interviews with 49 people familiar with the project depict a chaotic operation unlikely to ever employ 13,000 workers.
By Austin Carr
February 6, 2019, 8:00 PM GMT+11
[...]
From the outset, Foxconn’s plans for U.S. expansion have been nakedly political. The first call to the Wisconsin Economic Development Corp., the state jobs agency that oversaw the deal, came in April 2017 from Jared Kushner’s Office of American Innovation at the White House. “It was from a blocked caller, and the lady on the other end mentioned a $10 billion investment,” says Coleman Peiffer, former WEDC director of business attraction. “It sounded like a wild goose chase.”
Still, when the White House dangles $10 billion, you take the meeting. Days later, Walker talked with Gou in the office of Reince Priebus, then Trump’s chief of staff. Foxconn had told the White House it wanted to create thousands of jobs somewhere in North America, and based on a recent trip he’d taken with Priebus, who’d grown up in the state, Trump suggested Wisconsin.
Gou’s interests are self-evident. “The biggest challenge facing Foxconn is a U.S.-China trade war,” he later said at an annual shareholders’ meeting. Although Foxconn is based in Taiwan, the bulk of its factory operations are in mainland China, and the company remains a powerful symbol of China’s manufacturing might. (Critics say the infamous suicide-prevention nets strung around some Foxconn facilities are a powerful symbol of its labor standards.) Generating goodwill with Trump and top Republican leaders such as Priebus and then-Speaker of the House Paul Ryan, whose district included Mount Pleasant, seemed like a hedge that might insulate Foxconn from tariffs or other unpleasantness between Trump and Beijing.
A hasty courtship followed. ...
[...]
Even before Foxconn signed the contract in November 2017, Walker’s win began to morph into a political liability. As details of the mostly closed-door negotiations came to light, the narrative soured. At a time when Trump was stoking economic nationalism and ripping on companies that shipped jobs to China, many saw the subsidies as a desperate giveaway to a foreign company with close ties to Beijing.
A report from the Wisconsin Legislative Fiscal Bureau, a nonpartisan government agency, estimated the state would be in the red on the deal until at least 2042, and even that projection didn’t account for the kinds of increased public-services costs associated with population growth. It also based income tax revenue projections on the implausible assumption that every employee would live in Wisconsin, whereas some would almost certainly commute from nearby Illinois. “There’s no way this will ever pay itself off,” says Tim Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research. He says Foxconn’s incentives are more than 10 times greater than typical government aid packages of its stripe.
[...]
On Jan. 18, Foxconn announced that at the end of 2018 it had 178 full-time employees in Wisconsin, missing its maximum first-year hiring target by 82 percent and costing it that year’s tax credits. Less than two weeks later came the Reuters interview in which Woo said Foxconn was reconsidering building an LCD factory there because (brace for surprise) its costs in the U.S. were higher than in China and Mexico. “In terms of TV, we have no place in the U.S.,” Woo said. “We can’t compete.” On Feb. 1, after Trump called Gou, Foxconn flip-flopped again and said its LCD factory plans were back on and that it also planned to build a series of other production and R&D facilities in the next 18 months.
Foxconn has dismissed a number of Wisconsin employees in the past several months, and managers there have discussed significant budget cuts, says a source familiar with the situation. Foxconn acknowledges turnover, but says its retention rate since November for full-time employees is 95 percent.
Even with Walker gone, Wisconsin is unlikely to get better terms. Shortly before Evers was sworn in, the Republican-controlled legislature passed a series of rules that make it difficult for the new governor to tear up the Foxconn deal. Mount Pleasant and surrounding Racine County have invested at least $130 million in Foxconn-related expenses such as land acquisition, and the state has committed an estimated $120 million to related road improvements. In an interview, Evers says he’ll push for more transparency and to hold the company to its word, but admits his powers are “significantly constrained.” To some extent, Gou is trapped, too. Tying the Wisconsin factory so closely to Trump means he can’t just ditch the project and risk hampering Foxconn’s U.S. business.
Almost every current and former Foxconn employee interviewed for this story predicted there will never be anywhere near 13,000 workers in Wisconn Valley. As of press time, there were only 122 job listings on the company’s website, many at least five months old. Still, in some ways, Foxconn is keeping up appearances. On a recent visit to the Mount Pleasant plot, an array of trucks, cranes, and construction workers were digging up dirt on an expanse of snow-blanketed farmland.
https://www.bloomberg.com/news/features/2019-02-06/inside-wisconsin-s-disastrous-4-5-billion-deal-with-foxconn
Foxconn’s Mount Pleasant campus can’t make LCD panels itself. The Taiwanese company ships key parts from Mexico. Photographer: Young Suh for Bloomberg Businessweek
A huge tax break was supposed to create a manufacturing paradise, but interviews with 49 people familiar with the project depict a chaotic operation unlikely to ever employ 13,000 workers.
By Austin Carr
February 6, 2019, 8:00 PM GMT+11
[...]
From the outset, Foxconn’s plans for U.S. expansion have been nakedly political. The first call to the Wisconsin Economic Development Corp., the state jobs agency that oversaw the deal, came in April 2017 from Jared Kushner’s Office of American Innovation at the White House. “It was from a blocked caller, and the lady on the other end mentioned a $10 billion investment,” says Coleman Peiffer, former WEDC director of business attraction. “It sounded like a wild goose chase.”
Still, when the White House dangles $10 billion, you take the meeting. Days later, Walker talked with Gou in the office of Reince Priebus, then Trump’s chief of staff. Foxconn had told the White House it wanted to create thousands of jobs somewhere in North America, and based on a recent trip he’d taken with Priebus, who’d grown up in the state, Trump suggested Wisconsin.
Gou’s interests are self-evident. “The biggest challenge facing Foxconn is a U.S.-China trade war,” he later said at an annual shareholders’ meeting. Although Foxconn is based in Taiwan, the bulk of its factory operations are in mainland China, and the company remains a powerful symbol of China’s manufacturing might. (Critics say the infamous suicide-prevention nets strung around some Foxconn facilities are a powerful symbol of its labor standards.) Generating goodwill with Trump and top Republican leaders such as Priebus and then-Speaker of the House Paul Ryan, whose district included Mount Pleasant, seemed like a hedge that might insulate Foxconn from tariffs or other unpleasantness between Trump and Beijing.
A hasty courtship followed. ...
[...]
Even before Foxconn signed the contract in November 2017, Walker’s win began to morph into a political liability. As details of the mostly closed-door negotiations came to light, the narrative soured. At a time when Trump was stoking economic nationalism and ripping on companies that shipped jobs to China, many saw the subsidies as a desperate giveaway to a foreign company with close ties to Beijing.
A report from the Wisconsin Legislative Fiscal Bureau, a nonpartisan government agency, estimated the state would be in the red on the deal until at least 2042, and even that projection didn’t account for the kinds of increased public-services costs associated with population growth. It also based income tax revenue projections on the implausible assumption that every employee would live in Wisconsin, whereas some would almost certainly commute from nearby Illinois. “There’s no way this will ever pay itself off,” says Tim Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research. He says Foxconn’s incentives are more than 10 times greater than typical government aid packages of its stripe.
[...]
On Jan. 18, Foxconn announced that at the end of 2018 it had 178 full-time employees in Wisconsin, missing its maximum first-year hiring target by 82 percent and costing it that year’s tax credits. Less than two weeks later came the Reuters interview in which Woo said Foxconn was reconsidering building an LCD factory there because (brace for surprise) its costs in the U.S. were higher than in China and Mexico. “In terms of TV, we have no place in the U.S.,” Woo said. “We can’t compete.” On Feb. 1, after Trump called Gou, Foxconn flip-flopped again and said its LCD factory plans were back on and that it also planned to build a series of other production and R&D facilities in the next 18 months.
Foxconn has dismissed a number of Wisconsin employees in the past several months, and managers there have discussed significant budget cuts, says a source familiar with the situation. Foxconn acknowledges turnover, but says its retention rate since November for full-time employees is 95 percent.
Even with Walker gone, Wisconsin is unlikely to get better terms. Shortly before Evers was sworn in, the Republican-controlled legislature passed a series of rules that make it difficult for the new governor to tear up the Foxconn deal. Mount Pleasant and surrounding Racine County have invested at least $130 million in Foxconn-related expenses such as land acquisition, and the state has committed an estimated $120 million to related road improvements. In an interview, Evers says he’ll push for more transparency and to hold the company to its word, but admits his powers are “significantly constrained.” To some extent, Gou is trapped, too. Tying the Wisconsin factory so closely to Trump means he can’t just ditch the project and risk hampering Foxconn’s U.S. business.
Almost every current and former Foxconn employee interviewed for this story predicted there will never be anywhere near 13,000 workers in Wisconn Valley. As of press time, there were only 122 job listings on the company’s website, many at least five months old. Still, in some ways, Foxconn is keeping up appearances. On a recent visit to the Mount Pleasant plot, an array of trucks, cranes, and construction workers were digging up dirt on an expanse of snow-blanketed farmland.
https://www.bloomberg.com/news/features/2019-02-06/inside-wisconsin-s-disastrous-4-5-billion-deal-with-foxconn
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