This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
Reports have been written that Foxconn Technology Co. (TPE:2317) has been considering bringing in foreign workers from China to the planned factory in Mount Pleasant, Wisconsin (about halfway between Milwaukee and Chicago). For anyone unfamiliar with the matter, this plant as with any large investment in the U.S. came from long negotiations and large tax breaks from both state and local governments. The subsidies could total over $4 billion dollars depending on very specific performance measures including the number of jobs created. The surrounding area even changed environmental protections so the plant could operate. The required investment for the plant is $10 billion from Foxconn. This factory has already been changed from their Generation 10.5 down to Generation 6, which means it will not have the capabilities as promised earlier.
Foxconn in Brazil and Pennsylvania
In 2011 Foxconn had made public announcements of spending over $10 billion in Brazil to build a large manufacturing facility, claiming up to 100,000 jobs would be created from the deal. When subsidies and economic fluctuations started to change Foxconn pulled out of the deal and scaled back the workforce to below 3,000 workers in the country, mostly for service and repair. In the U.S. the state of Pennsylvania was promised a $30 million factory that didn’t materialize either.
Job Creation
President Donald Trump, Speaker of the House Representatives and Wisconsin representative Paul Ryan, and Wisconsin governor Scott Walker have long praised the economic benefits of bringing in this large company to an area that wasn’t known for technical development previously. There are two main conflicting ways
- Job creation is like a stimulus package which creates momentum in a localized area and payback on infrastructure happens as not only one project starts but many over time which could benefit the local economy.
- Corporate subsidies should be limited especially in companies which are not headquartered in the subsidizing country where the local economy could not expect to recover their payments.
Ironically 70 miles away from the new factory is the Booth School of Business at the University of Chicago (a leading economics program in the U.S. and home of 9 Economics Nobel Laureates), their faculty has chosen to stay very quiet on the matter.
Employment Rate in Wisconsin
Scott Walker, when elected as governor, ran on a platform that was about creating jobs in Wisconsin, and to his credit, the unemployment rate fell and stayed to around 3% for the state. 3% unemployment is very good for any state or area, typically 2% is as low as employment can realistically go due to job changes or seasonal employment. For the deal to go through, infrastructure from Chicago to Wisconsin was needed. This also increases the probability that residents of Illinois might also be working for Foxconn, lowering again the rate of return for the state.
Why it matters Federally
In 2017 The Washington Post had an in-depth article about how much each state gets in return for their federal tax paid, Wisconsin was getting a 1.61 times return on their federal tax paid through subsidies. This number is important because Wisconsin is already in deficit to the national budget and the tax breaks offered to Foxconn will now be coming from the rest of the country, not just the state. What is especially stunning is that the current administration lowered corporate taxes to 21% from 35% in a bid to repatriate income for American companies and is now subsidizing an international company.
It is typical for a company to bring in international talent and some high-level workers that are experts not only in the industry but also in the company. Foxconn has said emphatically to Gizmodo that they are staffing from Wisconsin first and will look to the rest of the U.S. for additional staff as needed. If the initial report proves to be true it will be the scale of foreign workers brought in that will be the most important piece. Politicians cited this deal multiple times for infrastructure and job local job creation, but if residents of Wisconsin and the U.S don't see those benefits, it is going to be a very costly factory for the state.
