Foxconn, Trump, and Kenosha
Foxconn, Trump, and Kenosha
Can a con man also be a mark?
Photo: Brian Cassella/Chicago Tribune, all right reserved.
Trump announced the Wisconsin deal with Foxconn at the White House in July 2017. It would be a cornerstone of Donald Trump’s "America First" agenda to revive U.S. manufacturing. Since then, Foxconn has made many high-profile announcements—and either severely underdelivered or quietly abandoned them.
It was quickly named “Deal of the Year” by Business Facilities Magazine for good reason. The Foxconn project was Wisconsin’s largest economic development project and one of the largest U.S. public-incentive deals to a foreign company. Foxconn would move its flat-panel display production to the U.S. As a result, the Trump administration would deliver 13,000 jobs and attract $10 billion in foreign investment to Wisconsin.
Those in the know, including some Foxconn executives, were highly skeptical of the deal. None of the crucial suppliers needed for production were located anywhere near Wisconsin. Plus, Foxconn had already begun moving its China operations to Vietnam and India for even lower labor costs and automating its manufacturing to replace human workers when the deal was announced.
By June 2018, Foxconn broke ground in the small village of Mount Pleasant, less than a 30-minute drive to Kenosha. Pictures of the groundbreaking featured Paul Ryan, Donald Trump, and Scott Walker with Foxconn CEO Terry Gou and Christopher “Tank” Murdoch, Foxconn’s first Wisconsin employee, a veteran.
At the heart of the job creation plan was veterans. The company’s first two Wisconsin employees were veterans – one a Navy pilot, the other a former Army planner. In July of 2019, Foxconn announced that it planned 20 veteran career fairs across 13 states. The goal was to hire 3,000 veterans for the Foxconn facility. Most importantly, it was great PR.
In January 2020, Foxconn said it was backing out of the plan to build an LCD factory in the village, citing high U.S. labor and material costs. Two days later, Foxconn reversed course after a phone call between Mr. Trump and Mr. Gou. The company would continue with the manufacturing facility, as planned.
By April 2021, the factory that former President Donald Trump once called "the eighth wonder of the world" was outed as a sham. After years of missing job creation and investment milestones, Foxconn officially reduced its planned investment to $672 million from $10 billion and cut the number of new jobs to 1,454 from 13,000.
What was in the Deal of the Year?
Foxconn used the political landscape to its advantage. It aggressively pursued cash subsidies. The company also used a bidding war heated up among a handful of states, including Michigan and Ohio, to get additional subsidies that would make U.S. operations as cheap as in China.
Foxconn and the Wisconsin Economic Development Corporation (WEDC) reached a deal after 28 weeks of negotiation. In exchange for more than $4.5 billion in government incentives, Foxconn would build a technology manufacturing hub on 3,000 acres of farmland in Mount Pleasant of Racine County. The site would manufacture liquid-crystal display (LCD) screens and cover nearly 1.6 square miles and be three times the size of the Pentagon. As early as 2022, Foxconn and WEDC would have created up to 13,000 “good-paying” jobs in Wisconsin.
Foxconn negotiated well. The contract required Foxconn to invest $9 billion in the state to be eligible for tax credits. Of this, an estimated $5.7 billion would be for construction and equipment sourced from Wisconsin businesses. In return, Foxconn could collect $2.85 billion in tax credits.
Foxconn also received a state tax credit that nearly eliminated state corporate taxes for manufacturers. Foxconn would be exempt from another $150 million in sales taxes, be eligible for lower utility rates, and be exempt from some environmental regulations. And it could also receive a $100 million incentive as part of a $764 million tax incremental financing district for infrastructure improvements offered by local officials in Racine County.
In return, Wisconsin taxpayers would get up to 13,000 jobs from the manufacturing facility. During construction, the project would create 10,000 construction jobs and an additional 6,000 jobs indirectly from the construction. The capital investment would generate more than $300 million in state tax revenues.
What kind of jobs did the manufacturing facility provide? Foxconn would create jobs with minimum earnings of $30,000 per year and an annual average of $53,875. Essentially, the company could pay up to 93% of its workers $30,000 a year, or slightly less than $15 an hour. Translation: Employees with a family of four would be eligible for federal food assistance at this salary.
Once fully operational, the project would provide Wisconsin with a minimum $7 billion economic impact annually. Foxconn would make $4.26 billion in supplier purchases annually, roughly one-third sourced within Wisconsin. It was also estimated that between $116 million and $157 million in state tax revenues would be generated annually.
What was break-even for taxpayers? Best case, the Wisconsin Legislature Fiscal Bureau estimated it would take at least 25 years for the state to break even with the full 13,000 Foxconn-created jobs.
Was it a con?
Were former Gov. Scott Walker and President Trump duped by Foxconn Chairman Terry Gou? Gou is notorious for breaking the promises of creating tens of thousands of jobs all over the world. If curious, a quick Google search would provide the details.
The move to the U.S. did not make economic sense for Foxconn. The company was already (1) leaving China to chase even lower labor costs and (2) replacing human labor with automation to further lower costs.
However, Gou had a large manufacturing footprint in China that served U.S. companies like Apple and Microsoft. This deal could help him avoid collateral damage from Trump’s trade war with China.
Outside of creating positive PR announcements, it seemed that Foxconn did not have a plan outside of hiring a minimum number of employees near the end of each year to qualify for millions in Wisconsin subsidies and then laying them off. For example, early Wisconsin Foxconn hires were tasked with creating business plans for profitable products and services. Of those submitted, from fish farming and boat storage to exporting ice cream and carp to China, none were approved.
Most importantly, the deal fell short in its most important metric: jobs. Foxconn failed to meet the minimum targets, hiring only 113 of 260 required employees in 2018 and 281 of 520 required in 2019. Foxconn didn’t bother trying to meet a minimum of 1,820 employees in 2020.
The marks
There are many potential marks in this con: Paul Ryan, Donald Trump, and Scott Walker. However, I would not consider them victims.
In April 2021, Wisconsin reduced its tax credits for the project to $80 million from $2.85 billion, but it was too late.
The deal has cost Wisconsin taxpayers at least $400 million in land and infrastructure. In return, Foxconn built an empty building 1/20th the size of the promised facility. Instead of manufacturing, the building will be used for storage.
The ultimate victims were Wisconsin taxpayers and the Mount Pleasant residents. Unfortunately, Mount Pleasant village had paid over $152 million for 132 properties to make way for Foxconn, plus $7.9 million in relocation costs. In total, the village spent more than $300 million and ran up nearly $1 billion in debt, expecting to receive $30 million a year in property taxes.
Even worse, people were pushed out of their homes. Local leaders worked against their constituents, issuing dubious eminent domain orders and other tactics to drive them out of their homes. In lawyer-speak, they used “all reasonable efforts to reach voluntary agreements with individual property owners to acquire the property needed for public infrastructure improvements.” Translation: Village leaders did not care about the collateral damage to acquire property for the Foxconn development that Foxconn abandoned.
Not only did residents distrust their representatives, but also neighbors turned against neighbors. Some residents continue to fight for their land while others quietly took inadequate relocation packages and left. A few saw their homes seized by the village. Tensions were high.
Area residents from Racine, Kenosha, and Mount Pleasant were counting on the project to create high-paying jobs. Many were excited about the prospect of having one job. Others looked forward to jobs that could benefit generations.
Those hopes for a brighter were shattered in four years, and they were left holding the bag. Streets were left unrepaired. Schools lost funding. All for a project that never materialized. The anger left behind by this corruption at all levels was a powder keg that would eventually explode.