After Foxconn, Politicians May Beware Of CEOs Bearing Gifts

The old saw says to beware of politicians making promises. But the latest economic-development news out of Wisconsin adds to the idea that politicians may want to beware of CEOs making promises.

Just two years after Foxconn Technology Group CEO Terry Gou personally closed the deal with then-Wisconsin Gov. Scott Walker, Foxconn reportedly is set to renege on a huge portion of the deal for manufacturing jobs on which Walker largely bet his political viability.

That news on Wednesday, of course, followed a number of incidents in which President Donald Trump has felt that CEOs in whom he’s invested political capital have disappointed him personally. They include Harley-Davidson CEO Matt Levatich, who said he planned to add to Harley-making jobs overseas after Trump’s tariff tit-for-tat with Europe raised the company’s domestic costs.

To wit: Foxconn reportedly wants to back out of multi-billion-dollar manufacturing commitments it made to Wisconsin just two years ago in exchange for record financial incentives in one of the biggest economic-development coups ever achieved by a Midwestern state.

Foxconn’s backout would represent a huge repudiation of Walker, the Republican who already was defeated in his re-election bid in 2018 in large part because of voter skepticism that he could make Foxconn keep its promises to the state.

Walker even helped create the notion of a “Wisconn Valley” tech ecosystem in the southeastern part of the state that would be built around Foxconn’s huge technology investments there.

If the Taiwan-based maker of iPhones, flat screens for electronics and other goods indeed tries to withdraw from significant aspects of the deal, it would represent a major blow to attempts to diversify the economy of the Badger State from its base in traditional manufacturing and agriculture.

Now Foxconn “said it intends to hire mostly engineers and researchers rather than the manufacturing workforce the project originally promised,” Reuters reported, based on an interview with Louis Woo, Gou’s special assistant. Yet in the wake of the report, Foxconn again insisted on Wednesday that it will create 13,000 jobs in Wisconsin as it originally pledged.

At the very least, Foxconn appears to be creating vast wiggle room for itself. It promised in 2017 to spend $10 billion on a manufacturing facility in Mount Pleasant, Wisconsin, in exchange for state and local subsidies totaling $4 billion. Walker and President Donald Trump broke ground on the facility last year.

But in Woo’s interview with Reuters, and in Foxconn’s statement on Wednesday, the company didn’t renew its promise to invest up to $10 billion in the Mount Pleasant manufacturing and research complex, part of the state’s contract with the company. Already last year, Foxconn radically altered its planned employment mix and the nature of the manufacturing operation and failed to generate enough jobs—only 178, or 82 shy of the minimum of 250 that was required— to claim its state job-creation tax credits.

Foxconn’s overall prospects have been badly dinged by sliding sales of Apple iPhones, of which in China Foxconn is the major manufacturer. But to Reuters, Woo blamed the economics of its original flat-screen-making plan for its rethinking of the Wisconsin investment.

“In terms of TV, we have no place in the U.S.,” he said. “We can’t compete” on labor costs.

So, rather than a full-on assembly complex in the state, Foxconn now wants to establish a “technology hub” that would largely consist of research facilities along with packaging and assembly operations, Reuters said. It would produce specialized tech products for industrial, healthcare and professional applications.

President Trump’s Twitter account presumably shows that he has been preoccupied over the last couple of days with the polar vortex in the Midwest, Afghanistan, and border security. But he also was preparing for new talks in Washington, D.C., on trade between the U.S. and China. News of Foxconn’s renege surely is on his radar.

Read more: Northwestern Mutual CEO John Schlifske On Building A Tech Hub In Milwaukee