Foxconn aims to break the bank
Foxconn aims to break the bank
While the head of the illegitimate Trump regime makes multiple headlines telling the New York Times that he is above the law, we have to remember that there are plenty of other issues of concern to the middle class. One of the most striking is the latest huge bidding war for a gigantic Foxconn manufacturing plant (h/t David Haynes), slated to employ a massive 10,000 workers.
The linked article interviews an American consultant based in Beijing, Einar Tangen, who says that Foxconn’s standard procedure is to get as much incentives out of state and local governments as possible; indeed, he says, “You can expect Foxconn to get as close to zero cost as they can. They can do it because they bring so many jobs.” Yes — and no.
Yes, 10,000 jobs is a lot of jobs for a single U.S. investment project. But Foxconn has strong motivations to invest in the United States, most importantly the fear of protectionist trade policies that will keep their iPhones and other electronics out of the country. This mirrors the mid-1980s, when exactly the same fear spurred most Japanese automakers to build at least one assembly plant in the United States. If the company has to have a presence in the U.S. market, especially as competitors were doing during the 1980s, the firm does not actually have that strong a bargaining position vis-à-vis the United States.
The problem, just as in the 1980s, is that as long as individual states do not coordinate their bidding (as happens in the European Union), the dynamic of bidding wars will induce them to offer outrageously high location subsidies, sometimes even in excess of 100% of the cost of the investment. Individual states do not take into effect what happens in other states when they do their cost-benefit analyses of economic development projects. The fact that the new investment will directly or indirectly destroy jobs at competing facilities is of no concern to policymakers in, say, Wisconsin, who will not adjust their cost-per-job estimates to reflect this dynamic.
While the United States has a strong bargaining position, individual states bidding against each other do not have a strong bargaining position. Foxconn believes it *has* to come to the United States, but it does not have to locate its new manufacturing plant in Wisconsin. Nor does it have to put it in Michigan, another state apparently in the hunt for this factory. But we can see that there will be a bidding war with at least two states pursuing the facility, and it will drive up the cost of location subsidies spectacularly. Perhaps we’ll see a new all-time record.
Oddly enough, even the states have a factor increasing their bargaining power, a low unemployment rate. In May 2017, Wisconsin’s unemployment was down to 3.1%, while Michigan’s was 4.2%. For Michigan, this represents a decline of 10.7 percentage points(14.9% to 4.2%) since the peak in July 2009. All other things equal, both states should be less desperate to get these jobs than they would have been in 2009.
Call me cynical, but I’ll believe it when I see it for the states to refrain from a bidding war.
You really weaken your arguments when you use the official unemployment rates. Trump’s victories in Wisconsin and Michigan tell the real story about how bad the job a wage situation in those two states. As for giving taxpayer money to a horrid company like Foxconn, any person with any sense of decency out to vigorously oppose the idea.
No the results tell the story of a bad candidate who ran a stupid campaign; it tells the story of the racists in this country finally having a candidate who took the racist attacks out of the closet; it tells the story of voter suppression; and it tells the story of an ideologically grounded group who believes here is no difference between the lesser evil and the greater evil.
No Rep has done anything for the working man in my entire life. And anyone who actually believed that Trump cared about the working man is too stupid to breathe.
There is no fear of “protectionism” Literally, why even make that argument? They have been looking for years.
The Rage:
Are you going to use the Bert or Anglo – Saxon identities any more? You get one identity on AB.
The Rage, are you saying foreign companies don’t fear a rise in U.S. protectionism? Trump capitalized on an increase that preceded his election, so I do not think you are correct. Look at the Journal-Sentinel story I linked. It makes no economic sense for Foxconn to build in the U.S. unless it fears protectionism.