The Daily Populous Tuesday June 11st, 2024 evening edition
Authored by thechinaacademy.org and submitted by ekw88

Top picks selected by the China Academy's editorial team from Chinese media, translated and edited to provide better insights into contemporary China.

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In July 2017, Foxconn went to the United States to build a factory.

During the signing ceremony, then-US President Trump could hardly contain his excitement:

With Foxconn’s support, the world became more aware of American workers’ unparalleled skills and the American dream’s limitless potential. The prosperity of American manufacturing was within reach.

However, seven years later, Americans were left shocked, realizing they had been deceived.

3000 acres, equivalent to 3.5 Central Parks in New York.

This vast land was acquired by the US government seven years ago in Wisconsin, near Lake Michigan, to attract Foxconn to build a factory.

Trump, who was determined to revitalize American manufacturing, understood the significance of Foxconn as the world’s largest contract manufacturer.

He spared no expense, promising $3 billion in tax incentives for Foxconn over the next 15 years.

In addition, the local government provided over $700 million in factory construction expenses and nearly $300 million for infrastructure such as roads and power networks.

This subsidy amount set the record for the highest subsidy ever given by the US government to a foreign company.

Foxconn’s founder, Terry Gou, reciprocated by deciding to invest $10 billion in constructing a LCD panel super factory in Wisconsin, creating 13,000 job opportunities for the locals.

Once the project was completed, it would be the largest new investment ever made by a foreign company in the United States.

During the signing ceremony on July 17th, Trump excitedly proclaimed, “It’s a great day for American workers and manufacturing!”

Wisconsin, blessed with this unexpected opportunity, was overwhelmed with excitement.

“This project is a once-in-a-generation opportunity for our state.”

In the eyes of Governor Scott Walker, this investment would bring about a transformation for Wisconsin, just as Silicon Valley did for the San Francisco Bay Area over half a century ago.

Trump showed respect to Terry Gou by putting on a show.

The following year, in June, Trump personally attended the groundbreaking ceremony. He wielded a shovel, took the first scoop of soil, and declared the manufacturing park as the eighth wonder of the world.

However, the miracle that Trump and Americans eagerly anticipated never materialized.

In April 2024, seven years later, when the current US President Biden visited the site, the vast 3000-acre land was sparsely dotted with a few buildings, and the newly constructed roads were deserted.

The most prominent landmark was a solitary giant glass sphere.

Looking at the nearly abandoned project before him, 82-year-old Biden sarcastically remarked in a tone rarely heard at his age.

“They dug a hole with those golden shovels and they fell into it.”

Over the past seven years, the American people have made significant sacrifices for this iconic project. Wisconsin and local governments spent $500 million on infrastructure, demolished hundreds of houses and farms.

They believed they would witness history, but what they received was a constantly downsized project:

The planned $10 billion investment was reduced to $1 billion, and the promised 13,000 job opportunities were reduced to less than 1,500.

If this was a scam, with Foxconn being the scammer, it may have been unfair to blame it solely on Terry Gou. For Foxconn, as Apple’s largest contract manufacturer, building a factory in the United States came with enormous benefits.

Moreover, the US offered an irresistible package of conditions.

In fact, this collaboration, which Trump hailed as a perfect example of manufacturing returning to the United States, initially progressed smoothly. During the groundbreaking ceremony, he couldn’t help but exclaim:

“18 months ago this was a field, and now it’s one of the most advanced places of any kind you’ll see anywhere in the world. It’s incredible.”

However, what unfolded next went far beyond Foxconn’s expectations and even exceeded the expectations of the American people themselves.

Firstly, there were supply chain issues.

The mindset of “China can do it, so can anywhere else” has misled many companies in the past. The reality is that Wisconsin lacks the well-developed upstream industry clusters that Foxconn enjoys in China.

The local industrial layout and supply chain customers have almost no connection to Foxconn’s business.

This directly led to a sharp increase in production costs for Foxconn, including raw materials and equipment.

A bigger problem lay in the availability of labor.

High wages were just a minor issue; the crucial problem was the inability to recruit workers.

Shortly after the construction of the factory in the United States, Foxconn held a large-scale job fair.

The result was only 1,300 resumes received, and ultimately only 300 people were interviewed.

Due to the inability to hire enough engineers and workers, Foxconn had to resort to various measures, such as collaborating with other organizations, hiring veterans, and even sending Chinese engineers to the United States.

Desperate, Terry Gou complained repeatedly at an internal company meeting:

In the United States, we simply can’t find employees!

The challenges in production and operations exhausted Foxconn, and the sudden change in the market environment caught Terry Gou off guard. Shortly after the construction of Foxconn’s factory in the United States, the global panel industry took a nosedive.

The originally planned 10.5-generation LCD panel factory had to be downsized to a 6th-generation production line.

At a time when Terry Gou was feeling overwhelmed, the local state government began to backtrack.

The newly elected Democratic Governor Tony Evers refused to provide tax subsidies, citing Foxconn’s failure to meet its promised employment numbers, and demanded a renegotiation of the agreement.

By then, Terry Gou was probably contemplating retreating.

Being in the business world, he had no choice. As he watched his flagship project continuously downsized, then-US President Trump also grew anxious. He privately met with Terry Gou and proudly tweeted:

“Great news on Foxconn in Wisconsin after my conversation with Terry Gou!”

In hindsight, this turned out to be merely wishful thinking on Trump’s part.

After that conversation, Foxconn’s project in Wisconsin did not improve.

And Trump himself left the White House with a heavy heart more than a year later.

Beaten down, Foxconn finally had to accept the reality: When it comes to TVs, we have no market in the United States. They can’t compete.

If Foxconn lacks competitiveness in the field of electronic product manufacturing in the United States, then there is no company that can succeed.

In April 2023, Microsoft invested $50 million to purchase a piece of land in the Foxconn park, planning to build a large-scale data center.

The protagonist was no longer Foxconn.

Reviving the American manufacturing industry, which the United States took pride in, has been the slogan of several generations of US presidents.

In the past 40 years, with globalization and the outward migration of manufacturing, the scale of industrial output and employment in the United States has plummeted, with nearly a quarter of factories disappearing.

Although there are still many successful brands, much of America’s industrial manufacturing capability is deteriorating further:

Boeing aircraft has experienced frequent accidents in recent years, and many shipyards have closed down, forcing the US to seek help from Japan and South Korea…

The US government saw this, and it troubled them deeply.

Rome wasn’t built in a day, and the problems couldn’t be solved overnight.

As early as 2009, Obama first proposed a plan to revive American manufacturing.

During the Trump era, reviving American manufacturing was a significant goal of his presidency.

In 2018, despite the tight financial situation in the United States, Trump launched an ambitious plan: to invest $1.5 trillion in infrastructure over the next 15 years.

He also introduced multiple bills aimed at protecting American manufacturing and called on Americans to buy domestic products.

After Biden took office, despite having different governing philosophies than his predecessor, there was a high degree of agreement when it came to revitalizing American manufacturing.

Reviving American manufacturing relies on building factories. Both Trump and Biden, during their respective terms, went to great lengths to attract global manufacturing giants to establish factories in the United States.

However, once certain capabilities are lost, picking them up again becomes difficult, if not nearly impossible.

During the Trump era, Apple proposed to Foxconn, Pegatron, and other suppliers to bring back all their Asian production lines to the United States.

Many suppliers showed little interest in establishing manufacturing in the United States.

T.H. Tung, the Chairman of the board of directors of Pegatron, refused: The electronic manufacturing supply chain is vast and complex, making it extremely difficult to achieve purely American production.

On the contrary, Foxconn responded, but soon faced serious setbacks.

For most Americans, their lives have gradually moved away from manufacturing since the large-scale shift of the industry began in the 1980s. Now, asking them, who have become accustomed to office jobs, to return to sweat-inducing factories is not only a matter of willingness but also a matter of capability.

Apple’s CEO, Tim Cook, once lamented:

“In the U.S., you could have a meeting of tooling engineers and I’m not sure we could fill the room. In China, you could fill multiple football fields.”

In 1851, at the first World Expo held in London, the United States showcased products such as reapers and Goodyear rubber, which amazed the entire Europe. Over the next few decades, American manufacturing flourished.

By 1894, American manufacturing had become the world’s largest.

Entering the 20th century, American-made products such as Coca-Cola and Ford automobiles continued to expand worldwide along with the rising power of the United States.

In his book The Rise and Fall of American Growth, American scholar Robert J. Gordon proudly wrote:

“American airplanes fly over European skies, cars drive through the streets of London and Paris… From Oslo to Casablanca, Coca-Cola’s signs appear in at least nine different languages…”

However, these scenes that once made Americans proud are unlikely to be revisited in the foreseeable future.

SerendipitouslySane on June 11st, 2024 at 10:23 UTC »

For background, I used to work at Intel (but not in the fab), and now I run a factory in Taiwan that doesn't do semiconductors. There are probably more qualified people to answer this question but they're too busy making money to be on reddit.

And the answer is, the US just doesn't have any people who can work in a factory. When the US offshored all of its manufacturing, the entire workforce basically pivoted to super high value added work, like design, programming and engineering. A team of good designers can be the difference between a $499 phone and a $999 phone and therefore make the company billions of dollars with only a small office of talented individuals. As a result American wages have outstripped basically all competing countries like those in Western Europe because in the US we're doing things that are so hard to find good people for. The people making minimum wage or even bottom percentile wages are those who don't make the cut in some way, either because of education, motivation or intelligence. This is such an issue in high col cities that NYC has recently started trialing remote work cashiers because retail simply can't find anyone cheap enough.

In manufacturing, you don't need a lot of geniuses but equally you can't hire incompetent people. I don't need the fastest hands in the West running my winding machines, because nowadays most of the busy work is done by machines, but equally, I need someone who will show up to work sober and awake everyday who has actual connections between their eyeball and their brain and will actually inspect the product before putting it in the box. I also need process engineers and technicians who don't have to be geniuses who can design the new iPhone, but who have to be comfortable working under time pressure to fix the machines that are down quickly and test production variables efficiently. But in the US, the people who end up making $7.25 an hour at McDonald's probably aren't gonna cut it. I could go higher, but people worth the higher wages are in cities where land is too expensive to build factories on, and they're not going to move to Nowhere, WI for $20 an hour.

You have vestigial factories of course, but those tend to be low tech stuff where the US has geographical advantages, like meat processing, or high margin high price products like cars where the profits are high enough to eat union costs. There's nothing left for me to give at 3-4% gross margins. Either way they're not coming to my new factory.

The operator (guys on the line actually doing the producing) can probably be worked around. If they're too expensive, just automate more, but the really hard thing is process and technicians. In my factory there are six dudes (one's a girl but she's a dude for sure) who are indispensable; two shifts each with a process engineer, an electrical technician and a mechanical technician. They're the ones on the floor trying to figure out a solution when things have gone wrong. In Asia, they are relatively cheap and plentiful; I can find a dozen applicants if any of them leave (but mine are the best on the island and nobody can convince me otherwise), but in the US these people are hard to find. Any engineer that can hack it is trying to find a desk job at Google, not one where you have to get your hands dirty on the line in Nowhere, WI.

Slight rant on the side, for those of you who are young, mathematically minded but can't make the cut at Stanford, I implore you to get yourself into process or technician. As lines become more automated those three dudes are the only ones who can't be replaced by AI because they're the ones soothing the Machine Spirit. I guarantee as more factories move to the US you'd make bank. The job is easy 99% of the time except when yields drop or when something breaks and I'm literally burning cash and don't care how much overtime you have to do to get it working again.

The other issue is that it's not just one factory. My factory is complicated and expensive but I also depend on 250+ other factories who are also complicated and expensive to make parts for me. From chemical reactors to some guy magicking up components out of ceramic to the guy with a fancy knife cutting up boxes so I can ship my product (god I hate that guy). I can't just up and move my factory to the US because I need to either ship my components across the ocean (which takes 3 weeks longer - a lifetime in manufacturing - and costs more), or they all have to move with me. Like, making a shirt in North Carolina may sound cool but the dye guy is in China and moving to North Carolina would kill his business because of environmental regulations that refuse to let him dye the river red with byproducts. When Foxxconn planned to move to WI they basically had to convince all their thousands of suppliers to set up a factory with them and it only takes a couple to fail.

phiwong on June 11st, 2024 at 09:37 UTC »

The problem is that the US workforce distribution is dissimilar to China.

The better talents and skills have the opportunity for higher education and jobs in other areas that pay better. This is generally a good thing for an advanced economy.

This leaves a smaller pool of average to lower skills. However they too can find jobs in the US economy that pay $20/hr or more. This is because the US is broadly a developed economy.

So a US manufacturing company has to start with average skill workers but higher than average (compared to Mexico or China) wage. Some of this can be offset by training and some by increased automation. The first takes time and the second takes a lot of capital. Unfortunately the output of the factory is relatively "commoditized". Having a PCB or system assembled in China or Mexico is not much distinguishable from the same assembled in the US (very broadly speaking).

What US factories do is to try to use the better trained workers on high value added product leaving the less specialized products for low wage countries. They have to do this because wages are broadly inflexible while training can allow for development. Needless to say, this is expensive and time consuming. On top of that, there are not as many US senior factory managers since the US has downsized for the last quarter century. Many of the experienced folks trained in large US electronics manufacturing factories in the 80s are now retired and since there was a huge wave of outsourcing to Asia, there is a very small "new generation" behind them.

Meanwhile, Foxconn has not as much experience running large factories in the US (medium sized plants in Houston and several acquisitions on East Coast and LA and prototyping facilities in SF Bay Area). Their management culture and mindset are very different with many of their senior managers with lots of experience setting up and running plants in China not the US. (At this point, Foxconn is into their 2nd/3rd generation senior factory managers - their original senior leadership, hired in the late 90s with deeper US factory experience, are 60+ years old and retired or near retirement). This poses even more difficulties during recruitment and organizational development. It wasn't doomed to fail but one suspects that they were perhaps too optimistic in planning the site.

It is more than likely that Foxconn will be just one example. The days of HP, Motorola, Lockheed, IBM, TI, Fairchild, Honeywell, AT&T, National Semiconductors etc that used to run large US electronic manufacturing factories are long gone. The US has to start from a diminished base as far as this aspect is concerned. But it is a fresh start with automation having advanced so there is room for optimism.

Also a single factory has to be supported by local supply chains. Along with electronics, there needs to be a host of suppliers ranging from equipment design, repair and maintenance, tooling and fixturing firms to things like metal stamping, plastic injection molding, high volume machining, parts fabrication, cable assemblies, connectors, component manufacturers. Many of these industries have also nearly died in the US.

nshire on June 11st, 2024 at 08:53 UTC »

How are you going to teach thousands of cheese makers and ice fishermen to make semiconductors overnight?

Somewhat tongue in cheek but it's really true. You can't just spin up a fab plant in a non-technical area and expect people to be competent overnight.