Frederica Freyberg:

I’m Frederica Freyberg. Tonight on “Here & Now,” we get an update from Washington and speak with U.S. Senator Ron Johnson. After that, an inside look at the economics and technology behind the global giant Foxconn. And finally Shawn Johnson joins me for the latest on multiple lawsuits over legislation. It’s “Here & Now” for February 8.

Announcer:

Funding for “Here & Now” is provided, in part, by Friends of Wisconsin Public Television.

Frederica Freyberg:

A first look tonight from Washington. On Tuesday, President Donald Trump delivered his second State of the Union address. President Trump spoke to health care, job growth, trade, war in the Middle East and immigration. To prevent an impending, second federal government shutdown next week, he called for Congressional bipartisanship to fund a border wall between the United States and Mexico.

Donald Trump:

My administration has sent to Congress a common sense proposal to end the crisis on the southern border. It includes humanitarian assistance, more law enforcement, drug detection at our ports, closing loopholes that enable child smuggling and plans for a new physical barrier, or wall, to secure the vast areas between our ports of entry. In the past, most of the people in this room voted for a wall, but the proper wall never got built. I will get it built.

[cheers and applause]

Frederica Freyberg:

Wisconsin’s Congressional delegation was at Tuesday night’s State of the Union address. Among them, Republican U.S. Senator Ron Johnson. He joins us now from Milwaukee and senator, thanks very much for being here.

Ron Johnson:

Hello, Frederica.

Frederica Freyberg:

What are you being told about what is in the deal being hatched by Congressional negotiators over border wall funding with this clock ticking down to another government shutdown?

Ron Johnson:

Well, I’m not in the conference committee, but they’re basically trying to figure out appropriations for seven different appropriation accounts. As relates to border security, my guess is it’ll have a combination of some better barrier funding, probably some technology for monitoring the border and then probably more additional personnel at targeted points of entry where all the drugs are coming in. So again, I’m not part of those discussions but as I was talking to the appropriators yesterday before we headed back to our states, they seemed pretty optimistic.

Frederica Freyberg:

That’s good news because President Trump had called the conference committee’s negotiations a, “waste of time” and apparently could still declare a national emergency to get his wall funding. What’s your position on going that route?

Ron Johnson:

Well, again, I’m a Constitutionist, so I am concerned about an erosion of Congressional authority that’s been occurring over the number of decades prior to this. I have no doubt that there are probably laws on the books that will give any president the authority to secure our border and keep this nation safe. I’m not sure which one the president may choose, but he may try and do that.

Frederica Freyberg:

Do you support the full $5.7 billion for the wall as President Trump has been requesting?

Ron Johnson:

No. I think that’s a very reasonable amount. We do need better barriers. Better barriers work in the four sections where we do have better barriers, we’ve decreased illegal immigration by somewhere between 90% to 95%. It’s part of what we need to do to secure our border. We have laws that incentivize people, particularly unaccompanied children and people coming in as family units to enter our country illegally. We need to fix those laws. But we do need better technology. We need more personnel. Particularly technology and personnel at the ports of entry where all the drugs come through.

Frederica Freyberg:

So what would be your position on a final deal that doesn’t deliver that 5.7?

Ron Johnson:

Again, the simplest way out of this would be to provide the president the $5.7 billion, which is a very reasonable amount. Democrats in the past have supported $8 billion in better barrier funding as part of the 2013 Senate Immigration Bill, over $40 billion for other border security. Again, we need to fix our broken laws. I’m certainly going to continue to work on that beyond whatever happens here with this particular appropriation impasse.

Frederica Freyberg:

Moving to a different matter: trade. You’ve joined a bipartisan group of lawmakers supporting a group called Tariffs Hurt the Heartland. How are President Trump’s tariffs hurting the heartland, like Wisconsin?

Ron Johnson:

Well, the tariffs are certainly making Wisconsin businesses uncompetitive with their international competition, both internationally as well as domestically. Tariffs are a tax on consumers. I think we need to understand that. Tariffs are not being paid by the countries that are abusing our generosity in our trading relationships and they’re certainly not right now doing anything in terms of stopping China’s theft of our intellectual property. So I completely agree with this administration’s goal of stopping China’s theft, of resetting our trade relationship. Because of our generosity, we have been taken advantaged of [by] our trading partners. He’s completely correct in demanding on reciprocal treatment in our trading relationships. I just — I feel it’s my responsibility to make sure that the president and his administration understands the harm that’s being done to Wisconsin and other businesses throughout the U.S. because of these high tariffs making them uncompetitive.

Frederica Freyberg:

Experts have said that Foxconn’s decision to build its first plant outside of Asia in Racine County, USA is viewed as a hedge against a trade war with China. Let me just read you this tweet that President Trump made last year about Foxconn’s biggest client. He said, “Apple prices may increase because of the massive tariffs we may be imposing on China, but there is an easy solution, where there would be zero tax and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now.” So having read that tweet, given the changeable plans on Foxconn’s part for the Racine operation, do you think that that was the company’s overriding motivation for coming into Wisconsin?

Ron Johnson:

Well, having been in manufacturing myself for 30 years and exporting to 20 different countries, I know there’s always pressure when you are supplying an international customer to manufacture close to those customers. That’s just going to be natural, whether you’re an international business doing business in the U.S. or a U.S. business trying to do business internationally. Customers want the manufacturing facilities close to where the demand is. I have no access to Foxconn’s marketing, er, business plans or exactly what’s happening with the demand for their products by Apple as well. So in the end, what makes more sense and what is going to bring more manufacturing back to the U.S. is U.S. has to be an attractive place for business investment and risk-taking. And you do that by reducing the regulatory burden, which this administration has done by having a more competitive tax system. The tariffs from my standpoint and the administration talked about those is basically a leverage point to bring people to the negotiating table, which I guess is fine. But, for example, in the case of the USMCA deal, once that was signed by both Canada and Mexico, those tariffs were supposed to go away. They haven’t gone away yet so we’re trying to talk to the administration about when they’re going to lift those tariffs on Canada and Mexico.

Frederica Freyberg:

On Foxconn in Wisconsin, how closely are you monitoring the company’s role out here on behalf of taxpayers?

Ron Johnson:

Well, we’re obviously watching that. But, you know, any kind of tax benefits granted by the state of Wisconsin are going to be prospective. They’re going to have to provide the employment. They’re going to have to actually construct the facilities. I hope it proceeds. It would be a great thing for not only Wisconsin, but to have that manufacturing capability for America would be a very good thing. But again, it’s going to be based on business conditions and demand for their product.

Frederica Freyberg:

Senator Ron Johnson, thanks very much for joining us.

Ron Johnson:

Have a good day.

Frederica Freyberg:

In tonight’s inside look, we look at jobs and Foxconn. The advocacy group Tariffs Hurt the Heartland released a report this week saying the tariffs currently in place could cost Wisconsin more than 14,000 jobs over the next three years and that agriculture and manufacturing will bear a large part of the burden. But what about the 13,000 jobs promised by Foxconn? How will policies coming from Washington impact the mega deal in Wisconsin? We spoke with political and economic affairs commentator Einar Tangen out of Beijing. Tangen has worked in numerous organizations in Asia as well as Wisconsin. We started by asking him about Foxconn’s split between manufacturing and research jobs.

Einar Tangen:

The idea of having a 25/75, where 25 were administrative and research and 75% production workers was never realistic. We discussed this at the time. This is just not possible. When you can hire somebody for what is in essence a one-hour wage, you can hire somebody in Vietnam or India or Bangladesh for an entire week. So from a productivity point of view and labor, it does not make any sense. There will never be a return on the roughly $4 billion that the state has potentially put towards this, mostly in the form of tax incentives, although there’s almost $900 million plus that will be going into infrastructure improvements for the area. I don’t think that will be lost. And quite frankly, it stirred the dust up on an area which has been long overdue for development. We talk about the Rust Belt states. This was an area of traditional heavy industry. It needed a boost. It certainly has a tremendous amount to offer in terms of the intellectual capabilities of University of Milwaukee, Marquette, Milwaukee School of Engineering, Madison and also all the universities in Illinois. So as a place to do business, as a potential Midwest Silicon Valley, it has a lot of the right components, other than this kind of, you know, creating a center. And if that is able to do, if this project was able to kick-start that, it’s probably a move in the right direction, as opposed to trying minor things that fail on a continual basis. There are, yes, cultural differences in how you approach a deal. The difficulty in understanding east versus west is very, very difficult. Terry Gou and his people, they speak English. They’re used to dealing with foreign companies, English-speaking. But, on the other hand, they are very, very eastern in the way that they approach things. And that means that you’ve signed the paper and then you start to figure out how it can be done. And there’s an expectation that you’ll give a little bit in order to get something that you desire. From the western perspective, that is as — that’s not seen as cricket, as they say. It’s more something where they think that this is bad faith. So you have a gulf in the way that these two sides look at a deal. And that is becoming fast apparent. But apart from that, it’s simply getting to know what the bottom line is for each side. Now, you have to remember that their business model is predicated on having huge, huge contracts, like Apple. I mean, that’s half of their revenue. And taking a very, very, very small percentage as profit. So where a normal company in the U.S. would say they need somewhere between 12% and 20% margin on their business operations, Foxconn does it at anywhere between 1.5% — allegedly 1.5 — all the way up to maybe 6%. So as a result, it’s all about the details. Terry Gou has made an enormous amount of money by paying attention to every single penny that is spent, because he doesn’t have the luxury of just kind of wasting time and money. It would literally put him out of business. I think you can expect, as I said, this deal to continue morphing. It will go from one thing to another, depending on where Terry sees the mix of politics and economics. The difficulty of what Donald Trump is trying to do is he stirs so much uncertainty, no one is willing to make a long-term commitment because they don’t know what’s going to happen. Business is not about taking risks that you can’t control. It’s about taking core risks, pursuing them and getting the best result within a very manageable setting. That’s clearly not what’s happening right now.

Frederica Freyberg:

Foxconn’s global grasp can be complicated to understand, from the economics of it to the technology. Paul Semenza is an independent consultant in Silicon Valley and has been a display panel expert for years. He joins us now from San Jose, California. Thanks very much for being here.

Paul Semenza:

Hi.

Frederica Freyberg:

Well, when industry insiders like yourself see what’s going on with Foxconn and Wisconsin, what do you think?

Paul Semenza:

Well, it’s a very interesting case of trying to basically start a very complex, advanced manufacturing facility from a green field, from nothing, in terms of the supply chain. So there’s a huge amount of effort that’s going to be required to bring together all the pieces, the materials, the equipment, the expertise that’s needed to basically jump-start into a very high-tech manufacturing process.

Frederica Freyberg:

Well, not only that, but Foxconn, as you know, has gone from a plant that’s Generation 10 to generation 6, manufacturing to research and back to manufacturing again. How complicated is it in the midst of trying to get it going to switch plans like this from an operational point of view?

Paul Semenza:

It’s very complicated. You know, the phrases Gen 10 and Gen 6 are industry shorthand for the size and scope of this plant. Roughly speaking, a Gen 10 plant is something that’s suitable and customized for making large screen TVs, such as you might have in your living room, 40-inch, 50-inch, larger panels. Whereas a Gen 6 plant is really customize — or targeted to making smart phones and tablets and those type of things. And while the underlying manufacturing technology is quite similar, the specifications of the equipment, the requirements, particularly with regard to glass, so the Gen 10 just roughly speaking, the Gen 10, the sheets of glass that go into the factory are larger than a king-size bed. So they’re very difficult to handle. They basically need to be produced on-site. That may be one of the reasons that they decided to shift from Gen 10 to Gen 6 because in the case of Gen 6, you could ship the glass sheets.

Frederica Freyberg:

Speaking of that, if they are making the smaller screens for smart phones and those phones are manufactured in China, are they shipping components made in Wisconsin back to China and then back again for sale in the U.S.?

Paul Semenza:

Most likely. Yes, there’s no smartphone manufacturing in the U.S. or as far as I know, really in North America. Foxconn itself, as many people know, is the main assembler of iPhones for Apple and that’s all done in China. So, yes, you might have the case where parts are shipped from Asia to Wisconsin. They’re assembled into the displays and then the displays are shipped back to China for assembly into the phone and then that’s shipped back to the U.S. or the final market.

Frederica Freyberg:

Can that kind of supply chain make business sense for high-tech manufacturers like Foxconn?

Paul Semenza:

Most likely not. And that’s why you — if you’re Foxconn, you’re looking for quite a big subsidy, such as they’ve negotiated for with the state, to try to make it make sense. And I think even with the scope of the subsidy that they’ve negotiated, maybe now they’re realizing or really putting pen to paper and saying can we still make this a profitable venture.

Frederica Freyberg:

So how does Foxconn, in your mind, get to the 13,000 jobs even with the combination manufacturing/research operation?

Paul Semenza:

With great difficulty. Foxconn is on record and folks who know about this industry know that the assembly process for making these LCD panels is highly automated. The reason that it costs $10 billion to build a plant is because it’s very sophisticated equipment which requires a great amount of skill and ingenuity to create and install and set up but is very highly automated. So the manufacturing process itself does not require a lot of labor. R & D, research facilities, those are excellent jobs, obviously, but generally speaking research facilities don’t employ thousands and thousands of people.

Frederica Freyberg:

So as to the market, how is the market for Apple iPhones changing right now, and what does that mean for Foxconn in Asia and here in Wisconsin?

Paul Semenza:

Yeah. I think the iPhone or the smartphone market is part of it and then maybe the broader electronics market and the way the LCD manufacturers are responding. So, you know, Apple has reported that, you know, its sales in China are somewhat slowing down. You know, I think it’s clear to lots of people that Apple’s been tremendously successful in pushing out the iPhone around the world. And sometimes that success can, you know, eventually come back to bite you because you basically sell your product to everyone who’s willing or able to buy it and then your sales slow down. So I think that’s part of the issue. The other part is that Foxconn and other LCD suppliers have been putting in a lot of capacity around the world to make LCDs for everything from iPhones to TVs and they’re now — the industry as a whole is starting to slow down on that investment. Foxconn is making — building a Gen 10 plant in China right now and they’ve just made some announcements that they’re going to pull back on the schedule for bringing that facility up.

Frederica Freyberg:

Wow. Well, thank you very much for your insight, Paul Semenza, out of San Jose. Thanks.

Paul Semenza:

My pleasure.

Frederica Freyberg:

For more insider views on Foxconn, visit our partners at WisContext.org. There are dueling tax cut plans coming out of the state Capitol this week and a third lawsuit over last year’s lame duck legislative session that curtailed some of the governor’s executive powers. In tonight’s capitol insight, Wisconsin Public Radio Capital Bureau Chief Shawn Johnson is here to run down these developments. Shawn, thanks a lot for being here.

Shawn Johnson:

Thanks for having me.

Frederica Freyberg:

So the lame duck legislation curtailed Governor Evers’ authority as well as Attorney General Kaul from doing things like pulling Wisconsin out of the multi-state lawsuit over the Affordable Care Act and there are now three lawsuits challenging that lame duck legislation. Detail the three.

Shawn Johnson:

They are distinctly different. So that’s the good news if you’re trying to keep track of all these. You have a federal lawsuit that is actually kind of an offshoot of a case that started back in 2016. This is specific to changes that the lame duck session made to voting rights, restrictions on early voting, for example. That case — in that case, the judge already issued an injunction and blocked that portion of the lame duck laws. That is now, you know, basically in the hands of the 7th Circuit Court of Appeals in Chicago. You’ve got two state cases. The one this week that was filed by unions is about the merits of the stuff that was passed. It is saying that legislators took too much power away from the governor and gave the legislature too much veto power over the governor, basically. They said it’s a separation of powers issue and that’s unconstitutional. And then the other state case is strictly a process case. It’s saying that the way that they passed these laws in extraordinary session is not explicitly allowed in the state constitution and therefore the whole thing was unlawful and should all be thrown out.

Frederica Freyberg:

And yet what’s weird about that is that it’s clearly not the first time there’s been an extraordinary session.

Shawn Johnson:

It is not, no. I mean, they started having these back in 1980. So it is common, but not as common as you’d thing. Special sessions, which are called for specifically in the Constitution go way back to statehood. Whereas extraordinary sessions, which are called by legislator leaders, are in the history of the state relatively new.

Frederica Freyberg:

And that lawsuit was the first filed, presumably the premise being if the court goes for this and overturns this same luck legislation, then we’re done.

Shawn Johnson:

I mean, it is kind of like an open or shut question, right? Either the court’s going to agree with that or not. That was filed in Dane County Circuit Court. The union case was filed in Dane County Circuit Court. Democrats have had let’s say success, albeit fleeting, in some circuit court cases in Dane County in the past when they were challenging Walker administration initiatives. They have a chance to do that this time with two cases in circuit court.

Frederica Freyberg:

And as to that first case that challenges the session itself and the legislation emanating out of it, if the judge places an injunction on that or whatever the legal term would be, would Tony Evers and Josh Kaul move super quickly to assert their authority?

Shawn Johnson:

That’s a good question. I’m not sure what would happen there. I mean I think there would be a temptation to say, “Hey, we have the power to do things again that governors and attorneys general used to be able to do. Let’s do them.” I just am not sure exactly if that would be the path that was followed or if they would be also ordered to kind of hang tight while this thing is appealed.

Frederica Freyberg:

As usual, a lot of uncertainty there. Let’s move to the tax cuts, the dueling tax cuts that the Republican legislators and Governor Evers are putting forward. They both have their own versions. But they’re getting the money for these tax cuts from different places.

Shawn Johnson:

Yeah. The Republican tax cut basically takes money that the state already has in its general fund, a balance in the general fund, and says, “Let’s use that for the tax cut. Let’s put the tax cut essentially at the front of the line when it comes to how to spend this money.” And in future budgets, that’s how it will be paid for. It will just come out of general fund. Evers’ tax cut does a little of that too, but he would also offset part of his tax cut by reducing a tax credit for manufacturers.

Frederica Freyberg:

Right. And that’s a sticking point for Republicans.

Shawn Johnson:

Yeah. You’ve got this week kind of a sticking point for Evers and for Republicans. I mean, Evers came out and said, “I can’t see myself supporting a tax cut like theirs, which isn’t funded in the future,” and then you had Assembly Speaker Robin Vos come out and say, “We’re not going to support Evers’ tax cut because it’s actually a tax increase if you scale back this tax credit for manufacturers.”

Frederica Freyberg:

Meanwhile, the Republican middle class tax cut hits the Assembly floor next week.

Shawn Johnson

It does. And, I mean, it gives them a way of saying, “Here’s the deal on the table.” I mean, they’re trying to drive the narrative there. Of course, Evers isn’t going to come out with his full tax cut until his budget, which has a lot of moving parts.

Frederica Freyberg:

So could or would Evers just veto that thing if it went through the Assembly and the Senate?

Shawn Johnson:

He didn’t come out and say that he would. He didn’t’ use the word veto but if you can’t sign something, you’ve got one other option as a governor. Everything that he’s told us lately is if that deal were to reach his desk, he probably would veto it. He also said that he’s willing to negotiating with Republicans, but it seems like they’re kind of far apart other than agreeing they want to have a tax cut. How they get there, they seem like they’re kind of polar opposite.

Frederica Freyberg:

All right. We’ll be watching. Shawn, thanks very much.

Shawn Johnson:

Thank you.

Frederica Freyberg:

In other state news, the Department of Agriculture, Trade and Consumer Protection released its list of top ten consumer complaints for 2018. The number one consumer gripe is over telemarketing calls, which spurred more than 4,000 complaints to DATCP last year. Complaints about medical services are also high, which the department says are overwhelmingly related to patient billing. Other top consumer concerns include landlord/tenant issues, disputes over cable and telephone service and billing and problems with home improvement contractors. I’m Frederica Freyberg. That’s our program. Have a great weekend.

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Funding for “Here & Now” is provided, in part, by Friends of Wisconsin Public Television.