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Foxconn has to balance its loyalties to the world’s 2 biggest economies

Krystal Hu

Apple (AAPL) supplier Foxconn, the world’s biggest contract electronics manufacturer, broke ground on its 20-million-square-foot campus in Wisconsin on Thursday, nearly a year after announcing its $10 billion investment in the U.S.

At the groundbreaking ceremony at Foxconn’s only LCD manufacturing facility outside Asia, President Donald Trump spoke of the trade tensions between China and U.S. “We want to have a fair and balanced situation, and that doesn’t need to happen immediately, but it has to be fair,” Trump said.

Foxconn is carefully positioning itself between the world’s largest two economies as it faces the challenges of Trump’s tough trade rhetoric regarding China. Foxconn has deepened ties with the Chinese government, including receiving tax breaks from it, while also promising to create jobs at its new manufacturing facility in the U.S.

Hedging China and the U.S.

Trump’s presence at Foxconn’s groundbreaking event shows its special status in this administration’s agenda to bring manufacturing back to the U.S. As the first major foreign investors answering Trump’s call to manufacture goods in the U.S., executives from Foxconn attribute the deal to President Trump’s pro-business policy.

Across the ocean, Foxconn is also promising to ramp up manufacturing in China. Its subsidiary Foxconn Industrial Internet is part of Made in China 2025, an ambitious scheme for industrial upgrading that has become the main target of the Trump administration’s Section 301 investigation and list of tariffs.

“The company will aggressively devote itself into the realization of ‘Made in China 2025,’ becoming the world’s leading industrial, internet-focused smart manufacturing and technology solutions provider,” Foxconn Industrial Internet (FII) Chairman Tim Chen said in May. FII is receiving tax breaks and investment support from the Chinese government.

Foxconn is listed in Taiwan and FII just went public in Shanghai in June, but the stock has tanked amid trade tensions. “It doesn’t matter how retail investors think, but how governments think of Foxconn,” Foxconn Chairman Terry Gou said during a shareholder meeting in Taiwan last week.

Job promises with a push towards automation

Trump and Wisconsin officials contend Foxconn will bring 13,000 jobs with an average salary of $54,000, and an additional 20,000 to 25,000 indirect and induced jobs needed to support the operation.

The cost of getting those potential jobs has caused some controversies. The state and municipalities have offered over $4 billion in financial incentives. It will take until at least 2043 for Wisconsin to recoup that lost tax revenue, according to the state Department of Administration.

Some argue the rewards system make sense, since Foxconn can only get the incentives after delivering its promise. Wisconsin will reward Foxconn with $17 for every $100 the manufacturer pays a Wisconsinite over 15 years.

Meanwhile, the manufacturing giant with over 1 million employees worldwide set the goal to replace 80% of its workers with robots in five years. Foxconn has been pushing for more “lights-out factories,” or fully automated facilities with no humans on-site.

Such changes have already reshaped its production lines in China, which houses the majority of its employees. Its Kunshan facility in the Shanghai suburbs, for example, has been highly automated since 2015. While it once had more 3000 workers, it now employs around 800.  

Currently, Foxconn runs six lights-out factories in China. It’s expected the automation technology will also be used in its U.S. facility, where the cost of labor is even higher.

Gou says the facility — in what he calls “Wisconsin Valley” — will combine traditional manufacturing with high tech. “To Silicon Valley and Boston, Wisconsin Valley is coming,” Gou said on Thursday.

Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.

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