As an investment destination, the United States is attracting greater interest from Taiwan’s top corporations – but it’s struggling to attract smaller players.
Terry Gou knows an opportunity when he sees one.
The Foxconn chief’s fine-tuned business and political instincts seized the chance provided by the new Trump administration’s push to revive the American manufacturing sector and “bring back” jobs that had been sent abroad – or in many cases lost to automation. After two low-key visits to the White House, he was invited back in late July, where he received VIP treatment.
Sharing the stage with some of the heaviest hitters in the Republican party – President Trump, Vice President Pence, House Speaker Paul Ryan, and Wisconsin governor Scott Walker – Gou beamed as he was hailed for Foxconn’s newly announced investment: a US$10 billion LCD-panel manufacturing facility. The factory will be located in Ryan’s Congressional district in Wisconsin.
Gou’s smile may have been inspired by the words of praise lavished on him by President Trump, who called him “one of the great businessmen of our time.” Or perhaps he was smiling because Foxconn’s deal will be receiving a US$3 billion subsidy from Wisconsin taxpayers – the biggest subsidy ever offered to a foreign investment in the United States.
Foxconn’s announcement came on the heels of the largest Taiwanese delegation ever to participate in the SelectUSA Summit, which took place in June. A record 140 delegates from 83 Taiwanese companies participated in the annual U.S.-government sponsored event, organized by the Department of Commerce to promote investment in the United States.
“Taiwan’s confidence in the United States as a leading investment destination is reflected by the enthusiastic participation in our SelectUSA Investment Summits,” American Institute in Taiwan Director Kin Moy said in remarks at the opening ceremony of this year’s U.S. Business Day in late August.
“Taiwan’s SelectUSA delegations have been among the largest each year since the inaugural Summit was held in 2013,” he said. “At the 2017 Summit, Taiwan’s business delegation was not only the largest ever from Taiwan, but also the second largest of all foreign delegations, with 140 participants from 83 companies. This consistent level of support demonstrates the strong commercial ties between the United States and Taiwan, and suggests that our relationship will only grow stronger in the years to come.”
In July, AIT chairman James F. Moriarty noted that this year’s Taiwanese delegation to SelectUSA looked at investment projects with the potential of reaching US$34 billion in value. “Taiwan’s investments in the United States bring jobs and economic growth to communities across the country,” he said.
Data provided by U.S. Taiwan Connect, an information portal operated by Taiwan’s Ministry of Economic Affairs, shows that despite being the size of Kentucky, Taiwan has a significant impact on the American economy. The U.S.-Taiwan economic relationship supports roughly 330,000 American jobs. Of these, the support for more than 105,000 jobs comes from investment from Taiwanese companies, including those registered in other jurisdictions.
In terms of the number of investment projects made by different Taiwanese companies in the United States, business machinery is the top sectoral destination, followed by electronic components, communications, semiconductors, software and IT services, and financial services.
The total stock of foreign direct investment in the United States by Taiwanese-owned companies reached US$10.8 billion 2016, those investments were made by a range of companies over different sectors, as shown in the accompanying chart.
More than 600 Taiwanese companies have established a physical presence in the United States, many of them clustered around Silicon Valley, North Carolina’s Research Triangle, the Gulf of Mexico, and the Mid-Atlantic research and development hubs.
One of the largest and oldest Taiwanese investments in the United States is Formosa Plastics Corp. USA, an affiliate of the giant Formosa Plastics Group. The company, headquartered in Livingston, New Jersey, was established in 1978, and according to its website has annual revenues of more than US$5 billion and employs some 2,400 workers. It operates petrochemical production facilities in Point Comfort, Texas; Baton Rouge, Louisiana; and Delaware City, Delaware.
Li Chang, deputy secretary general of the Taiwan Computer Association (TCA), says that among Taiwanese tech companies investing in the United States, roughly 80% of the investment is devoted to R&D or sales, primarily in Silicon Valley and Dallas. As an indication of TCA’s current priorities, the association maintains overseas offices in China’s Suzhou and Tokyo, but has no presence on the ground in the United States so far.
“Taiwan isn’t making PCs like it used to, but our IC industry is still quite strong,” Chang says. “I know IC companies such as TSMC [Taiwan Semiconductor Manufacturing Co.] are deeply involved in the American economy.”
Chang notes that compared to Taiwan’s largest corporations, its small- and medium-sized enterprises are relatively unlikely to contribute much to investment in the United States.
“Trump is focused primarily on the top companies,” he says. “A $5 million dollar investment doesn’t mean much to him.”
Subsidies aside, Chang says he thinks Foxconn’s Gou made the right move with his Wisconsin investment, noting that its subsidiary Sharp is poised to benefit substantially.
Shipping televisions from Taiwan or China isn’t cost-effective, he notes, and considering the massive U.S. television market, the project should make for a good long-term investment for Gou, who will be well positioned to compete with American manufacturers on price.
“He’s going to sell a lot of Sharp televisions,” Chang says.
Tax considerations of course play into decisions made by Taiwan companies regarding existing and potential investments in the United States. According to Al Chang, international tax partner at Deloitte Touche in Taipei, the expected decrease in the top U.S. corporate tax rate from 35% to 20% will be a positive factor, as the Taiwan corporate rate appears likely to increase from 17% to 20% next year, pending approval by the Legislative Yuan. Having the same tax rate in both countries should translate to easier decision making, he said.
Yet Taiwanese companies still need to consider that if their American subsidiaries distribute post-tax money back to Taiwan as dividends, the U.S. dividend withholding tax of 30% is rather high, compared with the 21% paid by companies operating in Taiwan.
“Some people call it a double tax,” he says, adding that the Trump administration will need to address this issue if it really wants to attract Taiwanese companies to invest in the United States.
Deloitte’s Chang stresses that genuine business opportunities do exist in the United States for large Taiwanese corporations. With the rising cost of both land and manufacturing in China, some American states are now able to compete on a cost basis, he notes. In addition, a U.S. presence can eliminate trans-Pacific transport and logistics costs for Taiwanese companies such as Foxconn/Sharp that are seeking to sell directly to the American consumer market.
“Recently we understand that there are many states in the U.S. which are offering incentives to investors, including land that may be cheaper than in parts of China,” Al Chang says, citing Wisconsin and Ohio as examples.
Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council in Washington, DC, says he is upbeat about the investment opportunities for Taiwanese companies in the United States. “The landscape here in the U.S. for Taiwanese investment is quite attractive,” he says. “It looks like tax reform is going to get done. Couple that with what’s going on in the energy markets here and a fairly deep labor pool, and it’s a very appealing place to invest.”
In the past, he says, “Taiwanese have certainly put a lot of money into this country, but a lot of it has gone into property and equities, so it’s often people parking their money rather than investing in brick-and-mortar operations.”
Hammond-Chambers says he’s curious to see how the Foxconn investment in Wisconsin, which has been touted by its proponents as the beginning of a new tech node in the Midwestern United States, will live up to those expectations. “We’ll wait to see if there will be any clustering,” he says, noting that with support from Trump, Ryan, and Walker, the project has “quite a caucus behind it.”
Noting that the United States does have potential for smaller Taiwanese companies, Hammond-Chambers says that for a substantial trend to develop it would be necessary for the Taiwanese government to promote the United States as an alternative to China as an investment destination, something it has not done much of to date.
As for who in the United States might reach out to smaller Taiwanese businesses, “I think that’s primarily going to be a state-driven enterprise,” he says. “I don’t think the federal government is going to get involved in pitching small- and medium-sized enterprises, especially with Mr. Trump in charge.”