How Brazil Coaxed Foxconn to Set Up Shop Near Sao Paulo

In the 1980s, Japanese carmakers began to move production to the United States. Today, they — along with German and South Korean makers — account for more than 40% of the autos made in the United States. The move begs a question, taken up by a recent New York Times article: Could consumer electronics makers wend the same path?

Don’t expect a satisfying conclusion. Rather, the piece is an interesting primer on industrial policy. It is also devotes several paragraphs to Brazil, which is named as a key example of how a country can compel the likes of Apple and Foxconn to move assembly away from China:

Last year, Brazilian politicians used subsidies and the threat of continued high tariffs on imports to persuade Foxconn — which makes smartphones and computers in Asia for dozens of technology companies — to start producing iPhones, iPads and other devices in a factory north of São Paulo. Today, the new plant has 1,000 workers, and could employ many more.

Further into the article we read:

Like the United States, Brazil is a big market — the third largest for computers after China and the United States. It has long imposed tariffs on imported technology products to encourage domestic manufacturing.

Here’s the obvious hitch:

Those fees mean that smartphones and laptops often cost consumers more in Brazil, and that domestic manufacturers can be at a disadvantage if their products require imported parts.

So, the cheapest iPad ($499 in the United States) goes for $760 in Brazil. Yet because Foxconn and Apple are making the goods in Brazil the companies avoid the country’s import tariffs, so they actually enjoy healthier profit margins.

Free trade mantra bellows that such tactics won’t work for long because other countries with large domestic markets will respond in kind, leaving none the better. That hasn’t been the case with regard to China and Brazil. And what of Mexico? It’s becoming a bit of an anomaly, with both a large consumer market and a strong commitment to free trade. It could be the real loser from such market meddling.