The Last Domestic TV “Manufacturer” Shutting Down

A few comments on the news that Element Electronics is shutting down its TV assembly plant in South Carolina.

First, if tariffs are placed on imports of components used in a manufacturing process, the cost of manufacturing will increase. If all products in the market are subject to the same tariff, or, if similar products which are manufactured elsewhere are subject to similar tariffs, the manufactures will all be impacted equally, the tariff will be passed through in the form of a price increase to consumers. In this case, Element was the only company manufacturing TVs in the US; the vast majority of TVs are imported as finished goods, and tariffs were not raised on imports of finished TV sets. Since Element was probably operating with very thin margins, it is possible that the tariffs on components was enough to make the operation unprofitable.

Second, Element wasn't really "manufacturing" TVs, in the sense that most people would understand. They were importing "semi-knock down kits" which contain most or all of the parts needed to make a TV, and did the final assembly. This is colloquially known as a "screwdriver operation." All of the parts were imported by China, from a company called TongFang, which some speculate has partial or complete ownership of Element. In fact The Alliance for American Manufacturing petitioned the FTC to find that Element was practicing deceptive advertising by marking their TV sets “Made in the USA.” None of this seemed to stop Walmart from including Element in its campaign to source more of its products from domestic manufacturers.

Third, this is yet another example of the propensity of states to use public funds in an attempt to lure manufacturers to their jurisdictions under the guise of economic development and job creation. In this case, it appears that South Carolina offered Element a $1.3 million infrastructure grant as well as tax credits for hiring workers. The state may not have had to go through on the job credits, as they were predicated on Element hiring 500 workers while they only had a quarter of that amount. But whether grants, tax credits, infrastructure or environmental considerations, states are not able to require companies to stay in business. Whether a million dollars was worth spending for 100+ jobs for 5 years is open to debate. In other cases, such as the much larger deal between Foxconn and Wisconsin, the stakes are much higher. Wisconsin’s price tag has apparently exceeded $4 billion, which would work out to more than $300,000 per job.

Which leads to the final implication. While it will take years – if ever – for Foxconn to build the capacity to make LCD TV panels in Wisconsin, the company could set up a TV assembly plant within months (and may be in the process of doing so). In that case, look for the company to tout itself as the only domestic “manufacturer” of TVs – either under its own brand, or more likely under Vizio, a US-based TV brand that currently sources its sets from Asian manufacturers, and into which Foxconn recently made a major investment. And since the Trump administration was active in brokering the deal between Foxconn and Wisconsin, look for Trump to take credit for making American TVs great again.