This article first appeared in Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.
Did Scott Walker’s multi-billion dollar deal with Foxconn cost him the Wisconsin governor’s race? It certainly didn’t help.
Walker, the Republican incumbent, lost his bid for a third term yesterday by a 1.1 percentage point margin to Democrat Tony Evers. Health care, taxes, education, and immigration all were key issues in the campaign. But, as widely reported (see these excellent pieces in The Verge and the New Yorker) and discussed in this space last week, Walker’s cocktail napkin agreement with Foxconn, the Taiwanese company that is the world’s largest contract electronics manufacturer, proved a huge political albatross. Walker offered $3 billion in state subsidies in exchange for a promise from Foxconn to build a $10 billion liquid crystal display factory in Racine County. The facility was to generate 13,000 jobs.
But voter enthusiasm turned to indignation as public expenses required to support the plant ballooned—and Foxconn’s ambitions seemed to shrivel. As I noted last week, a string of vague and inconsistent statements by Foxconn officials about their plans for the plant raised suspicions that its main product was smoke and mirrors.
And the case gets curiouser and curiouser. Yesterday, as Wisconsin voters headed to the polls, the Wall Street Journal, citing “people familiar with the matter,” said Foxconn planned to staff the Wisconsin plant with engineers from China. Part of the problem, the Journal noted, is Wisconsin’s tight labor market; the state has an unemployment rate of 3.0%, below the national average of 3.7%. Finding skilled labor and “knowledge workers,” (as Foxconn now says will account for 90% of the plant’s workforce) is an even bigger headache. Foxconn denied the report in a written statement: “The assertion that we are recruiting Chinese personnel to staff our Wisconsin project is untrue.” The Journal reports that Foxconn engineers in China are balking at transfer orders from CEO Terry Gou because they think Racine is too remote, too cold, and “not particularly diverse.”
Scott’s defeat highlights the peril of playing the China card. Trump invoked China repeatedly in barnstorming for Republican candidates in recent days, repeating his claim that tariffs on Chinese imports have instilled panic in Beijing, and dangling the prospect of a breakthrough on trade disagreements when Trump and Xi meet for dinner following the Group of Twenty summit in Buenos Aires.
My guess is that, Larry Kudlow’s denials notwithstanding, Trump himself is angling for some kind of truce—not necessarily because his party lost control of House yesterday, but because he knows he’s painted himself into a corner for 2020. If the stalemate with China drags into next year, Trump will have to make good his threat to slap tariffs on all Chinese imports and raise rates to 25% from the current 10%. That would push up prices and invite the Federal Reserve to jack up interest rates—neither of which would bode well for Trump’s own prospects for re-election.