New tax breaks and incentives for advanced manufacturing, signed into law by President Biden, are having an impact on direct foreign investment in the American economy, according to a White House analysis. The analysis shows that a larger portion of spending on new and expanded businesses is now being directed towards the factory sector.
Data from the first few months after the passage of these measures indicate that foreign investment has slightly decreased when adjusted for inflation. However, the laws have influenced where foreign investment is being directed rather than increasing the overall amount.
A new analysis by the White House Council of Economic Advisers reveals that spending on new structures or expansions of existing ones has shifted rapidly towards factories, aligning with one of Biden’s economic goals.
The analysis shows that in 2022, two-thirds of foreign direct investment excluding corporate acquisitions was in manufacturing. This is more than double the average share from 2014 to 2021.
While this surge is relatively small in the context of the overall economy, administration officials view it as an encouraging sign that multinational companies are becoming more interested in investing in America due to Biden’s industrial policy agenda. The analysis also notes that construction spending on new manufacturing facilities in the United States has increased at a faster rate compared to England, continental Europe, and other wealthy nations in the Group of 7.
According to a Commerce Department survey, investors from Britain, continental Europe, Canada, Japan, and South Korea are the main contributors to foreign investment in American factories, with China accounting for only a small fraction.
The majority of this foreign investment is directed towards computer and electronics manufacturing, especially semiconductors. Semiconductors were a key focus of a bipartisan industrial policy bill signed by Biden last summer. Additionally, a climate, health, and tax bill signed later that summer included substantial subsidies for renewable energy technology manufacturing.
Since the passage of these laws, numerous companies have announced planned investments in the United States totaling over $500 billion. These investments include semiconductor plants in Arizona, advanced battery facilities in Georgia, and more. Many of these projects are led by foreign companies, such as Taiwan Semiconductor Manufacturing Company.
Administration officials argue that shifting investment towards factories can have positive effects on the economy, even if the overall level of investment remains unchanged. The White House analysis highlights higher wages in manufacturing jobs and the potential for increased productivity as foreign firms share knowledge with domestic manufacturers.
Jared Bernstein, the chair of the Council of Economic Advisers, stated, “Foreign direct investment in manufacturing doesn’t just help us build up this critical sector in key areas of Bidenomics, such as semiconductors and clean energy. It also allows us to learn valuable production lessons from international companies in these and other areas.”
