Lucrative new tax breaks and other incentives for advanced manufacturing that President Biden signed into law appear to be reshaping direct foreign investment in the American economy, according to a White House analysis, with a much greater share of spending on new and expanded businesses shifting toward the factory sector.
Data that include the first months following the enactment of two pieces of that agenda show that a key measure of foreign investment fell slightly from 2021 to 2022, after adjusting for inflation.
The numbers suggest that, in the early months after the bills were signed, the hundreds of billions of taxpayer dollars that Mr. Biden is directing toward manufacturing have not increased the overall amount of foreign direct investment in the economy. Instead, the laws appear to have shifted where foreign investment is being directed.
A new analysis by the White House Council of Economic Advisers shows the composition of what’s known as capacity-enhancing spending on new structures or expansions of existing ones shifted rapidly toward factories, in line with one of Mr. Biden’s top economic goals.
The analysis shows that two-thirds of foreign direct investment, excluding corporate acquisitions, were in manufacturing in 2022. That is more than double the average share from 2014 to 2021.
The surge is relatively small in the context of the overall economy. But administration officials call it an encouraging sign that multinational companies are being enticed to America by Mr. Biden’s industrial policy agenda. In the last year, the analysis notes, construction spending on new manufacturing facilities in the United States has increased significantly faster than in England, Europe or other wealthy Group of 7 nations.
Administration officials say a Commerce Department survey of new foreign investment suggests investors pouring money into America’s factories are largely concentrated in the United Kingdom and continental Europe, along with Canada, Japan and South Korea. Half of 1 percent of the investment appears to be associated with China.
That foreign investment is flowing largely to computer and electronics manufacturing, particularly of semiconductors, which were the centerpiece of a bipartisan industrial policy bill Mr. Biden signed into law in the summer of 2022. Mr. Biden also signed a climate, health and tax bill later that summer that included large new subsidies for renewable energy technology manufacturing.
Since those laws were signed, companies have announced a flurry of new planned investments in the United States. The administration tallies them at more than $500 billion. They include semiconductor plants in Arizona, advanced battery facilities in Georgia and much more. Many of the announced projects are from foreign companies, like TSMC of Taiwan.
Administration officials say that shifting investment toward the factory sector — even if the overall level of investment does not change — can produce positive spillovers for the economy. The White House analysis cites higher wages in manufacturing jobs and potential increases to productivity from foreign firms sharing knowledge with existing domestic manufacturers.
“Foreign direct investment in manufacturing doesn’t just help us build up this critical sector in key focal areas of Bidenomics, such as semiconductors and clean energy,” said Jared Bernstein, who chairs the Council of Economic Advisers. “It also allows us to learn valuable production lessons from international companies in these and other areas.”
Jim Tankersley
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