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Factories Reaping Rewards from Biden’s Incentives for Foreign Investment

New tax breaks and incentives for advanced manufacturing signed into law by President Biden are having a positive impact on direct foreign investment in the American economy, according to a White House analysis. The analysis reveals that a larger share of spending on new and expanded businesses is now being directed towards the factory sector.

Data from the first few months after the enactment of these laws show that foreign investment has not increased overall, but instead, there has been a shift in where foreign investment is being directed.

According to a new analysis by the White House Council of Economic Advisers, spending on new structures or expansions of existing ones has rapidly shifted towards factories, aligning with one of Mr. Biden’s key economic goals.

The analysis shows that manufacturing received two-thirds of foreign direct investment (excluding corporate acquisitions) in 2022, which is more than double the average share from 2014 to 2021.

Although this surge is relatively small in the context of the overall economy, administration officials see it as an encouraging sign that multinational companies are being attracted to the United States by Mr. Biden’s industrial policy agenda. The analysis also notes that construction spending on new manufacturing facilities in the United States has increased faster than in other wealthy nations.

According to a Commerce Department survey, foreign investors putting money into American factories mainly come from Britain, continental Europe, Canada, Japan, and South Korea, with China accounting for only a small percentage of the investment.

The majority of this foreign investment is directed towards computer and electronics manufacturing, particularly semiconductors, which were a prominent part of a bipartisan industrial policy bill signed by President Biden. He also signed a climate, health, and tax bill that included significant subsidies for renewable energy technology manufacturing.

Since the enactment of these laws, companies have announced more than $500 billion worth of planned investments in the United States, including semiconductor plants and advanced battery facilities. Many of these projects are from foreign companies like Taiwan Semiconductor Manufacturing Company.

Administration officials believe that shifting investment towards factories, even without an overall change in investment levels, can have positive spillover effects on the economy. The analysis highlights higher wages in manufacturing jobs and the potential for increased productivity through knowledge sharing between foreign firms and 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 focal 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.”

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