Are European companies really participating in the US manufacturing boom?
The Inflation Reduction Act and the Chips Act brought billions of foreign investment into the United States. But are European companies really moving to America?
Thanks to the substantial public incentives contained in the Inflation Reduction Act and in the CHIPS Act – the two laws to stimulate respectively the manufacturing of clean energy technologies and semiconductors, in force for about a year – the United States are benefiting from a significant increase in foreign investment in their manufacturing sector.
THE LATEST DATA ON FOREIGN INVESTMENT IN AMERICAN MANUFACTURING
According to the latest data from the Bureau of Economic Analysis, a government agency, foreign direct investment in manufacturing projects (new or expansion of pre-existing businesses) reached $5.3 billion in 2022, more than double the pre-pandemic values.
The majority of manufacturing-related greenfield investments are in consumer electronics: $1.8 billion. When considering all sectors, not just manufacturing, there were sixteen greenfield projects in the United States in 2022, up from just five in 2021.
BUT HAVE EUROPEAN COMPANIES REALLY DIVERTED INVESTMENT TO THE UNITED STATES?
The CHIPS Act and above all the Inflation Reduction Act have frightened European governments, who fear that their companies may decide to concentrate investments in the United States, rather than in the Old Continent, to access the incentives. In reality, according to Quartz – which cites a work by Simon Evenett, professor of international trade at the University of St. Gallen, in Switzerland – this massive reorientation of capital flows from Europe to America did not take place.
Evenett analyzed data from the Bureau of Economic Analysis and concluded that in 2022, despite the increase in non-European investment in greenfield projects of all kinds (not just manufacturing) in the United States, investment from Europe decreased. The Inflation Reduction Act has been law since August 16, 2022, while the CHIPS and Science Act since August 9.
Evenett's calculations – which add up both the money spent in that year and future expenses, until the project is completed – say that in 2022 European companies have announced investments in American greenfield projects for 4.9 billion dollars. In 2021 there were many more, over 20 billion.
Evenett then writes that one should not "lead more than one leg into arguing that the Biden administration's subsidies have transformed the attractiveness of the US economy for European investors". “Once again,” he adds, “the narrative is way ahead of the facts.”
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/stati-uniti-investimenti-esteri-manifattura/ on Sun, 23 Jul 2023 05:46:56 +0000.