TL/DR –
The article discusses strategies to attract manufacturing investments, focusing on positive incentives known as “the carrot” and negative incentives or “stick” approach. The “carrot” approach, characterized by subsidies, grants, tax credits, and state incentives, was demonstrated effectively by the CHIPS and Science Act signed by President Joe Biden in 2022, which spurred semiconductor manufacturing and resulted in a manufacturing construction boom. The “stick” approach, characterized by tariffs and threats, has led to economic uncertainty and reduced manufacturing construction spending, as seen during President Trump’s reign with trade uncertainties and inconsistent policies, particularly regarding South Korea.
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There are two basic strategies that policymakers can employ to draw manufacturing investments: carrots and sticks. The carrots are positive incentives such as subsidies, grants and tax credits, while sticks are negative incentives like tariffs and threats. In this article, we will explore the effectiveness of the carrot approach in attracting manufacturing investments based on credible data.
The Investment Data
The St. Louis Federal Reserve releases monthly data on actual investments in new or expanded manufacturing facilities in the United States. As per the data, the manufacturing construction spending tripled from $76.5 billion in January 2021 to $230.9 billion in January 2025 during the Biden administration. This growth can be attributed to substantial semiconductor, battery and advanced manufacturing projects.
Typically, these projects involve high initial spending on site preparation, foundation work and structural construction. Subsequent phases that require less capital-intensive machinery and equipment installation are not fully reflected in the St. Louis Fed’s manufacturing construction spending data.
The Carrot Approach
In August 2022, the CHIPS and Science Act was signed by President Joe Biden. This legislation, which included subsidies, loans, tax credits and state incentives, resulted in substantial capital investments in semiconductor manufacturing and led to the establishment of new fabrication plants and related infrastructure.
Additionally, the CHIPS and Science Act, along with the Infrastructure Investment and Jobs Act, signed in November 2021, and the Inflation Reduction Act, signed in August 2022, significantly boosted broader industrial and clean-energy facility investment in the US.
The Stick Approach
On the other hand, President Donald Trump’s administration was marked by trade uncertainty, particularly due to inconsistent tariffs and threats — the stick. As a result, construction spending in manufacturing declined to $214.1 billion by October 2025.
As noted by Anirban Basu, chief economist for the Associated Builders and Contractors, “With CHIPS Act-enabled megaprojects winding down and the stiff headwind of trade policy, manufacturing construction spending has fallen by nearly 10% over the past 12 months.” (source)
Uncertainty and the Impact
Unpredictable tariffs and threats have led to a surge in economic uncertainty. In response, firms have become more apprehensive about committing to long-term capital projects in the United States. According to the American Institute of Architects’ January 2026 Consensus Construction Forecast, “This makes decision-making difficult and often encourages inaction in supply chain sourcing and investment decisions.”
Strategic Incentives and Stable Partnerships
The evidence suggests that if the goal is to bolster American manufacturing, focusing more on positive incentives and less on negative ones can be more effective. The CHIPS Act is a clear example of how positive incentives can work. It is crucial to expand similar programs to attract capital to critical industries and improve US competitiveness.
Moreover, working closely with our allies to achieve manufacturing goals is essential. Alienating partners through unpredictable tariffs and immigration raids can undermine our competitiveness. The choice presents itself plainly: invest in our future through strategic incentives and stable partnerships or risk manufacturing investment flowing to more predictable shores.
[Kaitlyn Diana edited this piece.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
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