IRA & CHIPS Act Boost US Manufacturing Construction
TL/DR –
US construction spending on new manufacturing facilities more than doubled in 2023, averaging $16.2 billion a month, thanks to the Biden administration’s Infrastructure Investment and Jobs Act, Inflation Reduction Act, and CHIPS and Science Act. However, labor force shortages pose challenges to staffing these new facilities, with the US Bureau of Labor Statistics noting 601k open manufacturing jobs and 449k open construction jobs in December 2023. In contrast, the EU’s NextGen EU recovery fund is struggling to connect companies with state financing due to the lack of a permanent fiscal union and complications in member state plan implementation.
The IRA and CHIPS Act are Boosting US Manufacturing Construction
Last April, the US National Security Advisor Jake Sullivan affirmed US commitment to industrial strategy at the Brookings Institution. Fast forward to 2024, this commitment is evident in the significant increase in construction spending on new manufacturing facilities. Backed by the Biden administration’s Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), and CHIPS and Science Act, US companies are reshoring and revamping their manufacturing efforts. However, it’s not all smooth sailing as the total cost of these initiatives could reach up to four trillion dollars, challenging even the wealthiest nations.
As the US accelerates manufacturing construction, the EU faces challenges in securing state financing for its companies. The NextGen EU recovery fund, worth around $880 billion, is aimed at matching US efforts. However, limited fiscal union and a decentralized approach have hindered EU companies’ access to funding. Furthermore, the EU’s performance targets have only been met 18 percent as of early 2024, resulting in only about 30 percent of available grants and loans being released to member states.
Major European manufacturers such as Volkswagen, BMW, Enel, and Norwegian battery group
Freyr are prioritizing investments in the US due to the funding issues in the EU.
Driving Forces behind the US Manufacturing Construction Boom
The construction boom in the US is largely focused on the computer, electronics, and electrical manufacturing sectors, as per the priorities outlined in the IRA and CHIPS and Science Act. The spending on construction in this sector has quadrupled since 2022, contributing some 64 percent of all manufacturing construction spending in 2023.
However, concerns remain over potential labor force bottlenecks that could impede the success of the Biden Administration’s plan. With US unemployment at 3.7 percent, well below the 5.8 percent average of the past two decades, the key challenge is finding skilled workers for these new facilities. Solutions could include upskilling domestic workers, and bringing in skilled workers from abroad through immigration reforms.
The Biden administration now needs to consider how it can bring along its allies and partners, especially with the EU facing challenges in matching the scale of US manufacturing revival. The differences between governance structures in the EU and the US, in addition to the ongoing geopolitical instability due to Russia’s invasion of Ukraine, make it difficult for the EU to match the US in terms of investments in manufacturing production facilities. The US needs to focus on facilitating the European green and digital transition by directly supporting its partners in Brussels, Berlin, and beyond.
—
Read More US Economic News