Manufacturing investment hit new peak in January as Biden bets on green transition

The switch to cleaner technologies and sources of energy is underway, thanks in part to major Biden administration investments, and the global economy is being physically reshaped to accommodate it.

After it appeared to top out at around $200 billion last summer, private investment in manufacturing construction has kept going up. It reached a seasonally adjusted $225 billion in new spending in January — a jump of more than 180 percent from its usual level, around $80 billion annually over the last decade.

That money, incentivized by business tax breaks, is being used to build facilities that make electric vehicles, batteries, semiconductors, electronics and other energy products. These facilities are being stitched into new international value chains removed from their traditional manufacturing base in China.

“Parts of our key supply chains, including for clean energy, are currently over-concentrated in China,” Treasury Secretary Janet Yellen said at chemical company Albemarle’s lithium processing plant in Antofagasta, Chile, over the weekend.

Albemarle is planning to open a lithium mine in North Carolina in the next few years, taking advantage of tax credits passed as part of the Bipartisan Infrastructure Law and Inflation Reduction Act, two of the Biden administration’s signature pieces of legislation.

Lithium demand is projected to more than triple over the course of this decade, Yellen said Saturday. That’s one of several long-term trends related to the green transition that are now beginning to show up in the economic data.

While investment in plants hasn’t translated yet to an increase in manufacturing activity, which remains near its average level of the past 10 years, policymakers and manufacturers are sounding some boldly optimistic notes.

“If we can continue on this trajectory, this resurgence, imagine what the state of manufacturing might look like in 2030 — at the end of the decade,” National Association of Manufacturers CEO Jay Timmons said in his annual address to member companies last month. Timmons said the boom in green manufacturing is likely to feature in President Biden’s State of the Union address this week, and that Biden is due his share of the credit.

“President Biden will probably take some credit for what manufacturers have achieved. That’s fair,” he said.

Biden has made manufacturing a centerpiece of both his economic agenda and his campaign for reelection. He’s been frequently described as the most visibly pro-union president in U.S. history, being the first to join an active picket line when the United Auto Workers struck last fall.

But despite surprisingly strong economic data during his time in office, he’s had a tough time convincing Americans of his economic agenda, consistently getting low marks in public opinion polls on his handling of the economy. The promised boom in factory jobs, which is a highly likely consequence of all the manufacturing investment, also has yet to take off.

The fight to be perceived as the friendlier candidate to American workers should prove to be an economic hallmark of the presidential race, especially as former President Trump touts protectionist economic policies that promise a general tariff on imported goods to the U.S.

A breakdown of the new manufacturing spending published last year by the Treasury Department puts the bulk of the expansion in electrical and electronic equipment. That sector received billions in additional funding and tax breaks from the CHIPS and Science Act, designed to increase domestic production of semiconductors, which are used in everything from dishwashers to automobiles.

The legislation allotted a total of $52.7 billion for chip manufacturing, research and development; on-the-job training; and coordination with allied countries through 2027, according to the Congressional Research Service.

Eighteen new chipmaking facilities started construction between 2021 and 2023, the Treasury reported in July, citing equity research from Deutsche Bank. 

More than 50 new semiconductor projects — some of them high-cost facilities known as fabrication plants or “fabs” — have been announced following the CHIPS Act, according to the Semiconductor Industry Association, a trade group representing chip manufacturers.

“Major fabs [are planning] U.S. expansions: 6 percent year-over-year capacity growth in 2024,” Deutsche Bank market researchers wrote in a February note to investors, referring to projects underway from chipmakers TSMC, SK Hynix, Samsung, Intel and Micron across five different states.

Battery production is another focal point of booming manufacturing investment, an industry whose expansion should help to supplant the long-term demand for fossil fuels, one of the main perpetrators of climate change and global warming.

One hub of activity in battery production is Arizona, where multiple new facilities are being constructed. One Tucson-area project from the American Battery Factory that makes lithium iron phosphate battery cells received tens of millions of dollars in initial capital investments and will support about 1,000 full-time staff.

“[The] groundbreaking represents a significant milestone for Arizona’s battery industry,” Arizona Gov. Katie Hobbs (D) said during an event at the factory site in October.

Heath Vescovi-Chiordi, director of economic development in Pima County, Arizona, where the American Battery Factory is being built, told The Hill that federal grants and incentives are spurring manufacturing investments across the state.

“From the federal level, we’re seeing a lot of grant opportunities that are unique and targeted,” he said. “Energy, semiconductor, wafer manufacturing, battery manufacturing – you name it … All of that is due to the amount we’ve seen coming down from the federal government generating a lot of activity, and Arizona being able to capitalize on that.”

According to the Paris-based International Energy Agency, global greenhouse gas emissions have not yet plateaued, but fossil fuel use could top out at some point this decade, a consequence of “robust expansion of clean energy putting overall fossil fuel demand and emissions into decline.”

Changing trade patterns and value chains, which were shaken up by economic shutdowns in various countries during the pandemic, are laying a new international foundation for domestic reindustrialization.

Experts say increases in the U.S. trade deficit with Mexico, as well as increased trade with Southeast Asian countries, is reflective of a rebalancing of U.S. trade away from China. 

“You do see, if you look at the data, a huge jump in the U.S. trade deficit with Mexico. If you think of the global trade regime as a long balloon, and you squeeze China, the balloon is bulging in Vietnam and Mexico,” trade advocate Lori Wallach, director of Rethink Trade, told The Hill.

“On the supply side, the various tax benefits and subsidies for the construction of new domestic manufacturing capacity, and on the demand side, a strengthening of the rule of origin and Buy American — that combination is going to produce a huge surge in manufacturing jobs by the time you get to 2025,” she said.

Research out of the Federal Reserve predicted this phenomenon, which central bank researchers described as a “great reallocation” toward Mexico and Vietnam, whose low-wage workers are replacing those in China.

“The available data point to a looming ‘great reallocation’ in supply chain activity: Direct US sourcing from China has decreased, with low-wage locations (principally: Vietnam) and nearshoring/friendshoring alternatives (notably: Mexico) gaining in import share,” a National Bureau of Economic Research paper by Laura Alfaro and Davin Chor presented to the Fed’s Jackson Hole Symposium last summer found.