Description
The United States is undergoing a “manufacturing renaissance” driven by a steady increase in investment in chip manufacturing as a result of the US Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act signed into law by President Joseph R. Biden Jr. in August 2022. Since its enactment, the United States has been on track to add more construction for computer and electronics manufacturing in 2024 alone than it did during the 20 years before the CHIPS Act.
This chart is based on the US Census Bureau’s monthly data on private sector spending on construction for manufacturing in general, as well as for construction specifically for computer, electronics, and electronical manufacturing. Investment in computer and electronics manufacturing construction began to rise in 2021 before final passage of the CHIPS and Science Act in anticipation that Congress would appropriate funding for it. Investment gained another boost in August 2022 with the enactment of the Inflation Reduction Act (IRA) and full funding of the CHIPS Act in the same month. After averaging around $6 billion per year from 2011 to 2020, investment in electronics manufacturing construction is running at over $11 billion per month, a $135 billion annual rate as of June 2024. Importantly, these figures represent realized investment by private actors responding to government incentives, not promises to invest in the future that may never be fulfilled.
Electronics manufacturing construction was as little as 3 percent of total manufacturing construction in 2016 and 2017 but rose to 58 percent as of June 2024. An 80 percent rise in manufacturing construction is due to the electronics category, which includes semiconductor manufacturing that the CHIPS Act subsidizes and some IRA-supported investments, such as battery manufacturing (but not electric vehicles). Yet a comparison of Census data with separate estimates of green investment suggests that only one third at most of the dramatic rise in investment the Census Bureau reports is IRA related.
Despite reports of delays and worker shortages, the strong response from private investors suggests major success for one of the Biden administration’s signature industrial policy measures, reducing reliance on a geopolitically fraught East Asia for advanced chip manufacturing. But the increase comes at a steep cost due to the government’s generous subsidies.
Some other countries are also employing industrial policy to subsidize chip production, but their chip construction spending has not risen comparably, according to a US Treasury report. South Korea was not included in the report, but its construction starts for factories declined starting in 2022, staying below the last decade’s average pace despite Korea’s addition tax incentive for investment enacted in 2023. Policymakers in Seoul are legitimately concerned about being outpaced by the United States and could spur a costly subsidies race.
This PIIE Chart is adapted from Martin Chorzempa’s blog post, “The US and Korean CHIPS Acts are spurring investment but at a high cost.”
