High Costs and Subsidy 'Backstab'... Asian Manufacturers Hesitant to Invest in the US

As 1 year and 6 months have passed since the implementation of the Inflation Reduction Act (IRA) and the CHIPS and Science Act (CSA), which symbolize "Bidenomics," Asian manufacturing companies are reportedly withdrawing or delaying their investment plans in the United States due to soaring construction costs. Although the U.S. has embarked on reviving its domestic manufacturing industry through subsidies, the existing global supply chains are optimized for low-cost, high-efficiency production, and uncertainties within the U.S. are increasing, leading to evaluations that the Biden administration's supply chain restructuring efforts are hitting a wall.

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On the 3rd (local time), The Wall Street Journal (WSJ) focused on this issue in an article titled "Asian companies are struggling to build factories in the U.S. despite incentives."

Japan's largest battery manufacturer, Panasonic, hinted in January at postponing plans to establish a third factory in the U.S. Currently, it is building its second North American battery factory in Kansas, but due to the surge in construction costs, it has decided to reassess the productivity of building a third factory. To meet the IRA subsidy requirements, a significant proportion of raw materials and components must be sourced from the U.S., which greatly increases costs according to companies' calculations. Steel prices alone have reportedly risen by more than 70% since 2020. WSJ cited sources involved in Panasonic's factory construction, reporting that the Kansas factory construction consumed the budget rapidly due to higher-than-expected costs.

Other companies are also adjusting their business plans due to cost issues or uncertainties within the U.S. LG Energy Solution canceled plans for a fourth battery factory in Indiana, which was to be built jointly with General Motors (GM), due to the impact of soaring construction and material costs for the third factory. Taiwanese semiconductor company TSMC postponed the operation start dates of two factories in Arizona. The first factory's production was delayed from this year to next year, and the second factory's production was pushed back from 2026 to after 2027. Even U.S. company Intel is considering delaying the construction of a $20 billion semiconductor factory in Ohio.

Vince DiPofi, CEO of Ohio-based construction and engineering firm SSOE, said, "A year ago, the mood was 'let's enter the market,' but now people are stepping back."

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The withdrawal of investment plans by companies is not a surprising decision given that the IRA and CSA-driven construction boom has significantly increased factory construction costs in the U.S. According to U.S. Department of Labor statistics, the cost of constructing new industrial facilities at the end of last year rose by more than one-third compared to three years ago. Samsung Electronics is also reportedly facing tens of billions of dollars in additional costs for building its semiconductor factory in Texas. With the surge in factory construction, some companies have experienced supply delays of over 100 weeks just for parts needed to supply power to factories in recent months.

Moreover, uncertainties regarding the subsidies promised by the Biden administration are growing. Recently, Gina Raimondo, U.S. Secretary of Commerce, stated that a significant number of semiconductor companies investing in the U.S. will not receive CSA subsidies and that "getting even half would be lucky." For companies like Samsung Electronics and others investing in the U.S., this feels like a betrayal.

Kenneth Simonson, chief economist at the Associated General Contractors of America, analyzed, "Attempts to develop new businesses within the U.S. are shaking supply chains in ways we did not anticipate."

Some argue that Asian companies' hesitation to make additional investments in the U.S. is an expected outcome of restructuring supply chains from a low-cost, high-efficiency model to a high-cost, stability-focused model. While companies must align with the Biden administration's policies to expand their business in one of the world's largest markets, the priority on efficiency in decision-making means they also bear the burden of expanding production bases in the U.S., which involves high costs. Additionally, uncertainties about the amount and eligibility of subsidies from the Biden administration are increasing, and former President Donald Trump, the leading Republican presidential candidate, has announced plans to repeal the IRA, further exacerbating uncertainties within the U.S.

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