The American Dream Deferred: Rising Costs and Supply Chain Woes Hinder Asian Manufacturers' Expansion Plans
The allure of the American manufacturing renaissance seems to be fading for some Asian giants. While the initial enthusiasm surrounding the U.S. government's efforts to lure Asian manufacturers was palpable, a harsh reality is setting in – building factories stateside is proving to be a costly and complex endeavor.
When Panasonic ceremoniously raised the first steel beam for its new $4 billion electric vehicle battery plant in Kansas, it was hailed as a symbol of the renewed manufacturing spirit in the U.S. However, the project has become emblematic of the challenges plaguing Asian companies. Soaring steel prices, up over 70% since 2020, have already consumed a significant portion of Panasonic's initial budget, raising concerns about the project's viability.
Panasonic's story is not an isolated incident. Taiwan Semiconductor Manufacturing Company (TSMC) has delayed its Arizona chip plant openings, while South Korea's LG Energy scrapped plans for an Indiana battery plant altogether. Even Samsung is facing billions of dollars in additional costs at its Texas semiconductor facility.
The Biden administration's efforts, including the Inflation Reduction Act and the Chips and Science Act, aimed to incentivize Asian companies to bring their expertise and technology to the U.S. While these programs triggered a surge in factory construction, unforeseen difficulties are forcing companies to hit the brakes.
Historically, Asian manufacturers have relied on East Asia-centric supply chains for components and materials needed in battery and semiconductor plants. However, fulfilling the U.S. legislation's subsidy requirements mandates sourcing a significant portion of these elements domestically. This sudden shift has overwhelmed the U.S. supply chain, leading to extended wait times for crucial components and skyrocketing prices.
The challenges aren't limited to foreign companies. Even domestic giants like Intel are delaying billion-dollar projects due to market fluctuations and slow disbursement of promised federal grants.
Kenneth Simonson, chief economist at the Associated General Contractors of America, highlights that the government's ambitious plan has had unintended consequences. "The attempt to develop new industries in the U.S. has upended supply chains in ways that we hadn't anticipated," he says, pointing to soaring costs across various goods and services essential for factory operations.
LG Energy's scrapped Indiana plant and Samsung's cost overruns in Texas serve as stark reminders of the financial strain on foreign companies. Panasonic, too, has put plans for a third North American plant on hold due to its Kansas project's faster-than-expected cash burn.
While some companies are vocal about the challenges, others see government subsidies as a significant offset. However, some analysts and government officials believe these complaints could be a negotiation tactic to secure additional funding. Greg LeRoy of Good Jobs First, a non-profit research group, suggests, "Companies' complaints may be a negotiation tactic to secure more funding."
Despite concerns, some states, like Kansas, remain optimistic about the long-term benefits of these projects. They highlight the substantial job creation and economic activity these factories will generate. However, the short-term picture remains unclear. As Simonson suggests, we might see projects delayed, downsized, or completed at a significantly higher cost.
