U.S. Policy Boosts Production and Jobs, Positive Impact on Korea?

As the U.S. government pushes forward with industrial projects, predictions are emerging that expanding production and employment will bolster manufacturing. With the powerful government-led industrial policy resonating in other countries, South Korea is also experiencing positive impacts, such as expanding U.S. market entry and exports by manufacturing companies.

This analysis was included in a research report on the ‘Status of U.S. Industrial Policy and Its Impact on Our Economy’ released by the Bank of Korea on the 1st. The U.S. aims to strengthen supply chain resilience, secure leadership in advanced sectors, and revitalize the manufacturing industry through government-led industrial policy.

The U.S. government recognized the need to prepare for supply chain stability and geopolitical risk after experiencing a shortage of automotive semiconductors in 2021 and a wiring harness supply disruption last year. Furthermore, there is a strengthened movement to regain the leadership of advanced semiconductor production that East Asian countries have held by establishing an advanced industrial ecosystem in the U.S.

Analysis shows that the U.S. government’s industrial policy is producing visible results. As major projects have started since last year, related investments within the U.S. have significantly expanded. In particular, investment in manufacturing infrastructure (such as factory construction), which previously had a negligible contribution to growth, has increased dramatically since last year.

In fact, from the beginning of this year until September, the contribution to growth reached 0.4 percentage points. This contrasts with the mere 0% from 2010 to 2019 and 0.1% last year.

Experts explain that manufacturing construction spending has significantly increased, and related employment shows a good recovery trend. They expect the investment boom to continue at a high level until next year and then gradually adjust. However, after the completion of factory construction in the second half of next year, the expansion of production and employment will become visible, supporting the manufacturing industry.

Considering the industrial correlation, analysts estimate that the ongoing investment projects will create about 320,000 jobs (approximately 0.2% of the total employment) and continuously expand the annual GDP by about 0.2%.

As the impact of U.S. industrial policy resonates in other countries, analysis shows that the South Korean economy is also experiencing positive effects, such as the expansion of local market entry and exports by major manufacturing companies. Despite the overall downturn in the global manufacturing industry in the first half of this year, U.S. exports have been strong, driven by robust U.S. consumption and demand for capital goods related to industrial policy.

In particular, due to the impact of factory construction and equipment expansion in the U.S., exports of machinery centered on construction machinery (27%) increased by 16% from January to last month. In addition, exports of industrial policy-related items such as electric vehicles (74%) and batteries (14%) also performed well.

Additionally, as South Korean companies build semiconductor and electric vehicle production bases in the U.S., not only parts companies but also food and other lifestyle-related companies are entering the U.S., forming a supply chain within the U.S.

However, there are concerns that the employment base of our economy may be weakened in the medium to long term as the production bases of key industries, such as semiconductors and electric vehicles, move to the U.S., depending on the results of the U.S. presidential election next year.

The Bank of Korea stated, “It is necessary to prepare sophisticated response measures by comprehensively considering the opportunity factors and risks of major countries’ industrial policies.”