How the U.S. can win back its manufacturing dominance with the Advanced Manufacturing Production Tax Credits

Fast Company

16-05-2025

As a country, we have transitioned out of the industrial manufacturing phase to a service economy characterized by industries such as finance, healthcare, education, tourism, and information technology. These sectors, which added $19.61 trillion to the U.S. gross domestic product in 2023, focus on delivering value through knowledge and skills rather than tangible goods. Services trade accounted for $7.9 trillion of global exports in 2023, with the U.S. contributing $1 trillion to that total.
But this country's future resilience rests on its manufacturing output and its ability to bring products to market. For the past few decades, the U.S. has been innovating new technologies, from cell phones to computer chips, but the manufacturing of these new products occurs overseas. However, manufacturing and innovation go hand in hand. China is now responsible for 35% of global gross manufacturing production. As its manufacturing capacity has gone up, investments in innovation have increased, up nearly 70% in the past five years.
DOMESTIC MANUFACTURING PRIORITIES
Technology is rapidly changing, and we need to be able to pivot just as quickly. In years past, the U.S. was secure in its position as a world leader in advanced technologies. Recent developments in the field of AI are raising some doubts. Right now, China has millions of people working on it, while the U.S. has thousands. Chinese manufacturers have leveraged affordable labor and economies of scale, along with significant government support, to overwhelm the competition. Given the sheer numbers, the next breakthrough is likely to come out of China rather than the U.S.
The U.S. should focus attention on two industries: batteries and energy storage devices and advanced microchips. These two sectors touch everything from national defense to commercial applications. In the mid-1990s, the U.S. accounted for 37% of global semiconductor manufacturing. Today, most manufacturing capacity is in Taiwan, South Korea, and China, with the U.S. holding only 12%.
What can be done to move the needle back in our favor?
THE IMPACT OF THE ADVANCED MANUFACTURING PRODUCTION TAX CREDITS
The Advanced Manufacturing Production provision (also known by its IRS Code Section, '45X') provides a credit for the production and sale of certain eligible components within the United States, including solar and wind energy components, inverters, qualifying battery components, and applicable critical minerals. Since its inception, this credit has contributed to more than $126 billion in manufacturing investment announcements, and it is expected to create over 560,000 jobs over the next 10 years.
So, what does this actually mean? The credit accelerates our ability to build a domestic energy industrial base and supply chain by increasing capital expenditures and workforce development. These credits are useful tools for companies to bring forward investment projects on their roadmaps, which drive domestic manufacturing capabilities and secure our supply chain.
In the U.S., the market expects a return on investment quickly. Rather than investing a billion dollars over 10 years, we'll make that investment in year one and expect a return in year three. In the past, manufacturing investments were a sure thing. But with rapidly changing technology and China's massive manufacturing base, it is hard for U.S. manufacturers to justify a project that is three to four years out when we can't quantify how fast China can move.
BUILDING OUT THE ECOSYSTEM
While the world has become more linked to China, China-based companies have become more vertically integrated. Not only have they reduced reliance on imports, but China has also increased the export of components other countries use in their manufacturing supply chain.
The Advanced Manufacturing Production tax credit enables U.S. manufacturers to build a more diverse supply chain base by investing in the domestic manufacturing ecosystem. Companies can absorb a slightly higher production cost that may come with choosing domestic suppliers over subsidized Chinese imports. By supporting domestic suppliers, manufacturers can avoid potential tariffs, duties or foreign exchange rate challenges while also building a robust vertically integrated domestic supply chain. The additional investment in those suppliers can improve their processes, expand their operations and ultimately create one more barrier to entry from an import.
The credit can also allow manufacturers to invest in their vertical integration strategy. By controlling every stage of the process, companies can ensure the quality and consistency of their products, which is vital to building trust with customers. Vertical integration makes domestic manufacturers more agile and better able to respond and adapt more quickly to market trends.
Vertical integration also brings cost advantages by streamlining processes, reducing dependencies and providing a greater understanding of cost drivers. This visibility allows manufacturers to offer products at a competitive rate while protecting against supply chain disruptions and additional charges associated with long lead times.
Currently, we have one player—China—that has become too big and too integrated, and they are holding down the global value of other players. We have allowed that competitor to get so big that it's starting to impede our ability to be self-sufficient. Other regions can deliver quality products for the global supply chain, although North American sourcing is preferable for U.S. companies to minimize potential disruptions.
U.S. manufacturers have the discipline to stick with what they know how to do: maximize automation, manage costs, and control manufacturing complexity and the supply chain. The Advanced Manufacturing Production tax credit incentivizes domestic manufacturers to accelerate investments in their organizations. By retooling plants with new manufacturing processes and automation, building up their workforce, expanding capacity, and investing in R&D, U.S. companies will reclaim their positions in the manufacturing space that China currently dominates.