The High Stakes of Tariff Policy on U.S. Innovation
The volatility in U.S. tariff policy is putting a 'for sale' sign on our most promising advanced manufacturing technologies. For the past decade, we have cultivated a generation of innovative technology companies, supported by federal grants, abundant private capital, and forward-thinking industrial policy. However, the recent shift toward tariffs, although intended to level the playing field, has instead resulted in an implementation that feels unpredictable and made it difficult for capital markets to assess risk. Some international investors have identified this uncertainty as an opportunity, stepping in to fill the funding gaps and offering stable, industrial-friendly business environments. Given these factors, it’s hardly surprising that some American CEOs commercializing new technologies are considering build their industrial base overseas.
At NextGen, we believe in a future where American prosperity is powered by a renaissance in advanced manufacturing. Recent data underscores a transformative moment in American manufacturing, notably within advanced technology sectors. Over the past 5 years, we've seen a tenfold increase in new construction starts for U.S. factories producing critical technology such as microprocessors, batteries, and electric vehicles. These developments reflect a decisive shift towards reshoring critical supply chains and adopting more efficient production technologies. However, sustaining this momentum requires more than governmental incentives; it demands a predictable, stable business environment.
Companies commercializing new technologies develop long term industrial strategy, constructing complex capital formation years before breaking ground. These projects are financed based on the facility’s positive cash flow over multi-decade long periods with profitability tied to longstanding trade agreements and federal tax incentives, like the Production Tax Credit passed in 1992. Currently, the uncertainty created by shifting tariff policy makes planning for large capital investment projects, like industrial and power production facilities, difficult. Capital providers perceive uncertainty as risk and as a result, some financial institutions are pausing investment, taking a wait and see approach. Unfortunately, next generation industrial companies are cash flow negative and need to start-up production, generating revenue if they are going to survive. They don’t have the luxury to wait for capital providers to gain confidence in overall market stability. As a result, we have created a condition inadvertently pushing American innovation to industrialize in regions with more stable policy environments – currently located abroad – undermining long-term U.S. industrial growth and competitiveness.
Foreign entities have recognized this opportunity and are beginning to entice US-based advanced manufacturers with compelling incentives. For example, some non-PRC Asian-based industrial funds recently offered a US-based manufacturing startup very attractive financial incentives backed by their historically stable business environment to build its next production facility in their home domicile countries. Examples like this underscore that international competition will not be won by punitive measures alone but through a thoughtful combination of incentives, stability, and strategic investments.
On the merits, we can have a meaningful debate as to whether tariffs are one of the useful tactics to help rebuild American manufacturing in the long-run. Some would argue that President Trump’s tariff approach is counter-productive because it is creating stagnation in the industrial sector. Others claim that successfully using tariff policy to stem the flow of narcotics into our country will strengthen our domestic labor force by significantly reducing the leading cause of death for working age young adults. While it is too early to say if the impact of tariff volatility on rebuilding the U.S. industrial base will pay out in the long term, in the short term we are already seeing some companies choose to build their industrial base overseas – the exact opposite outcome we seek to restore American industrial prosperity.
