What it would take to rebuild U.S. manufacturing might

America’s dependence on imported manufactured goods looks like a vulnerability in a world of widening geopolitical fractures. Fixing it won’t come cheap.

The big picture: New research from McKinsey, the global consulting firm, estimates that it would take $2 trillion, or about 6% of U.S. GDP, to build the industrial capacity needed to replace imports of key strategic goods.

• That’s the equivalent of two years’ worth of the current annual defense budget — and doesn’t even include the investment needed to cultivate the workers’ skills, infrastructure and energy needs.
• There is a particular dearth of American manufacturing capacity for advanced electronics, particularly AI servers, and key chemicals, the study finds.

State of play: The U.S. imports $3 trillion in manufactured goods each year. But only about a quarter of that is what the researchers classify as “Achilles’ heels” because those goods are essential to national security, involve highly concentrated supply chains, and/or are imported from geopolitical rivals.

• For dozens of goods, McKinsey calculated a “ramp-up” index for each, meaning how much new industrial capacity the U.S. would need to fully replace overseas importing.
• The numbers range widely. America is nowhere near having enough capacity to replace its imports of textiles and apparel, for example, but is in much better shape on fossil fuels and transportation equipment.

Zoom out: Foreign direct investment into the U.S. has been surging, the 2022 CHIPS and Science Act and other measures have fueled expansion of domestic industrial capacity in key industries, and the Trump administration has made reindustrialization a front-burner priority.

• The McKinsey data shows that the U.S. still has a way to go to be insulated in the event of, say, a further breakdown of trade flows with China or other major partners.

What they’re saying: “There have been pockets, including anything related to AI, especially with the big tech firms, where there has been a pretty dramatic scaling up of capital expenditures in those domains,” Shubham Singhal, an author of the study, tells Axios.

• “But more broadly, if you look at the overall capital expenditure statistics, there hasn’t been a dramatic tick up,” says Singhal, who chairs the McKinsey Global Institute in-house think tank.

Zoom in: The raw dollars of capital spending needed to ramp up U.S. manufacturing capacity in these sensitive areas is only part of the story, the authors add. There’s also work to be done building the talent pipelines and infrastructure to make that spending pay off.

• While investment in AI-related goods has been massive in recent years, things are not booming the same way in some other areas.
• “Everything related to AI is moving fast because investors believe the reward is there,” Singhal says. “Whether that is there in every other place — metals, chemicals, etc. — is a bit of a question mark.”

Between the lines: If some future global conflict or trade breakdown chokes off access to key supplies, the ramp-up to replace them is no easy feat, the efforts of the last two presidential administrations notwithstanding.

المصدر: Axios