The future of US manufacturing

A quarter of America’s $3 trillion in annual manufactured imports face multiple trade dependencies, tied to national security, geopolitically distant trading partners, or concentrated suppliers. Building enough domestic capacity to offset these vulnerable imports would require an estimated $2 trillion in investment, but funding may be the easiest part of the challenge. Talent, energy infrastructure, and supplier ecosystems present additional hurdles, and how companies address them could shape their competitiveness for decades to come.

In this episode of McKinsey Talks Operations, host Daphne Luchtenberg is joined by Rebecca J. Anderson, a senior fellow at the McKinsey Global Institute (MGI), and Mike Conway, a McKinsey partner who advises companies across the industrial sector, to discuss new MGI research on America’s manufacturing vulnerabilities and what it will take to build greater resilience.

The following conversation has been edited for length and clarity.

Daphne Luchtenberg: Over the past several years, supply chain disruptions have exposed just how interconnected and sometimes fragile the global manufacturing system can be. In the United States, trillions of dollars of manufactured goods are imported each year, raising a fundamental question: Should the country be better equipped to produce more of these goods domestically, especially those critical to economic competitiveness and national resilience? An equally important question is whether the US has the industrial capacity, workforce, supplier networks, infrastructure, and investment needed to manufacture those goods.

These questions have become increasingly urgent as companies navigate supply chain disruptions, shifting trade dynamics, rising geopolitical uncertainty, and growing demand in areas such as semiconductors, advanced technologies, pharmaceuticals, and energy-related industries. New research from the McKinsey Global Institute explores America’s manufacturing vulnerabilities, the investments and the capabilities needed to address them, and what it will all mean for business leaders. I’m delighted to have two of the authors of this research joining us today, Rebecca J. Anderson and Mike Conway. Rebecca and Mike, welcome.

Rebecca, so many people assume the conversation about manufacturing is really about jobs or bringing production back to the United States, but your research suggests the stakes are much broader than that. Why is this topic so important right now?

Rebecca J. Anderson: Indeed, things like manufacturing jobs are not to be taken lightly. In many ways, the US economy over the past 50 years has been dealing with the consequences of a decline in manufacturing that we see throughout the population today, through geographic inequalities, and so on. But we’re in a special place. This isn’t just about correcting for the past. It’s about really setting the economy up for the greatest success and competitiveness in the future.

Right now, we’re at the dawn of a new era for the global economy, one largely defined by shifting geopolitics and fragmenting trade, as well as rapidly advancing AI and other critical technologies. Given those two factors, we need to consider how the US economy can position itself to remain competitive going forward. One important dimension to this is the idea of resilience: how the US builds up a resilient economy and creates access to critical materials, functioning supply chains, and so on. So there’s a big resiliency element to future competitiveness.

There’s also a growing realization that a lot of important innovation happens at the production level. By not having the production side of critical technologies domestically, we’re missing out on a lot of important innovation.

Daphne Luchtenberg: The research shows that the issue isn’t simply how much the United States imports. It’s which products we depend on and how exposed we are if those supply chains are disrupted. Can you explain that distinction?

Rebecca J. Anderson: The US last year imported $3 trillion worth of manufactured goods. We aren’t suggesting that the US needs to produce all those $3 trillion of imports domestically, but when we look across those imports and see effectively which ones are most critical to national security, which ones are from geopolitically distant trading partners, and which ones are from concentrated suppliers, these are basically three different forms of trade dependency, as we call them, 25 percent of those imports face at least two of those three dependencies. Fundamentally, when we’re talking about resilience and positioning the economy for future competitiveness, we’re really focusing especially on those 25 percent of goods that face multiple potential choke points.

Daphne Luchtenberg: Mike, what do these manufacturing vulnerabilities mean from a business perspective? Why should a CEO or an operations leader care about this?

Mike Conway: Excellent question. As Rebecca described, these vulnerabilities are preventing businesses from reliably delivering what customers need. Operationally, this can be driven by several things: constrained capacity, dependence on a single supplier or geography, limited visibility, and labor shortages. A CEO or an operations leader should care about this because these vulnerabilities show up directly in business performance.

This can look like missed revenue when demand spikes and capacity is not internally available; margin pressure when a company has to expedite materials or start carrying excess inventory to buffer risk; and, perhaps most important, customer attrition if those service levels fail. In some sectors, this could even mean a matter of national security. But the opportunity is equally important. Companies that can understand their vulnerabilities can turn that resilience into a competitive advantage. Industry leaders are the ones who can respond the fastest, by proactively investing in flexible capacity, thinking differently about how to diversify the supply base, increasing visibility across the full end-to-end value stream, and building a deeper and broader bench of suppliers.

The question becomes not how to avoid disruption, but how to build both the internal capability and the network that can withstand shocks while also positioning for growth.

Daphne Luchtenberg: Rebecca, the report identified several of manufacturing’s Achilles’ heels. What are some of the areas where the United States is most exposed today?

Rebecca J. Anderson: When we talk about Achilles’ heels, we’re referring to products that face at least two of those three trade dependencies I outlined earlier: they’re critical to national security or the basic daily functioning of the economy, they’re from a geopolitically distant trading partner, or they’re from a concentrated set of suppliers.

A little more concretely, at the level of two of these three trade dependencies, you have things like semiconductors, which are both critical and from a concentrated set of exporting countries. GLP-1 [glucagon-like peptide-1] drugs are also on that list, as well as toughened glass, an input to many different types of manufactured goods, and solar panels. Those are facing two of these three trade dependencies. At the center, where all three trade dependencies overlap, are things like laptops, smartphones, and rare earth magnets, which have attracted a lot of attention recently.

Daphne Luchtenberg: What will it take to ramp up domestic manufacturing in those areas?

Rebecca J. Anderson: In our recent report, we calculated a ramp-up factor. We compared domestic production with the amount of imports for these goods. Looking at all imports, the average ramp-up factor is about 1.3. On average, domestic production or domestic productive capacity would need to grow by about 30 percent to offset all imports. But looking at the 25 percent of imports that are Achilles’ heels, production would, on average, need to double. For about half of the products, including many electronics, production would need to more than quintuple in terms of domestic productive capacity. If the US were to try to ramp up production to offset these specific imports, the increase would be significant.

Daphne Luchtenberg: Different sectors will be impacted in different ways. Mike, can you give an example of some of the sectors that will be really affected by this, and what they should be doing?

Mike Conway: The ramp-up factor is an excellent indicator of the scale to which some sectors will need to scale up. When we look at which sectors are most critical to ramp up, there are three factors that overlap: where the product is most critical, whether the supply chain is concentrated, and whether those suppliers could become less reliable should a disruption occur. With that overlay with the ramp-up factor, a couple of sectors stand out.

The clearest example is electronics. This is a very large import category, and what’s unique here is that, beyond the big categories like semiconductors and smartphones, electronic components are spread across sectors and serve as inputs for a variety of products, including medical devices, defense systems, and power infrastructure. So, when the electronics supply chain becomes constrained, that impact tends to ripple across many parts of the economy.

For pharmaceuticals, the story is a bit different. If there’s a disruption, the impact isn’t just whether the product becomes more expensive: A degraded service level can affect patient care, access to care, and, in some instances, broader public health. Rebecca also mentioned rare earth magnets. Although they’re not necessarily large in terms of dollars, rare earth magnets are critical for broader sectors, including products like electric vehicles, industrial equipment, and defense, so a small bottleneck upstream can create a large trickle-down effect and put significant portions of the downstream value stream at risk.

The way this affects sectors varies quite a bit. For electronics, the challenge is scale, meaning the ability to ramp production capacity to meet demand requirements. In pharmaceuticals, instead of investing only in capacity, it’s critical to consider resilience and access to critical inputs. It comes down to a few questions: Where is the production capacity available, what will it take to get there, where is the risk manifesting, and how can we get ahead of it before that risk occurs?

Daphne Luchtenberg: A key finding in the report was that ramping up domestic production for the Achilles’ heels and the upstream manufacturing supply chains would require an estimated $2 trillion in capital investment. Yet funding could be the easiest part to address. Can you explain a little bit further?

Rebecca J. Anderson: Historically, the United States has had the deepest capital market in the world. Funding, both for business and for areas deemed national priorities, isn’t where we’ve faced challenges in the past. In fact, that $2 trillion is roughly equal to all of the cumulative investment in shale gas and its upstream industries from 2005 to 2025. We’ve mobilized this scale of investment before. About $2 trillion is also equal to about eight years’ worth of the average announced greenfield foreign direct investment [FDI] inflows to the US between 2022 and 2025. It’s about a 50 percent increase in the current industrial capacity base in the US, but it’s not an insurmountable challenge as long as there is a clear business case and it’s a stated national priority.

Daphne Luchtenberg: Beyond funding, what are some of the capabilities and ecosystems that need to be developed alongside manufacturing capacity?

Rebecca J. Anderson: The biggest one is skills: having a workforce that knows how to do the work and is geographically present where the work takes place. So, having specialized skills and a labor force that can scale with that investment is one of the largest challenges.

In addition to the workforce, investments in things like energy and infrastructure are not included in that $2 trillion. Now is a significant time for the energy landscape, with everything related to AI data centers. By one estimate, there could be a 60 percent increase in power demand in the US through 2040, primarily driven by data centers. That’s coming off a couple of decades of relatively flat power demand in the US.

So, we’re already looking at a significant overhaul in our energy and infrastructure system. When we add ramping up a lot of domestic industry on top of that, it’s only going to create more demand for energy and associated infrastructure, so energy and infrastructure are another big part of the equation. Of course, there must be an ecosystem of suppliers in place for these industries. That $2 trillion number encompasses the upstream industries for those critical Achilles’ heel products. But typically, over the past several decades, manufacturing and industrial production have tended to occur where there are clear ecosystems and networks of suppliers. So that’s another big part of the challenge: It’s a systemic ecosystem shift.

Daphne Luchtenberg: How do companies think about the business case, Mike? What are some of the questions that business leaders should be asking themselves?

Mike Conway: It starts with answering one question: Where could a disruption really affect my performance? It’s important to note that for companies, this isn’t necessarily about reshoring everything or building redundancy everywhere. That would be too expensive and unnecessary. The real task is to identify places with either significant supply chain exposure or manufacturing capacity gaps that could put revenue, margin, or strategic growth at risk.

I advise leaders to start with three things. First, map your true exposure. Look beyond tier-one suppliers and understand where the critical components come from. Often, we find that beyond tier one, it can be a black box. Second, quantify the business impact. Think about how a disruption in the supply chain could impact production and whether that will result in either a cost increase or, more critically, missed deliveries. Third, think about where resiliency could create an advantage. That could look like dual sourcing, holding more inventory, or reimagining the product design, reshoring, or building and investing in additional capacity.

I’d ask a business leader a few core operational questions: Where are we most exposed, what would it cost us if that exposure became real, and where would targeted investment in resilience help us protect the downside while also positioning us for growth?

Daphne Luchtenberg: Let’s talk about the important role talent will play as manufacturing ramp-ups proceed. Manufacturing has long faced labor shortages in the US, but there seems to be a bright opportunity for the labor market. Can you say a bit more about that?

Mike Conway: Talent is going to be critical to this. As much as companies invest in new facilities and broaden the supply base, if you don’t have the people to run those operations, the ramp-ups are unlikely to happen. Unfortunately, labor might be the limiting factor. In our research, we examined decade-high utilization rates and found that increasing utilization across all sectors to decade-high levels could create 1.4 million new jobs. But that’s only about 10 percent more than the current workforce.

So, hiring alone likely will not solve this. Instead, manufacturers need to think differently about talent. The question now becomes not just whom to hire but how to redesign an operating model so that each worker can be more productive, more skilled, and—maybe more important—better supported. This is where we look at automation and digital tools. The factory of the future likely will require a smaller, more highly skilled team to manage complexity while also generating more output.

Daphne Luchtenberg: Rebecca, what are the broader implications for the labor market?

Rebecca J. Anderson: An important thing to keep in mind is that this is a critical juncture for the labor market. In addition to any push for reindustrialization, which will have greater demand for labor, there are two other important macro forces at play here. One important force underway that really looks poised to disrupt the labor market is AI. Recent McKinsey Global Institute research found that 57 percent of current work hours could technically be automated based on today’s technologies. That doesn’t mean 57 percent fewer jobs in the future, but it does mean that businesses, as they adopt AI and reconfigure their operating models, are also going to have to think through what the roles of the future are, so that people are working with AI, AI agents, and robots in the future. To make business cases work, we’re likely to need greater automation and robotics. So we’re going to have to think about end-to-end training and skills development, from a kindergarten through 12th-grade education standpoint, all the way to lifelong learning programs and the way companies themselves think about training, to make sure they’re really giving their workforces what they need. That’s a significant shift underway right now in the labor market.

Mike Conway: That’s an excellent point, Rebecca. We are often asked whether an automation strategy can replace a talent strategy, or whether using more robots in a factory will reduce the need for frontline labor. I think, quite frankly, the answer is no.

Given the capacity gap and the need to ramp up, we see and recommend that frontline workers increasingly operate alongside robots. The increased data visibility and digital performance unlocked through robotics and AI are changing the paradigm for frontline workers. It’s increasingly important that talent strategy be part of the ramp-up strategy. This can look like upskilling frontline roles, partnering with technical schools to build apprenticeships, and embedding a talent strategy as part of a broader plan to meet capacity needs.

Rebecca J. Anderson: Thanks, Mike. We also have to think about demographic shifts. The population in the United States and around the world is aging, which puts greater onus on automation and ensuring the workforce of the future can not only fill or replace certain roles but also do even more, because we’re going to have a different balance of retired individuals and full-time workers.

In 2024 in the United States, 24 percent of the production workforce was over age 55, up from about 20 percent in the early 2010s. There’s a very clear trend here, and we have to think about who will fill those roles as a greater share of the workforce retires. Overall, there are these major forces at play, AI and demographic shifts, in addition to reindustrialization. Together, this means there will be pushes and pulls on jobs and skills needed, along with consideration of what the future workforce might look like.

Daphne Luchtenberg: A true transformation. Mike, when you look at your work with clients, what separates companies that are proactively building this resilience from those that are still reacting to what’s coming at them?

Mike Conway: The difference is pretty simple: Proactive companies know where they are exposed before the disruption happens. Reactive companies find out only after something breaks. Reactive companies tend to spend a lot of time in firefighting mode: A supplier misses a shipment or a plant goes down, creating an organizational scramble. That results in expedited materials, rushing to find an alternate supplier, starting to add inventory, and consuming working capital. It’s expensive, and more often than not, it happens too late.

Proactive companies do the work earlier. They know which suppliers, components, and sites are truly critical and focus their attention there. On the supply side, they go beyond tier-one suppliers and look deeper into the subtier supply chain to know what the pacing component might be in the event of a global shock. The other thing leading companies do is quantify the business impact. They know, if there is a disruption, what revenue and margin could be at risk, and which customers could potentially be disrupted if they’re not able to meet their committed service levels.

Leading companies tend to have very strong leadership. In these companies, resilience doesn’t just become a procurement topic. It’s on the CEO’s agenda because it affects growth, cost, and customers. So reactive companies tend to respond to shocks, but proactive companies tend to build the muscle to predict when and where they will manifest.

Daphne Luchtenberg: As you look at the challenge ahead and the need for companies to build that resilience muscle, what gives you confidence that the US can successfully expand and respond to these vulnerabilities?

Mike Conway: One thing that gives me confidence is that the United States has demonstrated it can already do this, that it has mobilized when the business case, policy, and demand effectively line up. We can rely on several deep advantages: a large domestic market, deep R&D and innovation capabilities, and energy.

Perhaps most important is the growing recognition that resilience really matters. Particularly over the past decade, we’re seeing a greater focus on, and much more investment in, prioritizing resilience. That doesn’t mean the ramp-up is going to be easy. I think there are very real constraints around talent, permitting, and infrastructure, but there’s confidence that the opportunity is now clear. It’s not just about reducing risk, but about growth, competitiveness, and creating long-term competitive jobs to serve customers.

Daphne Luchtenberg: Rebecca, what are some of the elements that give you confidence?

Rebecca J. Anderson: I would echo everything Mike just said. If we think about the force of the US economy, the US is fundamentally the world’s largest market and consumer base, the second-largest manufacturer, and the second-largest exporter today. The sheer scale of the US market cannot be underestimated. What also shines for the US is that we have some of the world’s deepest capital markets. In terms of funding, venture capital, all of the potential financing for investment is deeper in the United States than anywhere else in the world.

I would also point out the entrepreneurial culture in the US. We have people at all levels of education and across all industries who are extremely innovative and entrepreneurial. To do this and successfully build resilience and ramp up manufacturing in these critical areas, this is an all-of-the-above approach that needs all hands on deck.

This year is the United States’ 250th anniversary. If we think about the long arc of US history during that time, one ever-present theme has been reinvention. We’ve completely reinvented our economy at multiple points in history, especially moments when there is a fusion of shifting geopolitics, shifting world order, and important technological advancements.

The most recent major transition was in the 1980s to 1990s, when we shifted from a manufacturing-based economy to a services economy. This was necessary because we were facing important competitiveness challenges as a country and coming off a decade or so of stagflation, energy crises, and more. We entered a new era of growth after that last big reinvention. This is the next moment of reinvention. If we look at the challenges we’ve overcome in the past, I’m optimistic that the US can overcome this one as well.

Daphne Luchtenberg: Today’s discussion highlights that the future of manufacturing in America will be shaped by more than factories alone. It will depend on the talent, the infrastructure, the supply networks, and investments needed to build resilient industrial ecosystems, and on the decisions leaders make today about where to focus their efforts. For companies, the question is no longer whether manufacturing strategy matters; it’s how to position themselves for a future where resilience and competitiveness increasingly go hand in hand.