FRESH TAKES ON BIG IDEAS

The pros and cons of rebuilding American manufacturing have been debated for half a century. They’ve long been framed in political, economic efficiency, and even cultural terms. Now, a fresh reality is emerging.

As geopolitical tensions rise, supply chains become more volatile, and global competition for critical technologies and materials intensifies, the future of US manufacturing is increasingly a national and economic security question. It could shape competitiveness, growth, and resilience for years to come.

There’s a lot at stake. The United States imports about $3 trillion in manufactured goods each year. The roughly $1.2 trillion goods trade deficit often grabs the headlines. But there are other considerations. Significant amounts of trade are tied to products that face at least one of three vulnerable “dependencies”: criticality to national security, concentration among a few suppliers, or sourcing from geopolitically distant partners. One-quarter of products involve at least two of these dependencies. Five percent—mostly electronic products and key materials such as rare-earth magnets—hit the trifecta.

For policymakers and business leaders, the question is not whether these vulnerabilities exist. It’s how to prepare for and respond to them.

With this in mind, recent research from the McKinsey Global Institute explores a fairly straightforward but crucial question: How possible is it for US manufacturers to make more at home? We created a “ramp-up factor” to gauge how much increased domestic production would be needed to produce what’s currently imported. Ramp-up factors under or around one suggest that existing capacity can in principle support enough extra production to replace imports.

Some long-time manufacturing stalwarts, such as aircraft and automobiles, fit this bill. We estimate that running factories at higher utilization could generate an additional $660 billion in output (depending, importantly, on whether US producers have a market for that extra supply).

“The future of US manufacturing is increasingly a national and economic security question. It could shape competitiveness, growth, and resilience for years to come.”

It’s more complicated for future-shaping products such as semiconductors and data center servers. Ramping up manufacturing makes less of a dent, in part because US production is small relative to what it imports. Accordingly, many of these goods have ramp-up factors well north of one. For about half of these items—including laptops—production capacity would need to quintuple or more. 

Expanding the industrial footprint to eliminate the most critical trade exposures could require about $2 trillion in investment. That number may seem daunting. But the United States has mobilized to similar extents before: Consider the build-out of the shale industry or, more recently, AI-connected capital projects. The key prerequisite for these transformations, determining whether it ultimately makes sense to ramp up manufacturing, is a compelling business case that is aligned with national priorities. 

The goal of our research is not to say, “You need to add a third shift to squeeze more from this factory” or “You need to invest tens of millions of dollars into a new plant for a specific industry.” Rather, it’s to explore the possibilities to manufacture more—across thousands of products and hundreds of industries—as part of a broader calculus that includes finance, skills development, energy needs, and supporting infrastructure. 

Even before big amounts of capital are deployed, manufacturers can start acting now by, for instance, examining other ways to lower trade risks—such as by rearranging sourcing to involve more trading partners. Manufacturers can also redesign more resilient supply chains and train workers for a more automated future. 

Technologies like AI and robotics are central. Many of the factories that emerge from this transition will look different from today’s. They may require fewer workers in some roles, more highly skilled ones in others, and new operating models that blend digital and physical production. 

For business leaders, this effort involves the entire economic system of balance sheets, energy, jobs, and productivity. They’re all intertwined. Several priorities stand out: Reassess supply chain exposure and identify critical dependencies before disruptions occur; invest in skills that align with automation; evaluate opportunities to build capacity in strategically important products; and maintain a closer connection to physical production. Finally, treat efforts to improve resilience to shocks as a competitive advantage.

Nostalgia for the days when manufacturing provided steady jobs for a quarter of the workforce is understandable. I’m a Detroit guy. I get that.

But the economic realities have shifted. Our research makes clear that rebuilding the US industrial base is not about recreating the past, propping up some sectors at the expense of others, or pushing back against the deeper economic and demographic forces that have made the United States a more services-oriented economy. 

Instead, ramping up means building something more productive and technologically advanced, while making use of updated skills that underpin more jobs, not fewer. Realizing these capabilities will require sustained effort, but the long-term payoff could be critical to America’s economy and national security.

—Edited by Brian Blackstone, senior editor, New York

ABOUT THIS AUTHOR

Shubham Singhal is a senior partner in McKinsey’s Detroit office and chair of the McKinsey Global Institute.