US Ramps Up Manufacturing As Trump Seeks to Rebuild Tariff Wall

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You're listening to Bloomberg Businessweek with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Alexis Christoforous** (0:14)
Let us talk about manufacturing.
What a sharp pivot there. So let's bring in our next guest, Eric Kutcher. He's senior partner at McKinsey's North America Chair. He will talk to us about a report that McKinsey Global Institute have titled Ramping Up Manufacturing in America. Thank you so much for joining us, Eric. So your report identifies roughly a quarter of US manufactured imports as potential, quote, a keyless heel. What makes these products particularly vulnerable?

**Eric Kutcher** (0:42)
Yeah, so first of all, just thank you for having me. I'd love to go back and talk more about the NICs if we have time, but I'm going to get to that.

**Isabelle Lee** (0:48)
Are you a NICS fan? I know you're there in DC, but are you a NICS fan?

**Eric Kutcher** (0:52)
I am born and raised in New York, and so yes, I have to be a NICS fan, but it has been hard to be a NICS fan for this long. This is the moment, and I am super excited to watch it.

**Isabelle Lee** (1:00)
Well, you know what? You just earned yourself three extra minutes in this interview.

**Eric Kutcher** (1:04)
All right, I love it.

**Isabelle Lee** (1:05)
We'll let you talk manufacturing, Eric. Go ahead.

**Eric Kutcher** (1:07)
Yeah, so let's talk manufacturing. We set out to really try to understand what it would take to produce more of what we're consuming, and the reality is we have $3 trillion of manufactured goods that we import every year and consume in the US. The thing that we really uncovered is this is much less a story about manufacturing and much more a story about resilience, and you hit the point, the Achilles heel. So what do we mean by that? There's about 25%, just shy of $800 billion worth of goods every year that suffer from at least two of the following three concerns.
It's either that they're critical. We can't imagine that our economy can sustain if we don't have them. Think of smartphones, PCs, servers, things of that nature.
Materials for pharmaceutical goods. Concentration, we are, we have a high degree of concentration in a relatively small number of countries for which we import from. And then lastly is geopolitical distance. I.e. how aligned or not are we with those countries' ideologies and as trade partners going forward. Said differently, 25% have a real risk of disruption that could have an impact on the economy. And for that 25%, we have very little manufacturing today. It is not about can we actually get factories, idle factories to produce. It's the fact that we don't have those factories and we don't have that many of the skills required to operate them.

**Isabelle Lee** (2:38)
Let's talk about where the US might be most vulnerable, Eric.
We do get to your point, some products just from a very few suppliers around the world. These are not things that we supply in great amounts here in the US. You say in this report that electronics appear to be the biggest vulnerability. I'd have to imagine that has something to do with China.

**Eric Kutcher** (3:01)
Yeah. If you look at where we import from, it is disproportionately Asia.
It's just where an awful lot of the manufacturing of these critical items are. As I said, we're talking about electronics like cell phones, like servers, like PCs, like semiconductors. It's not all China, but it is disproportionately out of Asia. And the reality is that is where we have either two or three of these risk factors, right? Obviously critical. We have relative concentration and we're not always aligned. And so we do have to think about what does it mean from a resilience of our economy and our country national security as we think about where we invest those dollars.

**Alexis Christoforous** (3:39)
And when people hear the word reshoring, they often think it's just a matter of building more factories. But your report suggests it's a little bit more complicated than that. Why?

**Eric Kutcher** (3:48)
Yeah, first of all, we're talking about real capital dollars. If you said, let's take those items that are the Achilles heel, the 25%, it would take about $2 trillion to build the manufacturing. That doesn't include energy. That doesn't include infrastructure. That is the manufacturing capacity. That's already a real number.
It is not an unfounded number, meaning we have seen that before in places like Shale. We're seeing it right now in places like data center. So it is quite doable. And one of the beauties of this is we do tend to have generational changeover with some of the technology that provides an opportunity. The other problem is skills. It's labor in and of itself, but it's particular skills. We have seen such a decline in manufacturing and particularly these areas over such a rapid period. The question is, do we actually have the skills back on soil to be able to produce these items as effectively and as efficiently?