US Ramps Up Manufacturing As Trump Seeks to Rebuild Tariff Wall

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0:40Join us each morning for curated stories on current events, politics, business and foreign relations. Plus one conversation on the day's biggest developments, all in just 15 minutes. Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter. Listen to Bloomberg Daybreak each morning on Apple, Spotify or anywhere you listen. Bloomberg Audio Studios. Podcasts, radio, news. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Let us talk about manufacturing. What a sharp pivot there. So let's bring in our next guest, Eric Kutcher.

1:20He'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 U.S. manufactured imports as potential, quote, a keyless heel. What makes these products particularly vulnerable? Yeah, so first of all, just thank you for having me. I'd love to go back and talk more about the Knicks if we have time, but I'm going to get that.

1:48Alexis Christoforous:Are you a Knicks fan? I know you're there in D.C., but are you a Knicks fan? I am born and raised in New York, and so yes, I have to be a Knicks fan. But it has been hard to be a Knicks fan for this long. So this is the moment and I am super excited to watch. Well, you know what? You just earned yourself three extra minutes in this interview. We'll let you talk manufacturing, Eric. Go ahead. Yeah. So let's talk. 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 three trillion dollars of manufactured goods that we import every year and consume in the U.S.

2:21The 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 percent, 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 have a high degree of concentration in a relatively small number of countries for which we import from.

3:07And then lastly, the 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.

3:38Alexis Christoforous:Let's talk about where the U.S. might be most vulnerable, Eric. We do get to your point, some products just from a very few suppliers around the world. And these are not things that we supply in great amounts here in the U.S. And 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. 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.

4:15It'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. 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? Yeah, first of all, we're talking about real capital dollars.

4:51If you said, let's take that, 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.

5:26We 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

5:39Alexis Christoforous:efficiently so that leads me to my next question which is opportunity so if there's a gap here and we need to sort of fill the need where can investors but just regular folks even looking for jobs uh find opportunity given the state of manufacturing in our country right now Yeah, so I talked about$3 trillion. What is really nice is about 20-ish percent of that$3 trillion. We actually have the capacity to manufacture more here without a lot of new capital. Think of things like transportation, which includes trucks, which includes automobiles, which includes airplanes. We have a lot of the capacity to do that here if we run those factories a bit more.

6:21That does provide already a basis, although that's not the crux of the problem. The crux of the problem is there are areas where we do have to decide whether or not we're willing to make that investment for resilience as much as anything else. And with that will come some level of jobs, but maybe not the level of jobs that folks hope for. One of the most surprising findings in the report also is that running existing factories at full capacity would do little to solve the biggest supply chain crisis. So what does that tell us about the nature of the problem? Yeah, so one of the things that we have really focused on is this ramp up factor for what is some 5 ,000 different items that we import today.

6:58And as I said a moment ago, about 20 % of that is actually fixable. So if you take the$3 trillion, a little, so$600 billion or so, is something we actually have the capacity. We could debate whether the mix is exactly right. One of the examples you might look at is we import some flavors of wine or some types of grapes. That may or may not be something that you can change consumer behavior, but you would identify that 600 is something that is manageable. The problem is there's an awful lot and an awful lot of those Achilles heel or those areas which open us to resilience that we do have to think about whether or not we can build the skills and make the capital investment to be able to ensure that in a moment of crisis, we have what we need.

7:40And I think a lot of that's going to come down to how do we think about electronics manufacturing, particularly semiconductors? How do we think about rare earths and where do those actually get refined? And then obviously materials for the development and the production of pharmaceuticals, which keep us healthy.

7:56Alexis Christoforous:We're speaking with Eric Kutcher, a senior partner in North America chair of McKinsey, talking about manufacturing. And Eric, President Trump sort of ran on the platform of bringing manufacturing back to the U.S. And a number of high profile companies have pledged millions and billions of dollars to do that. But yet, since he's taken office, we really haven't seen the job growth in manufacturing. In fact, we've actually lost, I think it is, 100 ,000 jobs in manufacturing since Trump took office again. So why is that not hitting the way I'm sure the Trump administration had hoped and the way maybe voters had hoped it would?

8:34I can't speak to what is related to policy and the implications of policy and how that has evolved. What I think you can say is these things take time. If you decide to build a new factory, it can take years until that factory actually creates real jobs. Look at some of the semiconductor manufacturing that was promised and built. It took four years till we actually got to a reasonable place of production out of that factory. And the reality is some of these areas that we're talking about are not full of jobs. They may be full of construction jobs, but they may not always have the jobs associated with them as they have a lot of automation within them.

9:07And so I think what you're seeing is these things take time. They don't happen overnight. What to you is the single most important takeaway for business leaders thinking about supply chain resilience over the next decade? Because I feel like it's just becoming gnarlier over time. I borrow that word from a co-worker, but I think it accurately describes the situation. I think this idea of it is not about the manufacturing, it is about the resilience is actually super important. And it's true if you're a politician and it's true if you're a business leader. Thinking about how you manage your business or manage your supply chain so that it is resilient, so that you have fewer of these overall constraints, I think is actually super important.

9:50And you need to think about what are those things that you do from a supply chain point of view to shift away, to have fewer of those constraints that put you at risk, should we end up in some form of crisis, which we have seen already. We saw it during COVID. And you can imagine with the geopolitical landscape, things happen again. All right.

10:08Alexis Christoforous:Eric Kutcher, senior partner and North America chair over at McKinsey. Are you in the Bay Area today or are you in Washington, D.C.? Where are you, Eric? I am in the Bay Area today. Rarely here, but I am here today. Okay. I was confused. I thought maybe, oh, he's in D.C., but nevertheless, we know that Eric Kutcher is a New York Knicks fan. And for that, we approve. Eric, thank you so much for stopping by and talking about McKinsey's new report, ramping up manufacturing in America. On June 10th, Bloomberg Invest is back in Hong Kong. We look at the role Hong Kong plays between China and the world as major powers compete and markets realign.

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