Reshma Kapadia

Revitalizing U.S. manufacturing and bringing home critical supply chains is a priority for the Trump administration. But the U.S. needs at least $2 trillion for such a task, and that's just the start, according to a new report from McKinsey Global Institute.

The U.S. has taken steps to improve its access to critical goods and to increase production of them at home. The report, however, highlights the vast amount of not only capital, but also skilled workers and infrastructure still needed to reduce U.S. dependence on imports for such products. In other words, it's no quick fix.

The U.S.-China rivalry and the Iran war illustrate how relying on one area for a large share of critical goods can create pain points for the economy. For the U.S., Beijing's ability to leverage its rare-earth-magnet dominance in trade negotiations was the latest wake-up call, as those inputs are used in everything from weapons systems to electric-vehicle motors.

America's dependence on China for these critical goods offered a glimpse into a bigger problem. The U.S. imports about $3 trillion of manufactured goods each year, and McKinsey classifies about a quarter, or about $750 billion , of those as the country's "Achilles' heel."

This bucket includes goods that are vulnerable to two or more of the following risks: They are critical inputs, are from a concentrated source of supply, or are from countries that may not be as geopolitically aligned with the U.S.

The "Achilles' heel" includes advanced chips, some active pharmaceutical ingredients needed for antibiotics, and high-capacity batteries critical for transportation and defense systems.

About 5% of imported goods, or $140 billion, are vulnerable to all three risks, including smartphones, laptops, and rare-earth magnets, according to McKinsey.

The Trump administration has worked to reduce some of this vulnerability. The U.S. has struck several critical mineral pacts, including with Japan and the European Union, and invested in companies like MP Materials and USA Rare Earth in its push to reduce its reliance on China for the critical minerals. The administration has said its tariffs and trade negotiations are also aimed at rebuilding a hollowed out U.S. manufacturing base, which now generates just a quarter of what China produces.

But McKinsey highlights the challenges ahead, focusing on how much more production would be required to meet domestic demand for some 5,000 products that the U.S. imports. If all U.S. factories ran at the peak utilization levels of the last decade, it would generate an additional $650 billion of additional output -- but the bulk of that wouldn't resolve the "Achilles' heel" areas.

To deal with those products, McKinsey estimates that U.S. manufacturing would need to double on average to fully meet domestic demand, and $2 trillion -- roughly 6% of the size of the overall economy -- would be needed to transform the industrial base.

"But that's just the tip of the iceberg in what is needed, which includes specialized skills, energy infrastructure and the entire ecosystem that has to exist in even the permitting processes to be able to scale construction," says Rebecca Anderson, a senior fellow at McKinsey Global Institute. "Funding could be the easiest part."

To attract that sort of investment, a strong business case is necessary. So far, much of the spending on building is going toward AI infrastructure, where investors see a strong return on invested capital, says Shubham Singhal, chair of McKinsey Global Institute and senior partner.

One U.S. advantage, Singhal says, is that the U.S. has a relatively strong record for returns on investment capital. That's one reason it has drawn foreign direct investment: Greenfield, or new, investment doubled between 2022 and 2025 versus 2015 to 2019, much of that into semiconductor-oriented investment.

While much of the investment today into infrastructure is directed at the AI buildout, some of that overlaps with what is needed to resolve the "Achilles' heel" vulnerabilities, Singhal says.

Getting a plant opened is just the first step, with the U.S. needing trade schools and other ways to re-skill the labor force, as well as ways to create an ecosystem of suppliers. That all will take time, which is why Singhal stresses that the U.S. needs to prioritize what parts of these critical goods it wants to build at home, and what it can perhaps allow to be sourced from geopolitically aligned countries.

Of course, any buildout will take years to play out. In the meantime, geopolitics are pushing a rethink of alliances and scrambling what "geopolitically aligned" actually looks like. That complicates companies' calculations about where to invest and source inputs even further.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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May 26, 2026 02:00 ET (06:00 GMT)

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