The current artificial intelligence boom has not yet translated into a significant reshaping of investment across the broader U.S. industrial economy, according to an analysis by Shubham Singhal, Anna Kortis, and Jan Mischke. While AI's impact on certain sectors is evident, its broader effect on industrial investment remains limited.
To bridge the gap between current industrial capabilities and desired competitiveness, companies could adopt modular, off-site construction methods. These techniques have the potential to halve project timelines and reduce capital costs by 10% to 20%. Further cost reductions can be achieved through the deployment of advanced technologies and collaborative contracting. Additionally, the implementation of AI- and robot-first operating models could significantly enhance labor productivity, potentially closing half to two-thirds of the existing cost disparity in the U.S.
In instances where cost competitiveness is unattainable, businesses can differentiate themselves through superior service quality, brand recognition, proximity to customers, and innovation. For example, complex drug therapies often command premium margins and benefit from extended periods of commercial exclusivity, allowing performance and trust to sustain higher prices. Unrestricted access to the U.S. market is also becoming an increasingly important factor.
Policymakers face the challenge of selectively supporting industries critical to national security. They cannot provide protection, subsidies, or ring-fencing for every sector. Instead, the focus should be on nurturing industries that can address America's key vulnerabilities, particularly the approximately 25% of manufactured goods that are critical for national security, are subject to supply chain concentration, and are sourced from geopolitically distant partners. The scale of intervention, whether through trade measures, financial support, or industrial policy, needs to be substantial and strategic. This involves a process of triage to identify which industries warrant significant intervention to alter the competitive landscape, starting with those 25% of imported manufactured goods where dependencies are most acute. Policymakers should also work to rectify existing imbalances within the international trading system.