How Global Conflict Is Reshaping the U.S. Manufacturing Outlook

Narrator: Welcome to Manufacturing Talk Radio, your Everything Manufacturing podcast with host and veteran manufacturing industry expert Louis Weiss and co host Amy Nicklaus. Make sure to check out our catalog of 800 previous shows on YouTube, Spotify, or wherever you're listening. Now let's get into the episode.

Cliff Waldman: Good day everybody and welcome to this week's episode of, uh, Manufacturing Think Tank. Cliff I'm Cliff Waldman. Um, I'm the host of this show, one of many on Manufacturing Talk radio. It is probably the central forecasting question of the day. The United States is ensconced in a very difficult, very unpredictable, um, war with, um, a treacherous enemy in Iran that is having global consequences. The question for us is what is that going to do to the US and really the global manufacturing outlook for that. We have two top economists, both of whom are veterans of this show, to join us to help sort out the many dimensions of this difficult question. Mark Vitner, with 30 years in Wells Fargo investment bank, founded Piedmont Crescent Capital. He analyzes the macroeconomy and publishes numerous economic reports including the CAVU campus. Originally from Atlanta, Mark holds economics degrees from the University of Georgia and the University of North Florida with additional graduate work at the University of Florida. He's a member of the national association of Business Economics, where I got to know him and completed the Advanced Training in Economics program at Carnegie Mellon. Active in his community, Mark M. Co founded the Charlotte NABE chapter and shared the foundation for the Charlotte Jewish Community. He previously chaired the California Chamber's Economic Advisory UH Council and serves on the Joint Advisory Board of Economists for the Commonwealth of Virginia. Mark's insights are featured regularly in major publications and he frequently appears on CNBC where I'm sure, uh, quite a few of you have seen him and other networks as well. Since joining Oxford Economics in 2012, Jeremy Leonard has been responsible for overseeing the work of the industry forecasting team and managing the operation and output of Oxford Economics Global industry model, offering robust forecast and powerful scenario analysis to help its clients navigate the highly uncertain and unpredictable cross currents of economic and geopolitical forces. Never more than right now. Prior to joining Oxford Economics, Jeremy ran his own consulting firm based in Montreal, Canada for more than a decade, providing a variety of economic analysis and forecasting related to industrial performance with a particular emphasis on competitiveness and offshoring and reshoring. Among his clients were the Washington D.C. based Manufacturers alliance and he wrote several path breaking reports on manufacturing costs for the national association of Manufacturers. Born and raised in Washington, D.C. and now based in London, Jeremy was educated at the University of Pennsylvania and McGill University, where he received his MA in Economics, Summa cum laude. Gentlemen, I welcome you back to the show.

Jeremy Leonard: Thank you very much, Cliff.

Cliff Waldman: Good to see both of you. I'm going to, to have the fun of starting with a bit of a trick question. The manufacturing data in the United States. In the United States has improved as of late. Uh, after ten months below 50. The purchasing managers Index, and for the benefit of our audience, it's a widely followed survey index which foreshadows sort of the short term fluctuations in US manufacturing. That number was below 50 for 10 months straight and the manufacturing sector was at a, a protracted slump. But for the past four months it's, it's been above 50, uh, 50. The Federal Reserve's measure of manufacturing output was more than 3% down in the fourth quarter of 2025 and almost completely rebounded in the first quarter of 2026. Mark, let me start with you. Given that, um, and can we say that there's been any impact of the war so far on US Manufacturing?

Narrator: Well, on net, I, I don't think there's been a negative impact. I mean there have been some positive impacts that, that you can, you can obviously see, which are defense replenishment and uh, sort of the rush to, to build factories, to, to, to help replenish stuff. So we, we've, we, we've seen, we've seen that play out in real time. But uh, but I think that the war itself really hasn't had any negative impacts because we had very lean inventories because of the tariff situation last year and there just wasn't a whole lot of places to cut because demand has held up reasonably well and if anything folks want to carry a little bit more inventory given how uncertain things are. Uh, and since we're less impacted by international trade, even though we're a huge economy and we're a huge part of the global trading system, but it's a smaller part of our economy. The hit to the global economy has hurt us less than it has other nations and I, I think that that's playing a big role more recently. One other area that's helping is that uh, everybody's now lining up to get, um, get oil, fertilizer, everything else that we have in the United States. It's not any cheaper here, but, but we do have it and a lot of places don't.

Cliff Waldman: Jeremy, what are your thoughts on that?

Jeremy Leonard: Yeah, I mean, I think I broadly agree with what Mark says, but I guess uh, living in Europe for so long, uh, has tainted uh, My uh, optimism genes that I was born with, uh, in America, I mean the way I read the data, I think you're right. On a quarterly basis, yes, certainly things are strong. But if you look at the March data itself, you have seen some pullback in some sectors, not all. And I would agree with Mark on the defense side on the ammunition. There are certain segments like aerospace that I think will net on net, probably beneficiaries from what's happening in the war. Uh, but there are a few sectors, actually more than a few, um, where we've seen some pullback in March. And whether this is a trend or not is too early to tell. But some of them, including Automotive, tend to be the ones that when you have an inflationary shock, which we are having, um, because we did have a pretty hot inflation number and I think that's going to continue. When you look at kind of the sensitivity of consumers, what did they stop buying? When pressures on real disposable incomes come, Automotive is right there at the top of the list. So I'm not about to say that that month decline, which was pretty significant, um, is a harbinger of the future. But I think we need to be a little bit sanguine about overall manufacturing because I think the demand destruction that will happen with this squeeze on incomes is going to mean that net on net. I think, you know, for manufacturing as a whole, I think there are going to be some certain sectors that are relatively small that are going to benefit. But I think there actually is going to be an impact as we look ahead. But Mark, I definitely take your point on inventories because I think that's right because whenever you have uncertainty you are going to have buildup. So, so we could see some, some sort of countervailing impacts there.

Cliff Waldman: Mark, the first thing economically anybody thinks about with the war to oil price, is it possible that there are at least some manufacturing industries that are at least momentarily benefiting from higher oil prices?

Narrator: Well, we're benefit because um, our plastics business is tied to natural gas and we've got an abundance of natural gas and our domestic prices are very, very low. And so, so uh, there's a lot of shifting of production from Europe back to the United States, uh, just because of that. And so that's played out fairly nicely for us. I mean it's always, it's tough to say how we're benefiting from other people's troubles, um, but we are fairly self sufficient in most things. And I've spoken about this since the war came out. I said I Don't want to seem like I'm a Pollyanna. I said, uh, for us it's not a question of not having the stuff. We're still going to have to pay that we have this, we have almost everything we need. We're not going to have, we're going to have relatively few shortages, but we still face the price effects and those, those price effects are, are going to have some income effects. And, and I share the caution on the auto sector. Whenever you have a rise in gasoline prices, we tend to see a, a drop in the auto sector. But what I think is very unique to this period in time is that we've got some structural shifts that are very long running and one of those is the buildup of a build out of AI and its infrastructure. And I hate to focus too much on that because everybody focuses a lot on that. Something that's been kind of lost is that uh, Boeing is going to increase their output by 15% this year. And when Boeing increases their output by 15%, that's, that's 737 Maxs and 787s. That, that's got a huge follow through. And, and then we've, we've had reshoring that, that really was going on before the pandemic. It's kind of gained strength since then. It's very apparent in the pharmaceutical industry and so, and there, there's a few other sectors. But what all of those areas have in common is they're very capital intensive. A lot of the capital equipment is made here in the US with the exception of AI we're importing a lot of that from Taiwan. But, but a lot of it's made here in the US it's long lived. It's not going to be interrupted because of the war. People are still going to take their GLP1s.

Cliff Waldman: Jeremy, on oil prices.

Jeremy Leonard: Yeah, no, I think uh, you hit the nail right on the head in terms of the impact on the US Because I completely agree with everything you said about the fact that the US is self sufficient. I tend to think about chemicals, feedstocks, and there's all sorts of ways in which the oil price feeds through the broader economy. And the chemical channel is the main one because as we all know, chemicals are essentially used everywhere. And you're absolutely right in terms of the, you know, shortages are not an issue really for the us they are an issue actually in other parts of the world. Um, particularly in China we, we monitor the uh, the operating rates of sort of, you know, chemical factories and polymer factories. For instance, have seen their operating rates go off a cliff. Now, it's hard to put cause and effect, but my hunch is that it's actually risks of shortages and possibly actual shortages because if about the dependence of various regions on the Middle east for fossil fuels, it's about 70% in, in the APAC region now, uh, China is a little bit lower at about 50%. But you know, the ratio I think in the US is less than 10%. And so, so what's happening, I think in the US is that, yes, essentially what it means is US users of uh, fossil fuels are taking market share. I'm thinking more about the chemical sector here. They're taking market share, but it is a market share that isn't growing, probably isn't going to grow nearly as fast as it would have otherwise, coming back to automotive and various other end markets. So you've got this situation where you've got demand destruction from the impact on incomes, but you've got this increasing market share because of this competitive advantage of the US because of the development of shale gas. And I think you're right, I mean this reshoring story, and it's quite interesting because I think we're going to talk about that in more detail, but the fact that the, the increase in investment in more manufacturing capacity in the US actually predates the tariffs by quite some time. And so there's kind of a timing issue of what brings this about. And we can argue about what they are, whether it's the CHIPS act, whether it's the ira, uh, whether it's simply the need to expand capacity in the wake of this huge increase in post pandemic demand. So I would agree. And in fact you look at the data and the share of manufacturing and GDP has actually started to increase. And the question is, you know, from a political perspective, who's responsible? But yeah, so I mean, I broadly agree with sort of what you've said, Mark, in that regard.

Cliff Waldman: Mark, let's do a full parsing now. And I think that our audience would have this question. I mean the US has a fairly broad and diverse manufacturing sector. If you had to pick the, uh, let's say three, four industries that are going to eventually see the most impact, the three or four manufacturing industries in the United States that are eventually going to see the most impact from the Middle east conflict, uh, what would you say they are?

Narrator: Gosh, you know, in terms of. Well, I mean, on the positive side, it's definitely going to be the defense industrial base. I mean we're and we're seeing that um, all across really in the Sunbelt where we've seen a lot of factories that are being expanded to make uh, the interceptors that are used to, to shoot down missiles and um, new technologies to shoot down drones. We're also seeing it in shipbuilding and in shipbuilding we are short of capacity. The Newport News shipyard is where we build aircraft carriers, is where we build nuclear submarines. Uh, but we can't, we don't have enough capacity there. We don't have enough people. And because of that, um, Huntington Ingalls has been buying up shipyards along the Atlantic coast and the Gulf coast and they're building components of those ships in other shipyards and putting them on barges and then floating in the Newport News to where they get assembled so they can add a little bit more capacity. And it's another thing that's, it's an industry. It's, it's not necessarily tied to the war. But, but you know, when Iran took the hostages in 79, one of the things that came out of that was the Osprey. It made us rethink about defense technologies. And, and uh, and I think that the, the, the, the, the crisis in the Strait of Hormuz has got us thinking about the, the, the, the urgency and rebuilding our fleet and, and uh, there's a lot of things that are going to be going on there. You know, on the negative side, you know, I do worry about things tied to agriculture. I, you know, when I, when I heard about fertilizer and I was like, you know, everybody, they want to panic, right? At the same time I'm like going okay, for the, for the most part. I mean, I, I've never been a farmer, but I know that, that um, that the fertilizer is already on the, is in the ground for, for, for this crop. It's the uh, it's the crop that'll be coming later where people have to make tougher decisions about what they're going to grow because maybe it doesn't make sense they can get the fertilizer, but it costs so much money that, that it, that it um, that, that they won't be able to make a profit. They won't be able to. So that doesn't make any sense for them to take the risk because it is a high risk endeavor. Uh, so I do worry about, um, agricultural products and food products and what's going to happen, uh, later this year and then consumer durables. Um, uh, I do a lot of work with the furniture industry. It's important in this part of the country, even though much of it has gone to China and uh, but it's still, um, the Carolinas, Mississippi, we still make a lot of furniture. And furniture is one of those things that when money is tight, you can get, get by with what you got, or you can go buy a used. You can be able to go buy something used if you want. Ah, you don't have to go out and buy something new. Uh, um, and so that's been an industry that boomed during the pandemic when everybody was staying home, and it's really struggled since. And I think that's an industry that's a casualty. Um, and, and it's not just the weakness here. Uh, it's also that we import so much stuff from China and the shipping cost has gone up so much that, uh, a lot of the stuff we import from China is at relatively low price points. Uh, and, uh, and so it's just going to be more expensive. And I don't know that that uh, with incomes under pressure that, that it's going to be able to work itself out generally.

Cliff Waldman: Well, the three or four top US Manufacturing industries impacted by Iran.

Jeremy Leonard: Yeah, I mean, I would come back to what I said earlier about the, uh, the impact of the, the squeeze on household incomes. And Mark, uh, you alluded to it in terms of furniture. We're talking about sort of discretionary items that you can put off or you can buy something used or whatever it is. So sectors like automotive, we m. We've made big downgrades to our forecasts. And that's really on the kind of demand side, the sort of household income squeeze side of things. But the other areas that I think are important are on the supply and cost side. And this comes back to the point about, as you mentioned, Mark, you know, a lot of things where the US May not have shortages, uh, prices are set globally. And one of those is actually the petrochemical sector. Most petrochemicals are actually priced globally, which means that even though we have a lot of supply, the costs of using that, uh, is going to go up. And chemicals are used everywhere. We've done some supply chain analysis shows. Well, yeah, it's everywhere, but the places where it's most heavily used are. Well, the automotive sector is one. So you've got both the demand squeeze and you've got the cost push. So automotive is kind of doubly hit, I think, by what's happening, uh, in the Iran war. But if we think about things like packaging, so thinking about the food, cosmetics, um, uh, a Lot of that is going to be plastics and um. So those are the kinds of sectors that I would say that you know, on the food side the income quiz has less of an income squeeze, has less of an impact on food and sort of the essentials, it will have an impact on the margin but then you have these cost pressures and that's going to cause uh, some headaches in those sectors. So I mean. And I would agree sort of on the, on the plus side, I think Mark and I both agree sort of the defense side, the aerospace, not only the war itself, but we've also got quite a lot of policy, uh, either uh, committed or announced in terms of increased defense spending. So I think that's how I summarize my view on sort of the, sort of the key sectors. Yeah.

Narrator: And I'd come back to just add on your petrochemicals. And I think that um, while the US has always had uh, a key competitive advantage in there, I think that one of the outcomes of this is that a lot of countries are going to make certain that they have more exposure to our market if they didn't have any exposure to our market. In terms of um. When you talked about the um, dependence that we have on the Middle east, it's kind of ironic. We really don't have a whole lot of any dependence on the Middle East. The reason why we have that 10 is because they didn't want to be, have, be so dependent upon selling just to Asia. And so they went out of their way to establish facilities and so they're actually selling it to their own affiliates here in the United States. So it's uh. So, so I think we're going to see that kind of in reverse that, that same thinking in reverse where people are going to say we need to revert, we need to diversify our supply mix so that we, that we uh, are, are less subject to, to shocks which you know, really since um, since we had the Faux shock of Y2K we've been hit with nothing but shocks ever since.

Jeremy Leonard: No, and I think, I mean over here in Europe it's a big issue because here in Europe the chemical sector is very dependent on NAFTA based uh, refining still. Um, and so the result is that even though gas prices here in Europe haven't increased nearly as much as the R were kind of hostage to the fact that crude oil prices have gone up. And so uh, we're seeing a lot of migration of production, uh, certainly out of Europe. Some of it's going to Asia, some of it's probably going to come to the U.S. i would guess, but that's a huge issue here in Europe, the chemical sector. So Cliff, you sort of directed your question to the US But I can tell you that over here, energy intensive sectors like chemicals, uh, building materials, pulp and paper, they are really, really worried because they're just, they're already reeling from the, from the impacts of the Russian war, which again, because of the domestic supply in the US it was never really an issue. The price of gas, let's say, or the price of industrial electricity that's generated

Cliff Waldman: by gas in the US Affordability is just an escalating, uh, source of concern and discussion. And for, you know, the average uh, US uh household is now portrayed as being hit hard by gas prices, being hit hard by food prices for some time now and the decisions that they have to make. Uh, can I, do I really afford those medicines now? If I have to put food on my table, can I really afford, uh, you know, that furniture? If I have to put my food at the decisions that they have to make away from other things to be able to put gas in the car and food on the table, those are going to be residually impacted industries. There could be many of them, you know, uh, within the um, um, you know, the U.S. uh economy, the U.S. manufacturing sector.

Jeremy Leonard: But Cliff, I don't think we should forget about uh, the impacts of fiscal policy though.

Cliff Waldman: Yeah, right, right.

Jeremy Leonard: Because I mean we do have this one beautiful bill act that has started to send money through. Now we've done some analysis and it's clear that the tax refunds are not going to completely offset the adverse impact of high gas prices. Let's say, uh, we've done some analysis. It's not enough, but it is a kind of countervailing force. And I think you're seeing the same thing. Um, like if we look at the CapEx cycle, for instance, I mean a lot of that is driven by AI, it's clear. But even if you look at some of the non AI sectors which have been very morose last year, we're starting to see some evidence of broader capital recovery. I think we're going to have headwinds from the war, but I think, I think it is very important to, and I think you, you sort of alluded to this in your opening comments, Mark, is that fundamentally the, the, the kind of manufacturing economy is, has had quite a lot of momentum going into this war. So, so these are headwinds, but they're headwinds against, you know, I would say the policy stance is, is in a place that it's, you know, we have some forward momentum. This, this is my optimism coming through. I'm, I'm kind of, I'm kind of torn between two continents as you can see.

Narrator: Well, I, I've been, I've been pretty optimistic about it. And I'll tell you the one thing that, that hasn't gotten as much attention because it, it, it's not above the key 50 line is if you look at the diffusion index and the employment report in the uh, the manufacturing numbers, the overall diffusion index is over 50 but the uh, the manufacturing number is still below 50. But, but it shows the same magnitude of the improvement and it's one of the things that I always like to, to remind people is that the manufacturing sector is responsible for the cyclical swing in the economy from when we, we go from underperforming to, to outperforming our, our larmor of potential. And I think that's where we are right now. And so that's one of the reasons I have a, a strong outlook for the year.

Jeremy Leonard: I mean I, I, yeah, I mean it's absolutely true.

Narrator: I have to pinch myself each time that I get finished putting the numbers together because I was like really going to be that good.

Jeremy Leonard: We do a lot of cyclical analysis and I mean there's the, the underlying momentum. As you say, industry is very cyclical and we're at a point in the cycle where there's a, there's a natural tendency plus all of the, all of the policy moves and the fact that okay, you know, the fed funds rate is relatively low, long term rates haven't come down nearly as much but you're still getting this, you have, there's this momentum effect that is there and I think that it's headwinds against a desire and a push for a relatively strong recovery. Now that said, because of the war, we don't have a very bullish forecast for manufacturing in the US this year. We're sort of less than 1%. But as you say it's mainly because of the impacts of the income squeeze through the demand destruction and through this petrochemical and this costs cost driven inflation, uh, which is squeezing margins and you know, companies unable to pass through costs to their customers and therefore that's what's sort of constraining about investment.

Cliff Waldman: Let me ask, Jeremy, I want to start with you. Uh, on this particular question I'm going to ask a structural question. We've had two sort of essentially back to back periods of chaotic activity Tower of chaos. And now the chaos, uh, surrounding uh, the conflict in the Middle East. Have they or will they, do you think, precipitate any fundamental changes in manufacturing supply chains in the US on the

Jeremy Leonard: first question, we've done quite a lot of work around the question of tariffs and supply chains. And I think the question fundamentally sort of devolves uh, into questions about reshore. In other words, is this going to generate a kind of, a kind of reshoring and doing more domestically supplied things? And I think it kind of comes back to the point that we were talking about, uh, early on in our conversation about, you know, yes, we have seen increases in manufacturing capacity and construction, but they haven't come after the tariffs. In other words, there's a timing issue. So yes, we've seen it. I would argue some of it's coming from the CHIPS act, some of it's coming from the ira, some of it's coming from the, the ramp up in production. And then, you know, the fact that we had uh, you know, product couldn't get to market and there were shortages of all sorts of things. If you kind of look at what's happened to the metrics around manufacturing construction of new capacity, you don't see much. And in fact, actually what you see in real terms and in nominal terms, you see a decline from, albeit from a very high level of manufacturing construction of new manufacturing facilities. So that's one data point. On the other hand, you've got commitments from companies who say they're going to invest x hundred billion dollars over the next few years and that's, that's there whether they do it. I don't know anybody better than anyone else. And we also is absolutely certain that we have anecdotal stories and there are companies who are reshoring. We haven't really seen it in the data. So I mean my view would be that yes, we have seen a manufacturing resurgence. Do I think it's due to the tariffs? Not really. Now, the second question about the war, uh, that's one where it really depends on how long the war lasts. I think if it's a very short war and we these and we have negotiations and somebody blinks on kind of the political and economic costs of carrying on this block blockade of the Strait of Hormuz, I think that there probably isn't going to be because if we think on the energy side, as, as we know, all three of us on this call the, the sort of energy side of things, you know, the US Basically operates pretty independently. Um, it's drawing in sort of the petrochemicals and the immediate downstream sectors. And in terms of whether that would impact broader supply chains, I really don't see it. I'd be interested in what Mark has to say about this and I would just add in Europe there may be some um, movement on this because Europe, as we know, has seen very large energy crises one after the other. The Russian crisis was really a game changer here in Europe. And what it did was it actually started Europe thinking about reshaping its energy supply chains and its energy vulnerability. Right. So weaning itself off of Russian gas, pushing for renewables and trying to generate more energy independence in a region that doesn't have a lot of fossil fuels, to be honest with you. And the fossil fuel which we've got outside of Norway, certainly here in the UK are very hard to get, very expensive to dig out. So from that perspective, I think in Europe, yes, there is a story, but I don't think that really holds in the US just because the energy situation is very different.

Cliff Waldman: Mark, let me continue the, the, the supply chain change story with you and let me ask you this. However the, uh, the war in the Middle east ends up, Iran isn't going away and we, I mean, listen, we still have troops in Germany as, as a residual of World War II. So I mean there's going to be a long term, I, I think a long term. However this is resolved, if it is a long term tension with Iran that uh, is going to have geopolitical and perhaps supply chain consequences and frankly this president is going to be in office for m. A uh, number of years more. So tariffs aren't going to, despite the legal, uh, wrangling, aren't going to go away. So given all that, I mean, am I right in saying we're going to see some supply chain changes from the Tower of Shock and from the uh, Middle east conflict that are going to be fundamental. What do you think?

Narrator: I think we're seeing them. Um, the data is a little weird to start with. The reshoring really began, um, prior to the pandemic. And the reason why we were seeing reshoring is that the labor content needed to make just about everything has been shrinking while the risk from some sort of supply disruption had been increasing. I mean, before we had the pandemic we had SARS and we had earthquakes and we had all sorts of things that, that, that disrupted supply chains. And people are like, well, you know what, it's just not worth it to me to have this supply chain risk to save this amount of money. And we were seeing reshoring. Now what's happened in, on the construction side is that in, in the mix here we had a huge wave of EVs. EV plants that were built. And the way that EV plants are built today, they built uh, uh there's a, the Kia built a plant outside of Savannah and it was probably about a $8 billion plant. It has got $30 billion in related investment that has already been built around that plant. BMW built a similar plant in Greenville. It took it 30 years to get $30 billion of investment because suppliers gradually came to locate close to BMW. And so now you want them all there right away. Well EVs kind of hit a speed bump. Uh they weren't selling as well. Um then the president has changed the federal support for them. And so we've had that disruption in manufacturing construction. But on the other side, steel production, steel investment in the steel industry. And the center of the steel industry has moved to Mississippi County, Arkansas. So it's in the, in the Fayetteville metropolitan um, area. It's the number one county for, for steel manufacturing. Uh, that's where New River Steel was, which was a startup by John Corenti who was one of the founders of Nucor Corporation. He passed away before it got finished. And, and um, and US Steel bought that mill. That's what the whole competition for U.S. steel was about between Cleveland Cliffs and Nippon was. They really wanted that mill which was a, just a hyper efficient mill. And now they're building a 2 million dollar. 2 million ton, 2 million ton, probably 2 billion dollar UM expansion of that mill right there. Uh we've got a few aluminum smelters which is a little bit more risky because of the energy needs that are in there. But we are, we are seeing this, this supply chain effects where people are wanting to reshore lots uh, of activities. And then one that has been more immediate has been pharmaceuticals and to a lesser extent Medtech and it. But it's been huge uh, and North Carolina has been a, a huge recipient of that really in Raleigh and to the east. And a lot of it is tied to GLP1s. Uh, but it's, it's tied to a whole lot of other pharmaceutical uh, products as well. And, and we've got a long way to go on there. I mean one of the problems is that we're so dependent upon China and India for the precursors that go into all of our medicines over the counter prescription, every one of them. The precursors come from China and India. They don't have ultra pure water. They don't want to invest in the technologies to get it. And because of that all of our medicines are laced with trace amounts of carcinogens. It's still, if you're prescribed something, it's still better to take it than to not take it. But uh, but it'd be better if we made it here. And so that is a big emphasis uh, is to bring back uh, the, the precursors to the pharmaceutical industry. And that's going to continue. So there's, there, there are a lot of things. Some of it is um, some of it's driven by the fear of supply shortages, some of it's driven by uh, by real life human concerns I guess. But it's not cyclical, it's a structural shift. And I think that's one of the things that's given the economy so much resiliency lately.

Cliff Waldman: We also don't handle our pharmaceuticals very smartly sometimes. I mean uh, most of the world's antibiotics were innovated in US laboratories but yet we somehow over time gave away the R D and the uh, the technology to China. But we, we developed a lot of that. So pharmaceuticals, given the, the trend of things is going to be uh, definitely an episode we're going to tackle on uh, manufacturing Think tank. Mark, you've sort of answered the question, but um, I want to answer it directly. Is there going on the US Economy as a whole when Iran is over with, with the, when the, the conflict with Iran is over with, is there going to be a lasting fingerprint, is there going to be a lasting impact of the war with Iran on US Economic activity or US Manufacturing activity?

Narrator: I tend to be a little more optimistic about the war and the ending of the war and that. Um, and I uh, was speaking with somebody about it last night and I said, I said uh, believe it or not, I think that when this war is over, because I only see one way for the war to end and that is to defeat um, the irg. I think we have to. And I, and if we defeat them, I think Iran becomes a western aligned nation. And um, the only thing that I think gets in the way of that is that all of a sudden Saudi Arabia begins to think, well, wait a minute, I want, I don't know if I want, I even, I don't know if I want them on our side. I mean, because you know, it's like there gets to be a little competitiveness in there. But I, I'm looking for a favorable outcome in the war and I actually think it's sooner that, that that's going to happen fairly soon. I, I, you know, it's really hard to tell because there's so much blustering right now on the part of the Iranians. It's, but I like it and I said to me, and it's just terrible because a war is a terrible thing. My son's in the service and, and you know, you, you don't, you don't want to, you never want to go to war. It's um, But I was like when I'm afraid that the only way this war is going to end is Iran has to realize that they lost, which means that the United States is, is going to have to, you know, when they, they're calling it Operation Sledgehammer, they're going to have to drop the hammer. I mean, that's, and I'm afraid that's, that's what's going to have to happen. But I think, and, and I've been writing this in my reports. I really think that we're going to have a resolution not totally worked out, but announced around Memorial Day. So that's two weeks from now. So it's not, uh, you know, I think it's going to be, I think it's going to be that soon. It'll probably be, it'll probably take June, all of June to get things kind of sorted out and hopefully by the 4th of July, everything, everybody's sailing through the trade of her news. Now that could be, that could be so wrong. I mean when you, when you talk about foreign policy and you talk about Iran, it could be so, so wrong. But I just can't see how we, we end this war and go back to a situation that has plagued the United States and plagued the west for the last 50 years. I just don't see that as, I just don't see that as an acceptable outcome.

Cliff Waldman: Jeremy, Lasting impact of the war on the US Economy.

Jeremy Leonard: Yeah, well, I mean what Mark, uh, just said dovetails pretty nicely with Oxford economics baseline, which we do. What we also think that there will be a resolution in the US Favor in the near term. Whether it's late May or June, we don't really know, but we just think the costs to Iran are just too great. Somebody's going to blink and we think it's going to be Iran. But what's also interesting, we've done some scenario analysis around a sort of longer term war. The Strait of Hormuz is closed for six months. There's more military activity sort of destroying other alternative infrastructure to get product to market through the Saudi pipelines, et cetera, through the Red Sea and even there, I mean you look at, for the US because of this energy independence and because of the fact that the US okay, you're going to have uncertainty, you're going to have inflation, but you know, in even a kind of, I don't want to call it a worst case scenario, but a much worse case scenario where, you know, with the straits closed for half a year or something like that, yes, they're going to be impacts and they're going to be longer lasting in terms of inflation. But when you look at the resilience of the U.S. economy, you know, the, basically the economy is going to get back to where it was, you know, at some point in the Future, whether it's 2027, 2028. So, so I tend to concur with, with uh, Mark's view that I, I don't see a lasting impact really on the US Economy. And as you say Mark, if it comes out the way you did, you know, possibly better, we'll see.

Narrator: Well, and, and when we went into the war, we were overproducing oil globally. We were in an oversupply, which is one of the reasons prices did spike. And if Iran, you know, I think the big risk in this kind of scenario, uh, that I've got outlined in my head here is that uh, if Iran strikes back and is successful at knocking out energy infrastructure in Saudi Arabia and the UAE and Qatar, and if they did that then that could have some lasting negative effects. But I really think that if we have the positive outcome that I'm expecting that uh, oil prices will actually drop below what the consensus expectations are because I think that the uh, you know, for, you know, it'll make some people who don't like Trump very angry. But the Saudis will, will make sure that, that they know that, that, that they're appreciative of Donald Trump before election day. I mean they, they will do that. They will drive the price down. And I, I could see the price of oil coming down to $60 a barrel. It's not our forecast and we've got it down to 85, but I could see it coming down that, that sharply if, if the war was to end that quickly, that would help the global economy would undo a lot of the things that, that are drags right now.

Cliff Waldman: Brent was spiking at what, 115 I think at one point.

Narrator: Well, when you look at the spot prices it tends to move quite a, quite a bit and that's actually more meaningful than most people realize. And then it came back down to 101 and um, and I don't know what to um, you know, it's just, it's just wild guesses until we, until we get some sort of an action because I don't think that Iran is going to come back to the table and say okay, I don't think they're going to have an epiphany and says, you know something, we think Donald Trump's really serious this time. One of the things, one of the things that I think is, has been a, that is, is getting in their way is that the um, the psyop, the, the, the, the psychological warfare, get that, that Iran and, and China and Russia, uh, and, and, and whatever other allies they have has been so successful on the intern, uh, globally that I think they believe their own headlines and they think they're winning the war and they're not winning the war. And, and so they think that Trump is blustering. And I'm thinking, um, my goodness, the one thing you don't want to do is to uh, to um, you know, to call Trump on his bluster because he will follow through.

Cliff Waldman: Jeremy, let me start with you in this next question. I think it's the obvious next question. Let's talk about the impact of the Iran war on the global manufacturing picture. Is there a unified uh, way of describing that?

Jeremy Leonard: Uh, well, I mean like, like I was alluding to earlier, the impacts are much more pronounced outside of the US and it's really a function of the degree to which the regions depend on the Middle east for oil. So it's, it's much higher in both Asia and Europe. Like I mentioned, Asia is about 70%, Europe's about 30%. So you immediately get this impact on particularly the industrial side because that's uh, the impact is mainly through the gas channel because we've already said oil prices are global. They reduce disposable incomes all over the world, in the US In France, in the UK and they have very similar impacts but it's more on the industrial side. So you have a situation where one, for instance China and Europe are very dependent the chemical sector on oil based NAFTA because it has historically been cheap and that is going to cause input costs to increase. And we've already started seeing it. So in addition to the demand destruction we're seeing all over the world, we're seeing this cost driven inflation, um, cost pressures which are either slimming margins or causing uh, increases in the cpi. So if we look at our kind of forecast and how we revised down, there have been bigger revisions down in Europe and, and in Asia, not so much in China, but for different reasons because that's about stimulus and trying to meet the, the four and a half percent plus ah target. So the impact on the global economy is, is uh, quite a lot larger than for the US Um, and again this goes for our scenarios for the longer war because everything that impacts higher oil prices on the demand side, probably the impacts in Europe roughly similar, but it's just on the supply side on the cost push, um, because you have this impact on the gas price, um, it's particularly pronounced in uh, in Asia Pacific. In Europe we've had the situation where the Russian war has actually caused Europe to wean itself off quite a lot from Russian gas. Um, but nonetheless there's a need to compete for LNG imports and that's actually having a very small residual impact on the US gas price because you can get more selling abroad. So the price goes up a little bit in the US So yeah, I mean the short story is that the impacts elsewhere in the world are more pronounced. It's mainly on the supply side, mainly through that channel of um, input costs, primarily through the gas channel.

Cliff Waldman: Mark your thoughts in the war in global manufacturing?

Narrator: Yeah, um, very much the same there. It's really everything that energy touches, any kind of energy intensive manufacturing, uh, is disproportionately impacted around the world. Their costs are just, you know, through the roof. And you know, getting back to your supply chain question about lasting impacts, one of the lasting impacts on this, and some of it was the tariffs and Trump's negotiations, whatnot. But it was really the war that drove it home is that uh, for years we've been trying to nail down an investment in Alaska to unlock the huge amounts of gas that we have on the Northern slope. But we need a pipeline to take the natural gas down to where it can be exported and then we have to have a plant. And so we need about $50 billion in investment. And suddenly everything's kind of come together where Japan and North Korea, Japan and South Korea are, uh, saying, you know something, this makes a lot of sense for us. We can, we could, we can make this happen. We can, we can, we can buy the debt on this and um, and make this investment happen. And that, that's the kind of investment that we're going to see. I think that's, it's always been a, because it's a, it's a multi year effort. Certainly you can't build a pipeline and build the, the, the, the liquefaction facilities quick enough to uh, to, to get that done in, in, to during the, during the, the, the, the Iraq, the Iran war. But it's something that I think is an outcome that we're going to see after that so that they could lessen their dependence upon the Middle east and, and uh, really have some locked in supply under some long term contracts.

Cliff Waldman: All right, final question. Let's start with you Jeremy. What's your biggest concern, your biggest fear with regard to the short term outlook right now for the US manufacturing sector?

Jeremy Leonard: Yeah, I mean probably the biggest fear is um, sort of the, the demand destruction m that I referenced earlier. But I think a second one is about the fact that we've got is this input cost through the petrochemical channel and how that's going to impact margin pressures because we have seen pretty significant material decreases in margins across a lot of sectors over 2025 and that kind of related to the input cost increases because of tariffs. There has been a bit of a, there was a bit of a recovery towards the end of the year and, and I fear that this increase through the petrochemical channel and um, those supply chains through the, you know, whether it's automotive, whether it's packaging, whether that's going to further compress margins and then either result in one of two things where producers are able to pass through those costs through the supply chain which then leads to an increase in the cpi or they are unable to and it squeezes their margins more and they are unable to do this investment and sort of fuel this capital recovery that we've started to see.

Cliff Waldman: Mark, your biggest concern in terms of the short term outlook for the US manufacturing sector?

Narrator: My concern is policy reversals and right now the big thing is that gosh, the Fed's not going to cut rates, they're going to have to raise them. And I'm thinking not so fast my friend. I'm, I'm holding on. I'm still one of the few people that says I still think they're going to cut in September. Uh, for one, I don't think the jobs number is anywhere near as strong as what's been reported. And you look and see where the jobs are being added. They tend to be in a lot of low paying occupations. The reason why we're adding them there is there are not a whole lot of other options. So within healthcare it's nursing homes and home healthcare. They couldn't hire if it Was if job growth was stronger, they wouldn't be able to hire. And the fact that it's weakening, they're able to hire. So I think the labor market is weakening. I think it's still losing a little bit of momentum. I think they'll be able to. And then on the inflation front, I mean, I think the latest number is a little exaggerated. So I worry about that. If the Fed were to raise rates, it makes it a little more costly to rebuild inventories. People tend to hold a little bit less inventory. It bites into some of the momentum we have at higher hurdle rate for capital projects. The other policy reversal though is on the fiscal side and the federal government side. And you know, we got this midterm election and um, we could see that, uh, you know, that that could mark the end of, uh, public, um, policy being the wind at the back of the M. Manufacturing sector. And instead we could see environmental, uh, challenges and all sorts of other things coming up that uh, really slow things down. And it scares me because, you know, it's, you know, this whole thing about, um, data centers. People say the whole thing that we're worried about data centers. It's the same thing that happened into Europe with their energy industry where the Russians were financing all the opposition so that they would get Europe hooked on Russian gas. The Chinese are basically funding all this opposition to AI center data centers, uh, here in the US to slow down our adoption of AI. And you know, it just, it just makes me sick that people can't see through this. It's not, uh, it's not this big threat we have. Apple has their largest data center in the world located between Charlotte and Hickory, North Carolina. It's 55 million square feet. Property taxes in that community have gone down because Apple's such a big property taxpayer. And the only public facilities that they've needed was a larger fire department, which they've never really had to use. So they've, uh, they're, they've increased the tax base. Uh, people's electric rates haven't gone up because of it. It's been, it's been a net positive and I'm hoping that we don't see a reversal on that. But there's a lot of noise around. There's a lot of noise around that issue right now.

Cliff Waldman: Mark Vitner, Jeremy Leonard, you gave us your time, you gave us your expertise. Gentlemen, thank you very much for joining me today.

Jeremy Leonard: Thank you, Cliff. It was a pleasure.

Narrator: Great to see you, Cliff.

Cliff Waldman: I hope you will stay tuned for our next episode where we will be discussing supply chain issues in the global space industry. In this Artemis age. It's getting to be a bigger and more, uh, increasingly important discussion. And we're looking forward to, uh, to that, to that episode. Until then, this is Cliff Waldman saying we'll see you next time.

Narrator: Thanks again for joining us on another episode of Manufacturing Talk Rates Radio with hosts Lewis Weiss and Amy Nicklaus. Before you head out, make sure to subscribe and leave us a review. For more information about the show and the manufacturing industry, head over to MFGTalkradio.com that's mfg t-a l k r a d I o dot com.

Cliff Waldman: Resonate.

Narrator: This podcast is a part of the C Suite Radio Network. For more top business podcasts, visit C suiteradio.

Jeremy Leonard: Com.