Manufacturing Automation in 2025: Challenges and Opportunities in a Shifting Economic Landscape
The world of manufacturing automation continues to be shaped by a steady stream of technological advancements, shifting trade policies, and economic factors. Automation was among the defining trends of 2024, and it has been a major business prerogative across industries due to its potential to improve efficiency, reduce costs, and enhance adaptability up and down supply chains. However, recent developments heralded by the new administration such as tariff expansions, the possible dismantling of the CHIPS Act, and persistent inflation present both risks and opportunities for manufacturers.
At Reynders, McVeigh, we recognize automation’s transformative potential in manufacturing and, more broadly, the global economy at large. While short-term volatility may bring headwinds to adoption, the long-term trajectory and business case for automation remains strong.
Tariffs and Trade Policy: A Catalyst for Automation?
The U.S. Administration’s push for expanded tariffs could do much to reshape established global trade dynamics as we know them. As of mid-February, the administration announced a “fair and reciprocal” trade plan that would match U.S. import tariffs to those imposed by other nations, potentially escalating trade tensions with key partners such as the European Union, Japan, and India. The most affected sectors would include the automotive, steel, and aluminum industries, where reciprocal tariffs could elevate costs and therefore complicate entrenched supply chains.
These tariffs could be particularly hard-hitting for manufacturers that rely heavily on imported metals such as those mentioned above. Earlier in February, the president increased tariffs on steel and aluminum to 25%, removing prior exemptions and escalating costs for businesses in the metals industry. While these trade policies are leading to volatility in the markets, automation companies may stand to benefit, according to President and Chief Investment Officer, Patrick McVeigh.
“The intent of a lot of important federal government actions—from the IRA, CHIPS Act, and tariffs—is to entice, encourage, and/or force companies to bring more production back to the U.S. That trend is very positive for automation companies, as new plants will utilize the latest automation to account for higher labor costs here,” McVeigh said.
Companies like Schneider Electric and Rockwell Automation—which design and spearhead the innovation of automation solutions for industrial manufacturers—may see increased demand as firms look to offset rising costs through efficiency gains. Clay Bruning, CFA, Equity Research Analyst, breaks down a key opportunity for automation companies.
“Automation should benefit from any trade disruption—higher input costs will likely force companies to seek internal efficiencies. The need for automation to facilitate cost savings could be a catalyst for widespread adoption,” Bruning said.
To learn more about Schneider and Rockwell’s role in advancing automation in manufacturing, read our latest discussion paper.
CHIPS Act Uncertainty: Will It Slow U.S. Automation Progress?
The Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, a landmark initiative designed to bolster U.S. semiconductor manufacturing, has fueled automation innovation and boosted domestic production of hardware and software critical to the unfolding artificial intelligence revolution. However, the Trump administration is mulling the potential to renegotiate and realign the underpinnings of these agreements, fostering uncertainty for companies that factored these incentives into their long-term strategies.
Since its passage in 2022, the CHIPS Act has provided $39 billion in direct funding to the titans of the chips industry, like Intel, TSMC, and Samsung, which has nourished a surge in domestic semiconductor production. These subsidies were structured around strict conditions, such as requirements for unionized labor and companies to provide affordable childcare programs for employees. The new administration is now reassessing these conditions, raising concerns about potential disruptions to planned investments.
Automation manufacturers rely heavily on semiconductors for smart manufacturing systems, AI-driven robotics, and machine learning applications. Any disruption to CHIPS Act funding could slow down innovation in industrial automation, as semiconductor shortages have already created bottlenecks in previous years.
Inflation, Interest Rates, and Automation’s Role in Cost Management
Persistent inflation presents another challenge for manufacturers, particularly as it relates to input costs and capital investments in key manufacturing-heavy industries. Recent inflation data has shown stronger-than-expected price pressures in the fledgling new year, prompting concerns that the Federal Reserve may delay predicted interest rate cuts.
The administration’s proposed tariffs could further exacerbate inflationary pressures, particularly for manufacturers reliant on imported materials. The New York Times suggests that a 10% tariff on Chinese imports and a 25% tariff on Canadian and Mexican goods could add up to 0.8 percentage points to core inflation. If the administration expands tariffs to other sectors, businesses will likely see even steeper cost increases.
“Ultimately, I believe customers of automation products have to weigh the return on investment and associated payback period of these investments. Sourcing products from countries with tariffs will lower the returns and elongate the payback period. The question is whether this moves the needle from an investment perspective from users of automation products,” Bruning said.
Why Automation Remains a Smart Long-term Play for Companies
While uncertainty around tariffs, semiconductor legislation, and inflation are breeding short-term volatility in the markets, the long-term outlook for manufacturing automation as a pivotal investment trend remains. As companies continue to break new ground in efficiency, sustainability, and cost reduction, automation stands as an essential and sound investment for manufacturers worldwide.
"Automation is likely a beneficiary of these economic shifts. The largest implication of tariffs is the cost-saving and productivity improvement potential that automation provides," Bruning said.
At Reynders, McVeigh, we consider automation to be a key component of our sustainable investing approach, as it provides companies with a double incentive for gains in reduced costs and increased efficiency. For manufacturers and investors alike, staying ahead of these trends will be key to long-term success.
For more insights on how automation trends are shaping the future of manufacturing, reach out to our investment team today.
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