Robotics, automation will thrive under new trade tariffs 

  • High tariffs will force U.S. manufacturers to produce goods at a lower cost, which would be achieved through automation.
  • Auto companies that invested in automation pre-tariffs are ahead of the game, and they are the cost-saving blueprint for other companies.
  • Companies that produce industrial robots and automation products are set to benefit because they are the largest producers of the robots and equipment needed for automation.

It is no surprise that looming tariffs have impacted global markets. The U.S. imposed tariffs on a number of foreign goods, and the rest of the world responded. The markets, bearing the potential for a trade war, have volleyed based off this news, and several sectors could face potential losses. Not all industries, however, face negative futures as a result of these tariffs. Some are set to thrive.

Robotics and automation companies are an example of a sector set to benefit from these newly enacted tariffs.

Welding robots are seen in a production line at the Volkswagen plant in Emden, Germany March 9, 2018.
Fabian Bimmer | Reuters
Welding robots are seen in a production line at the Volkswagen plant in Emden, Germany March 9, 2018.

A tariff is defined as a schedule of duties imposed by a government on imported or, in some countries, exported goods. In a world that is so interconnected, the impact of such duties is far-reaching. Most, if not all, industries worldwide affected by tariffs will be forced to rapidly increase automation.

The impact goes both ways. The price of goods purchased in the United States will inherently increase due to imposing tariffs on cheaper imports. U.S. manufacturers will be forced to produce goods at a lower cost, which would be achieved through automation. Conversely, companies facing impending tariffs that rely on revenues stemming from exports to the United States will need lower production costs in order to subsidize these tariffs, once again via automation.

The global adoption of robotics and automation technology has been growing exponentially over the past four years. According to Tractica, a technology advisory service, the global robotics market was $31 billion in 2016 and is expected to reach $237 billion by 2022. Regardless of political opinion, tariffs will likely put a multiplying factor on these numbers.

The European auto market is a prime example of the impact of investment in robotics and automation and why tariffs would accelerate such funds. Such investment can stoke output as well as growth while simultaneously decrease margin costs exponentially.

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Over the past four years, European auto companies have been steadily automating manufacturing facilities at home, as well as in the United States. The International Federation of Robotics estimates that 9,900 robots were installed in central and Eastern Europe in 2017, up 28 percent from the year before. Further, the IFR projects a 21 percent compounded annual growth rate in robot shipments to the region by the end of this decade, nearly double the European average.

Auto companies that invested in automation pre-tariffs are ahead of the game, and they are the cost-saving blueprint for other companies. In 2016, BMW introduced its fully automated vehicle manufacturing smart factory in Wackersdorf, Germany. Vehicle production time has gone from 40 hours on the conventional assembly line to 20 hours in the smart factory. The quicker production line requires 50 percent less power and 70 percent less water per car compared to the traditional production average.

The benefits of these investments were abundant and influenced the production of more automated facilities. Last year the BMW plant in South Carolina implemented 2,000 robots and is currently 98 percent automated. BMW is also planning to reduce 5 percent of the annual cost of a vehicle, and 200 million euros ($235 million) is being invested in a new plant. The work is expected to begin in 2018 and is scheduled to finish in 2020. The plant is designed to meet the high standards of an increased production flexibility for future BMW models.

A forced acceleration toward automation requires investments, and there are a number of companies that could benefit across the globe. Rockwell Automation is a U.S. company that produces industrial automation products. KUKA AG, based in Germany, and FANUC, a Japanese company, are spending a great deal of capital advancing the smart factory model. These advancements would completely automate the entire manufacturing process from the manufacturing line, to storage, as well as retrieval to shipping.

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Yaskawa Electric, Harmonic Drive Systems and Nachi-Fujitsu are all Japan-based companies that produce industrial robots and automation products.

I believe they are set to benefit from increased investments in automation because they are the largest producers of the robots and equipment needed for automation. Tariffs today have strong political roots, and their intended outcome is not always what ensures growth.

Despite the numerous negative effects of both the enacted and looming tariffs, there are industries that are set to benefit. Robotics and automation advancements will be necessary in the post-tariff marketplace, and that flood of investments should give a healthy boost to the sector.

— By Brian Gahsman, portfolio manager, AlphaCentric Global Innovations Fund