Reshoring Manufacturing in the Tariff Era: Why Automation is the Real Game-Changer

The Trump administration's trade policies, marked by sweeping tariffs on Chinese imports, have catalyzed a historic reshoring boom. Companies like Merck & Co. and Cra-Z-Art are repatriating manufacturing to the U.S. to mitigate tariff costs. However, reshoring alone isn't enough—automation is the critical enabler of cost efficiency in this new landscape. While traditional manufacturers may struggle to offset tariffs without advanced technology, automation-driven firms are poised to capture outsized gains. Investors should focus on the robotics and AI sectors, not merely on reshoring equities.

Merck: Reshoring with Automation Under the Hood

Merck's $12 billion investment in U.S. manufacturing since 2018—highlighted by its new $1 billion North Carolina vaccine plant—reflects a strategic response to tariffs. While the company hasn't explicitly stated its use of automation, the scale of its reshoring efforts implies advanced technologies are at play. For instance, producing complex biologics like Keytruda domestically requires precision robotics and AI-driven quality control to offset higher U.S. labor costs.

Merck's stock has risen 30% since 2018, partly fueled by reshoring optimism. However, its $200 million tariff bill in 2025 underscores the need for automation to maintain margins. Without it, U.S. manufacturing would remain uncompetitive against cheaper offshore alternatives.

Cra-Z-Art: Expanding Facilities, but Missing the Automation Link

Cra-Z-Art's 50% expansion of U.S. manufacturing capacity—adding 500,000 square feet to its Tennessee and Florida facilities—is a bold move to reduce reliance on Chinese imports. Yet its strategy lacks a clear automation component. Unlike Merck, Cra-Z-Art has focused on physical infrastructure rather than technological upgrades. This raises concerns about long-term cost efficiency.

While the company claims faster time-to-market and job creation, labor-intensive toy manufacturing in the U.S. faces headwinds. Without automation, wage costs could erode tariff savings. Competitors like Mattel, which have embraced automation in their reshoring efforts, may outperform.

Why Automation is the True Cost Offset

Reshoring isn't a cost-neutral solution. U.S. labor costs are 2-3x higher than in China for many industries. Automation bridges this gap by reducing reliance on human labor and improving productivity. For example:
- Robotics: Cut per-unit labor costs by 40-60% in repetitive tasks (e.g., packaging, assembly).
- AI Quality Control: Reduce defects and rework costs by 15-30%.
- Supply Chain Optimization: AI-driven logistics lower inventory and transportation expenses.

Merck's Gardasil plant exemplifies this: advanced robotics likely streamline sterile manufacturing, enabling cost parity with imports.

Caution: Near-Term Job Gains Are Overrated

While reshoring is marketed as a job creator, automation dampens labor demand. For every 100 reshored manufacturing jobs, only 60-80 may materialize due to automation. The Department of Commerce notes that 70% of reshoring projects since 2018 have reduced labor intensity by 15-25%.

This data shows automation firms (e.g., ABB Robotics, Fanuc) are growing at 12% annually, while manufacturing jobs have stagnated. Investors chasing reshoring's “job miracle” may be disappointed.

Investment Strategy: Buy Automation, Not Manufacturing

The reshoring boom is a tailwind for automation technology providers, not traditional manufacturers. Target companies enabling the shift:

1. Robotics Hardware: FAN (Fanuc), ABB (ABB), and TMRO (Teradyne) supply the equipment for smart factories.
2. AI Software: Companies like C3.ai (AI) and Palantir (PLTR) offer predictive maintenance and supply chain analytics.
3. ETFs: The Global X Robotics & Automation ETF (ROBO) has outperformed industrial equities by 20% since 2018.

Avoid overpaying for reshoring stocks like Cra-Z-Art (non-public) or Merck, which face near-term tariff pressures. Instead, focus on firms like ROBO, which aggregates exposure to 30+ automation leaders.

Conclusion

Reshoring is a necessity for U.S. manufacturers, but its success hinges on automation. While companies like Merck are making strides, those without tech integration (e.g., Cra-Z-Art) risk falling behind. Investors seeking to profit should look beyond reshoring headlines and into the robotics and AI firms powering this transformation. The era of “cheap labor reshoring” is over—automation is the new tariff antidote.

ROBO's 5-year outperformance (45% vs XLI's 15%) signals where the real value lies.

Final Note: Monitor tariff policies and automation adoption rates. A Biden-era pivot away from Trump's protectionism could shift dynamics, but automation's role in cost efficiency is here to stay.