Tariffs Are Unlikely to Send U.S. Manufacturers Racing to Buy Virtual Controllers, but Software-Defined Automation Can Play a Role in Reducing Automation Costs and Building System Resiliency

As tariff turmoil looks set to continue, industrial automation hardware such as Programmable Logic Controllers (PLCs), Industrial Personal Computers (IPCs), Human-Machine Interfaces (HMIs), and their components will likely rise in cost, increasing the challenge and expense for manufacturers to maintain and expand their automation systems. The largest players in the industrial automation hardware space will be hardest hit, especially those with significant market shares in the United States such as Advantech, Emerson, Honeywell, Rockwell Automation, and Siemens.

While price hikes on industrial automation products are likely to be conservative, with hardware vendors striving to adjust component sourcing and identify legal strategies to reduce the impact of the tariffs and keep costs down, even small increases in unit costs can impact manufacturers, with many fielding thousands of automation assets. Industrial automation hardware with components sourced from China will feel the greatest impact, especially as little headway appears to be made on striking a trade deal. Even if countries can avoid the more punitive tariffs such as those faced by China, a 10% blanket tariff is still going to impact prices for manufacturers and bottom lines for hardware vendors.

Increased component costs and longer lead times on industrial automation hardware will not only impact manufacturers’ margins, but also stymie the adoption and upgrading of industrial automation systems in factories. The impact of this will be felt broadly within U.S. manufacturing markets that currently struggle to access sufficient skilled labor and increasingly rely on automation to make up the shortfall.

Any reshoring to supply industrial automation hardware supply chains will take time, and even if the tariffs are held, manufacturers will not see costs come down for the foreseeable future. There is a slim opportunity for some domestic U.S. vendors such as Emerson, Honeywell, and Rockwell Automation to benefit, with their hardware becoming relatively more price competitive against foreign vendors that don’t significantly manufacture in the United States such as Beckhoff, Delta Electronics, Inovance, and SUPCON. However, key foreign competitors such as ABB, Advantech, Bosch Rexroth, Mitsubishi Electric, Phoenix Contact, Schneider Electric, and Siemens already have notable production presence in the United States Furthermore, the U.S. automation market is well defined, with many customers having strong historical relationships with chosen vendors. Either way, all automation hardware vendors who manufacture in the United States will face the same challenge—increased prices and lead times on components, and any significant shakeup in U.S. industrial automation market shares is unlikely.

Software-defined automation technology, particularly virtual controllers, present an excellent avenue for manufacturers looking to build resiliency in their automation systems and avoid tariff-associated hardware costs. With increased prices and longer lead times on traditional automation hardware, the ability to deploy virtual controllers that are rapidly purchased, downloaded, and deployed through online platforms is an incredibly compelling value proposition. Software-defined automation’s entire goal is to decouple hardware and software automation elements, allowing manufacturers to update and expand their automation systems without having to deploy extensive new hardware. As is evidently clear through the concept of a virtual controller, these controllers will remain unimpacted by tariffs (at least for now), and therefore, are relatively even more cost-effective to buy and deploy than they were before the tariffs were even implemented.

While software-defined automation technology is still in its early stages, manufacturers are not required to rip out their entire existing automation systems to deploy it and can take the opportunity to augment their current architecture with these new software-based controllers, at a time when accessing hardware is becoming challenging and costly. As geopolitical instability and supply chain challenges look to become a far more consistent factor in manufacturers’ strategic planning, building automation system resiliency by leveraging software-defined automation technologies should be a core consideration for all U.S. manufacturers. Companies can choose to either stockpile core automation components and hardware, likely at higher cost, or take the opportunity to test out new technologies and drive digital transformation in their operations. For manufacturers investigating the use of software-defined automation technology, ABI Research recently put together the Hot Tech Innovators: Software-Defined Automation (SDA) report (PT-6028) that highlights leading vendors and their innovative capabilities. Software-defined automation innovators include Bosch Rexroth, CODESYS, Phoenix Contact, Schneider Electric, Siemens, and SUPCON.