How China-U.S. Trade Tensions Could Affect the Robotics Supply Chain
June 11, 2019      

Trade tensions between the U.S. and China, which heightened during May, will likely result in some supply chain reconsideration for robotics manufacturers, experts and analysts suggest.

Even when a détente arises in the current dispute, some adjustments, such as moving to a robotics-as-a-service model and ensuring China isn’t the primary source of components is likely to continue, according to experts.

While the current trade dispute has become more intense in recent months, the issue is not new in the industry. Accusations of steel dumping and unfair trade practices in that industry led to the variable restraint agreements, basically a quota system, for a number of foreign countries importing into the U.S. China, a net steel importer at the time, was not involved in the dispute.

The situation has changed now that China’s economy has stabilized and evolved. Robotics components, such as those used in vision systems, are among those facing the highest tariffs, according to Michele Nichols, president of Launch Team, a marketing strategy firm for robotics and automation companies.

“All of the companies (robotics manufacturers and component companies) are looking at supply chain changes,” said Nichols.

Automation equipment demand

“Uncertainty in trade deals can certainly delay company investments as they try to gain a better understanding of the long-term situation,” added Jay Jacobs, head of research at Global X, an investment firm. “At the same time, however, tariffs on China are raising the costs of outsourcing for U.S. firms, which may make the math on investing in onshore robotics and automation look more and more attractive.

Jay Jacobs Global X China dispute article

Jay Jacobs, Global X

Jacobs said there has been automation equipment demand from China’s manufacturing sector during 2019. Chinese manufacturers have delayed their capital expenditures as they wait for a clear resolution to the trade conflict.

“Nevertheless, China has strong ambitions to upgrade their manufacturing industry with robotics and establish itself as a leader in the space of smart factories,” said Nichols. “Wage inflation and an aging population is backing the need for robotics upgrades. By looking at the robotic density in the country (97 robots per 10,000 manufacturing workers) relative to developed countries that have experienced these demographic changes, we should certainly expect increasing adoption of robotics.”

Many moving parts in supply chain

“There are a lot of gears moving; people say there’s a trade war, but we’re well past that,” said L. Craig Austin, visiting instructor of marketing and logistics at Florida International University. “China is known for squeezing the rules.”

L. Craig Austin Florida International University

L. Craig Austin, FIU.

Austin said he expects any robotics manufacturer that is getting components from China to look to source from other parts of Asia.

However, Ronald Mesia, professor in the FIU College of Business, said he expects most companies to take a wait-and-see approach before making any supply chain changes.

Most robotics manufacturers either have a single supplier or two suppliers, but no more than that, according to Nichols. “They seem evenly split between a single supplier and dual suppliers.

While any that have a single supplier in China will have to adjust pricing, cut margins or move to a different supplier as soon as possible, potentially leading to some disruption in the delivery schedule, the key will be to be transparent with customers about any such changes,” Nichols added.

She recommended that the current situation also signals a time for robotics manufacturers to re-evaluate their businesses, concentrating on the highest margin products and perhaps discontinuing lower margin products. By streamlining, the robotics manufacturers can help ease any supply issues.

“A lot of companies in a lot of different industries are trying to figure out what to do. You should never source from a single place like China,” Austin said. “Now is a good time to re-evaluate your vendors for quality and reliability. You can source materials from across the globe as long as you have calculated that.”

Increase in RaaS expected

The current trade tensions could also cause some robotics users to shift their focus from buyers to leasers of robotics.

Dan Patt Vecna Robotics 2019 predictions article

Dan Patt, Vecna Robotics

“Tariffs or no tariffs, the industry is headed to a robotics-as-a-service business model,” said Dan Patt, CEO of Vecna Robotics. “The small to medium-sized businesses need automation. These companies are struggling to meet new consumers standards (customization, one-day shipping, free-shipping) set by the major players – Amazon, FedEx, Target – and they cannot afford the high upfront capital costs of legacy automation. RaaS makes it financially feasible and safer for smaller companies to acquire, integrate and scale automated solutions.”

Patt said he didn’t see the U.S.-China trade dispute having any immediate impact on his company’s business: “Tariffs shouldn’t delay orders,” he said. “The robotics industry and its customer base are examining and adjusting their supply chains to minimize the impact of tariffs to customers. As some industrial players, already struggling to meet rising demand and expectations with a shrinking labor pool, move production domestically, demand for robotics may increase. Adding more automation will be the most cost-effective and reliable way to meet new business needs.”