Tariffs and cost pressure are reshaping sourcing decisions. Automation is now central to making domestic production viable.
By Laurie Harbour, Cara Walton and Mike Devereux
The Supreme Court’s recent ruling on tariff authority did change the legal mechanics. It didn’t change the operational reality. For automotive and industrial suppliers, the core issue remains the same: tariffs are active, enforcement will keep shifting and supply chains must be planned without stable assumptions.
Waiting for policy clarity is a fast way to lose margin. OEMs are already directing suppliers to reduce exposure to higher-tariff regions. But while the pressure to shift sourcing is immediate, the environment to execute that shift is difficult. Growth across much of the manufacturing sector has slowed. Consumer demand for higher-priced end products is softening. Capital is expensive.
Suppliers are caught between trade penalties and an unforgiving domestic cost structure. Reshoring is on the table. But evaluating a shift and financing one are very different exercises. For CFOs and operations leaders, that gap is becoming central to capital planning.
A persistent industry blind spot is treating tariffs as a protective shield. They aren’t. Tariffs penalize imports, but they do not subsidize domestic inefficiency.
The cost gap between U.S. manufacturing and lower-cost regions is still significant, especially on labor. Post-pandemic wage increases have pushed costs higher without solving shortages. If a supplier reshores production without changing how that production runs, the move simply swaps a tariff penalty for a labor premium.
That’s why there is no broad rush to build U.S. factories. Suppliers are treating reshoring as a math problem. Even with higher import penalties, buyers still award business based on total landed cost. A domestic facility only works if it can compete on price and reliability.
Because U.S. labor costs sit well above global baselines, reshoring is a heavy lift financially. For most suppliers, it only works when paired with automation.
To make the math work, domestic production must rely on technology to increase throughput, reduce waste and remove labor hours. Companies moving forward with U.S. capacity are not planning traditional factories. They are assuming significant automation from the start.
That creates a constraint. Automation requires substantial upfront investment in equipment and facilities. The operational need is clear. Funding it forces tradeoffs. At that point, reshoring becomes a capital allocation decision.
When the upfront cost of automation threatens to break the ROI of a reshoring project, tax strategy becomes a lever.
Recent policy changes introduced incentives that directly affect the payback timeline of capital investments. Provisions like 100% bonus depreciation, expanded Section 179 expensing and deductions tied to qualified production property (QPP) allow manufacturers to write off a large share of equipment and facility costs upfront.
In borderline cases, stacking these incentives can be what makes an automation-heavy reshoring project viable. It improves early cash flow and helps absorb the initial capex.
But CFOs cannot treat these incentives as a fix on their own. Equipment is more expensive, and in many cases the machinery itself is subject to tariffs. Accelerated deductions improve the equation, but they don’t change the reality of higher upfront costs. The full cost stack still has to hold.
Beyond the factory floor, reshoring and automation decisions feed directly into working capital management.
Tariffs create an immediate cash drain because they are paid at import. Suppliers finance that cost well before they recognize revenue on the finished part. Reshoring reduces that specific pressure. It removes the upfront tariff hit and can support shorter, leaner supply chains.
But a lean model shifts how companies handle inventory risk. With overseas sourcing, excess inventory acts as a buffer against delays and cost swings. Shortening the chain reduces exposure, but it also removes that cushion. That puts more pressure on planning, including production schedules, supplier coordination and purchase timing. When there is less stock in the system, small disruptions show up fast. If a new automated line struggles to hit target productivity due to technical issues or limited maintenance talent, that thinner buffer quickly turns into missed deliveries.
Timing becomes just as critical. Extended supply chains force purchasing decisions months ahead. Domestic production shrinks that window, but it also reduces the margin for error. Orders must be placed closer to actual demand, which increases the risk of getting it wrong. If forecasts slip or customer demand shifts, there is no large pipeline of inventory to absorb the impact. That shows up quickly in both service levels and cash flow.
Supply chain design and liquidity are now closely linked.
When reshoring investments fail, it is rarely due to a single issue. The math usually breaks through compounded assumptions.
A common misstep is treating reshoring as a one-size-fits-all move instead of a set of tradeoffs. Teams model new automated lines reaching full capacity within months. They underestimate the learning curve and the realities of the domestic labor pool.
Others evaluate tax incentives in isolation. When benefits are modeled without factoring in tariff costs on equipment, or labor savings are overstated, projected returns disappear.
The suppliers navigating this environment effectively have stopped trying to predict trade policy. They are building operating models that can absorb volatility.
They use scenario-based planning to test capital investments. They prioritize efficiency and margin over expansion that doesn’t hold up financially. They understand that while tariffs may force a rethink of sourcing, performance comes down to cost discipline, practical use of incentives and execution on the factory floor.
About the Authors:
Laurie Harbour is a partner with more than 35 years of manufacturing and consulting experience. Prior to joining Wipfli, she was the co-owner of Harbour Results, Inc., and has spent her career helping clients develop strategies, improve operations, reduce risk and optimize business performance. Clients benefit from Laurie’s ability to work with leadership teams to assess the current state of their business and provide strategic and operation recommendations for improvement.
Read more from Laurie:
Is reshoring actually happening? Here’s what automotive supply manufacturers should know | Wipfli, January 26, 2026
Automotive nearshoring: Should auto parts manufacturers consider moving to Mexico? | Wipfli, January 8, 2026
Cara Walton leads Wipfli’s manufacturing benchmarking intelligence tool, overseeing its strategic growth, data acquisition and intelligence gathering. Under her leadership, the tool has analyzed millions of data points from thousands of manufacturers, become the top resource for manufacturing benchmarking with 7+ years of trended data and launched a division for custom market studies across durable goods industries.
Read more from Cara:
Q1 2026 manufacturing trends: Mood is up but so is the cost of doing business | Wipfli, March 10, 2026
IEEPA tariff refunds: The recent CIT ruling and Section 122 updates | Wipfli, March 6, 2026
Mike Devereux currently serves as Wipfli’s manufacturing industry leader. In that role, he oversees a team of professionals nationally who provide audit, tax and consulting services to the manufacturing sector. Mike’s role is primarily focused on organic growth, increasing Wipfli’s national presence and identifying value for manufacturing clients and prospective clients.
He speaks nationally to various professional and industry trade organizations and associations about opportunities to reduce federal and state tax liabilities and has written dozens of articles for industry trade publications. Topics for his sessions have ranged from taxes, trade and tariffs to ways companies can use technology to get more insights from operations.
Read more from Mike
2026 manufacturing industry outlook: It’s going to be another tough year. Here’s what you can do | Wipfli, November 24, 2025
How have taxes and tariffs changed for businesses in 2025? | Wipfli, September 9, 2025
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