T he year 2025 has been rife with uncertainty for industrial automation OEMs and their customers. A cataclysmic shift in U.S. trade policy led to a marketwide mentality of “wait and see.” For automation OEMs, this has manifested broadly as delayed orders from customers rather than outright cancellations.

As we approach 2026, these delays could coalesce as a surge in orders. This, coupled with the reduction of interest rates expected through the rest of the year, has created conditions for a potentially strong rebound during the first half of 2026.

While this is undoubtedly good news for many, there’s another force bubbling up that could make fulfilling orders more difficult. As trade tensions continue to rise, China has positioned itself for negotiations with the U.S. by leveraging its supply of industry-critical raw materials. In October 2024, China expanded the export restrictions  on its rare earth materials. If a strong rebound in orders occurs, these restrictions could place significant stress on industrial automation OEM supply chains.

Ripple effects of the last supply chain crunch

Following the Covid-19 shutdown, automation OEMs experienced a surge in orders across 2021 and 2022 as pent-up demand, low interest rates, and a high level of government spending fueled investment. During this period, manufacturers struggled to keep up with orders, and supply shortages began snowballing. Lead times for many components surged, which led to significant over-ordering by customers looking to secure the inventory necessary to produce their machinery or other end product. The chart below displays the level of stress the global supply chain was under at this time, and how it has fared since then.

Supply chain stress reached a peak in 2021. Although it has maintained low levels through September 2025, it’s likely to increase into 2026. Source: Federal Reserve Bank of New York, Global Supply Chain Pressure Index

The ripple effects of this period are still being felt. Throughout 2024 and into 2025, many component vendors experienced extremely low levels of new orders. It became apparent that customers and channel partners had overstocked their inventories during the supply chain crisis. They needed time to return them to normal levels before placing new orders. During this period, many industrial-automation component vendors experienced double-digit declines in sales. New orders have only recently resumed for these vendors, indicating that inventory levels across sales channels are starting to normalize.

Rare-earth material shortage could coincide with surging order volumes

As part of the restriction, manufacturers using Chinese rare earth materials in their manufacturing processes will now have to apply for and be awarded approval to purchase from the country. The materials on the restriction list can be found in many different industrial automation products. The restriction has already received a lot of press concerning its effects on battery and chip manufacturing. One of the greatest supply concerns for automation equipment manufacturers will center around the availability of rare earth magnets.

Rare earth material is often combined with other more common magnetic material to improve performance. One prominent example of a product that requires rare earth magnets is permanent magnet motors. These types of motors are heavily used across many industrial automation applications, including robotics, machine tools, and general motion control.

During the last few months, we’ve heard instances of motor manufacturers struggling to secure a supply of rare earth materials. Given the slower-than-average year from an order perspective, it has yet to manifest as a significant shortage of motors. However, this situation could change should orders begin to ramp up as expected in 2026.

There’s a likely scenario in which the delayed orders in 2025 come to fruition in 2026, resulting in a surge of orders. If this occurs, it could stress supply chains for products that heavily use rare earth materials. With inventory levels of channel partners only recently returning to “normal,” it’s likely this will cause more supply chain issues in 2026.

The effects are likely to be less intense than in 2021

Although this scenario is concerning, it should be noted it’s unlikely that supply chain issues will be as severe as at the height of shortages in 2021. First, whereas the shortage in 2021 was broader, it’s a narrower group of products at risk now. Additionally, the level of demand seen in 2021 is unlikely in 2026. A lot of uncertainty still surrounds the macroeconomy, which is likely to continue to suppress demand into 2026. However, as tariffs become more normalized and borrowing conditions improve, this will be less of a factor.

Heading into 2026, it will be important to evaluate how exposed your supply chain is to a shortage of rare earth materials. During the last supply shortage, significant market-share movements occurred in nearly every market we covered. Lead time becomes king during these periods; if companies are unable to secure key components necessary for production, those with adequate inventory are likely to gain market share.