A lack of skilled labor and high costs remain big impediments as companies come home, BofA warns. Automation might be the key to unlocking reshoring, potentially boosting the sluggish productivity of American manufacturers without meaningfully increasing employment.

Evidence of a slowdown in the sector is mounting, according to a recent report from the Bank of America Institute. New orders for manufactured durable goods fell in April, while the famous manufacturing Purchasing Managers’ Index has signaled a contraction since March.

Focusing on small businesses, BofA’s internal client data shows deposit growth from manufacturers has also declined.

“It’s possible, right, that these [tariffs] could support momentum going forward and potentially reverse some of that slowdown, especially for certain subsectors within the industry,” the report’s author, BofA economist Taylor Bowley, told Fortune. “But tariff costs and labor issues do exist.”

Reshoring has been all the rage in corporate America after Trump’s first trade war with China—and the COVID-19 pandemic—highlighted risks to global supply chains. The Biden-era CHIPS and Inflation Reduction Acts, meanwhile, heavily subsidized companies willing to make semiconductors and clean energy technology in the U.S.

While U.S. manufacturing accounts for just 8% of total employment, reshoring has created 2 million jobs in the past 15 years, according to a May note from BofA economists. Half of those new positions have been created in the past five years, they noted, though the trend has slowed since peaking in 2022.  

In a survey of 56 analysts across the bank, covering roughly 1,200 firms worth over $38 trillion in market cap, roughly 60% said production will continue to move back to the U.S.—at least modestly—if tariffs remain high. Those following industrials and manufacturing expect the greatest shift to the U.S.

U.S. lacks skilled workers

There are still obstacles to coming back stateside, though. In the BofA survey, 54% of the analysts said issues finding skilled workers would be a significant impediment for companies.

Higher labor costs are one of the primary reasons manufacturers shifted away from the U.S. in the first place, Bowley said. While a 2024 survey from the Cato Institute found 80% of Americans think the country would benefit from increasing manufacturing employment, just a quarter believe they would be better off individually working in a factory.

If firms struggle to fill positions, Bowley said, they are forced to figure out how to improve productivity without hiring people.

“And that’s where this conversation around automation and productivity comes in,” she said.

Two-thirds of respondents to the BofA survey said any production shift to the U.S. would require significantly more automation than an offshore factory. That makes more advanced industries the best candidates for moving back to the U.S., BofA economists said, like auto assembly and high-end furniture. “Millions and millions of human beings screwing in little, little screws to make iPhones,” as Commerce Secretary Howard Lutnick suggested? Not so much.

Meanwhile, Lutnick’s ability to continue making trade deals might matter most to small businesses. They account for 98% of American manufacturing, according to the U.S. Small Business Administration, and many rely on cheap imports.

“A lot of them depend on a specific part—for example, to complete their manufacturing process—that simply isn’t made domestically,” Bowley said.

Therefore, for smaller manufacturers, tariff uncertainty makes planning capital expenditures especially difficult, even if their products become more competitive domestically. With profit margins and productivity lagging other industries in the U.S., passing price hikes on to consumers is the obvious response. However, if firms need to absorb some of the cost to keep customers, Bowley said, reducing inventories, operations, or headcount are other potential options.

“Reshoring in that aspect for smaller firms is kind of a double-edged sword,” she said.

Nonetheless, sales are expected to grow in the coming months, Bowley said. But businesses might start feeling the squeeze, she added, when inventories start running low in the second half of the year.