Outdoor Heaters
Sourcing Guide & Market Intelligence

Tariffs to negatively impact the distribution and conditioning systems equipment sector

• The Trump Administration’s reciprocal tariffs, which apply general tariff rate increases to most leading US trade partners, are set to take effect on August 7, after the administration finalized the rates on August 1. These changes will significantly increase the tariff rate on leading distribution and conditioning systems exporting countries, including the European Union (15.0%), Canada (35.0%), China (54.0%), Mexico (25.0%), Japan (15.0%), and South Korea (15.0%).
• Distribution and conditioning systems equipment manufacturers in the United States will pay more for many foreign components and parts, such as heating and cooling equipment. Major manufacturers that operate in these markets, including Carrier, Daikin, Lennox, and Trane, have a manufacturing presence in Mexico and source components from tariff-impacted countries like China.
• According to the Heating, Air-Conditioning, & Refrigeration Distributors International (HARDI), over 66.0% of heating, ventilation, air conditioning, and refrigeration products are made in or use components imported from Canada, China, or Mexico. As price increases are passed down the supply chain, buyers will likely see price increases for key distribution and conditioning systems equipment.
• China is even more prevalent in several distribution and conditioning component markets, raising upstream supply chain risk following these tariffs. For example, according to the International Energy Agency, 95.0% of heat pump compressors were manufactured in China in 2023, and China accounts for half of the global trade in heat pump components.

Aluminum and steel tariffs are extended to the metals content of imported appliances

• On June 3rd, the Trump Administration announced an increase of aluminum and steel tariffs to 50.0%, up from the 25.0% rate imposed a few months prior.
• The administration has since introduced plans to apply these tariffs to the aluminum and steel content of imported appliances starting June 23rd.
• Under the new rule, imported appliances and appliance components will face 50.0% tariffs on the value of their aluminum and steel content. Aluminum and Steel account for more than a third of the total value of the average appliance, meaning this rule change will significantly increase the average import fees on appliances.
• In response to this rule change, appliance retailers, such as Home Depot, have indicated they will rely more heavily on domestic manufacturers to avoid the tariffs, creating a risk of shortages and long order backlogs. Alternatively, Walmart’s CEO has indicated the company will raise prices to compensate for the higher appliance costs.
• While differing tariff response strategies will result in varying supply chain and price impacts, the Yale Budget Lab projects machinery and equipment prices to rise by 9.4% on average due to this policy.

Inflation climbs above 3.0% for the first time in seven months

• In January, the Consumer Price Index (CPI) 12-month inflation rate, the most commonly used measure of inflation, rose by 0.1% to 3.0%, the highest it has been since June 2024.
• This uptick in inflation follows cuts to interest rates which may have added to consumer demand, fueling higher consumer prices.
• Additionally, the threat of impending tariff hikes has driven preemptive stockpiling by importers, adding to demand and price growth across a range of industries in the United States.
• While inflation is still low relative to previous years, sustained recent increases in inflation and the potential effects of tariffs, such as the recently implemented 10.0% on all Chinese goods, mean prices are still rising at a faster-than-normal pace.