Electrical Transformers
Sourcing Guide & Market Intelligence

Tariffs to negatively impact the electrical systems and lighting components sector

• The United States imposed a blanket 10.0% tariff on all countries and additional country-specific tariffs; for example, China faces a base tariff of 145.0%, and Canada and Mexico face a 25.0% tariff. The United States also imposed a 25.0% tariff on steel and aluminum, which will impact electrical system and lighting component pricing.
• As lighting companies, such as Signify, commonly operate factories in Mexico and import components from China, indicating that higher tariffs will increase operating costs for suppliers as they seek to mitigate tariff impacts. US manufacturers are expected to face higher costs for imported components without an alternative domestic supply, and suppliers typically pass on these costs to buyers.
• As many electrical systems and components, such as electrical transformers and switchgear systems, are already facing shortages and price increases, the increase in tariff rates is expected to drive up prices. Electrical transformer prices have already risen 70.0% to 100.0% since 2020, and higher tariffs are expected to push up prices further as Mexico, Canada, and China supply 80.0% of the transformers used in the United States.
• The United States is reliant on many major lighting components from foreign countries; according to the Department of Energy, 94.0% of all LED imports to the United States were manufactured in China. The high tariff on imports of Chinese can increase the risk of supply chain delays due to the additional trade regulations.
• Many electrical systems, such as electrical conduits, electrical enclosures, switchgear systems, panelboards, circuit breakers, electrical transformers, electrical safety devices, and steel utility poles, have high steel and aluminum content, exposing many suppliers to higher costs. Mexico and Canada account for 39.3% of all steel mill product imports in the United States, so tariffs can increase costs for manufacturers.

Canada and Mexico tariffs to significantly impact the construction industry

• On March 4, 2025, the United States imposed a 25.0% tariff on goods imported from Mexico and Canada, which applies in addition to other duties or fees that are in place, with limited exceptions for construction products. The levy on oil and gas imports from Canada was limited to 10.0%.
• However, as of March 6, 2025, all goods compliant with the United States-Mexico-Canada Agreement (USMCA) will be exempt from tariffs until April 2, 2025. In addition, on March 12, the United States raised tariffs on steel and aluminum imports from all countries to 25.0%, including Mexico and Canada.
• After the tariff took effect, Canada immediately imposed 25.0% tariffs on goods imported from the United States. Mexico also announced plans to impose retaliatory tariffs and non-tariff measures on imports from the United States later this month.
• According to Realtor.com, around 70.0% of the softwood lumber and drywall gypsum (used for drywall) used in residential construction is imported from Canada and Mexico, respectively. Tariffs on lumber and other building and construction materials will increase the cost of construction.
• According to the National Association of Home Builders, new tariffs on Canada and Mexico could raise the cost of imported construction materials by up to $4.0 billion in 2025. In addition, construction equipment prices will rise as many manufacturers produce or source parts or machines from countries like Mexico.

Construction activity slumps as interest rates remain high

• During the last three months, total construction spending inched downward by 0.4%, driven by a more sizable 1.0% decrease in private construction spending. However, public construction spending rose by 1.5% during this period.
• Despite recent federal funds rate cuts, interest rates for consumers and businesses have climbed in the last month as increased economic risk has counteracted the lower borrowing costs faced by banks.
• Elevated interest rates weaken construction demand because they increase construction project financing costs. Thus, high interest rates have continued to reduce private construction activity, which is the segment most exposed to interest rate shifts.
• As a result, demand for products and services related to construction is currently weak. However, increasing public sector construction spending is adding to demand in a few construction markets, such as utilities and infrastructure construction.