Power Boilers
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.

Increased tariffs on copper imports take effect

• On August 1, the Trump administration implemented 50.0% tariffs on imported copper. Chile and Canada will be most impacted by these tariffs, as they account for a combined 87.0% of all copper imports in the United States.
• However, these tariffs are less sweeping than initially expected, only applying to semi-finished copper products, while excluding high-purity refined copper and copper input materials, such as ore and concentrate. As leading importers, such as Chile and Canada, have both high copper mining and refining capacities, they will likely avoid most of these tariffs by either exporting the copper in its unrefined form or refining the copper before exporting it to the United States
• These copper tariff exemptions limit the impact on the electronics and electrical equipment sectors because these applications require refined copper due to its optimal conductive properties.
• Thus, the prices of metal alloys that include copper, consumer products made from copper, tools, plumbing, corrosion-resistant alloys, and construction materials made from copper are forecast to rise by an average of 39.2%, according to the Yale Budget Lab.

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.