DSG Supply

Tariffs And Trade Dispute

DSG Marketing Team9/13/2019

If you pay attention to international news, it’s likely you’ve heard a lot of buzz surrounding recent developments in the United States' year-long trade war with China. In early September, the U.S. imposed an additional 15 percent tariff on more than $125 billion of Chinese imports – affecting mostly consumer products including clothing, footwear and electronics. On the following day, the Chinese government unveiled a retaliatory tariff on about $75 billion of U.S. imports.

While many of these new tariffs are aimed at consumer goods, those in the trade industries have been dealing with tariffs on things like raw materials for more than a year. They may not show up as a line item on your receipt, but directly or indirectly, tariffs impact what you pay.

How Do Tariffs Work?

Since we're not used to discussing tariffs as much as we have in the past 12 months or so, here's a quick refresher on what they are. A tariff is a type of regulation on foreign trade that taxes imports or exports between (in this case) sovereign countries. They are typically put in place to safeguard domestic industry by raising the price of imported goods. Consequently, this often makes importing these goods less financially feasible for domestic consumers.

What’s Happened So Far?

In January of 2018, the first series of tariffs under the “America First” economic policy was officially put into place, focusing primarily on washing machines and solar panels. Just a few months later, a second series of tariffs went into effect, this time levied against foreign steel and aluminum. More tariffs eventually followed in the time since then. By now, most American industries have felt the (positive or negative) effects of these tariffs in one way or another.

The Impact On HVAC/R

HVAC/R manufacturers, for example, rely heavily on imported steel and aluminum to build products such as air conditioners and heaters. In fact, some reports show manufacturing costs for these products rising as much as 20 percent. In addition, more recent tariffs have also included HVAC/R components like boilers, compressors, pumps, water heaters and more (though some have since been excluded again).

Naturally, all companies choose to deal with tariffs in their own way. Some raise prices, while others choose to absorb the extra costs themselves. Either way, the uncertainty associated with these tariffs has made good bidding practices more important than ever for HVAC/R contractors.

Avoiding "Dumped" Refrigerant

Some of these tariffs are also having unintended effects on the import of HFC blends and R-134a refrigerant. Experts fear that in order to avoid the current duty put on the import of these materials, China will strategically "dump" them into countries not affected by the tariffs (such as South Korea), where they will be mixed with lower-quality ingredients. These inferior blends are then marked as if they were made in South Korea and shipped into the U.S. Anti-dumping laws already exist but are challenging to enforce. In many ways, it's up to contractors to choose reputable brands and trustworthy suppliers. Using blends that are not certified to industry standards can result in a wide rage of problems for HVAC/R equipment, including operational issues, increased flammability and voided warranties.

Tariffs And Other Trade Industries

HVAC/R manufacturers aren't the only ones who have felt the effects of these tariffs. Electrical manufacturers, for example, have seen their costs change on everything from the switchgear used on transformers to cable, rubber and other important manufacturing components. Additionally, the electrical industry has also faced tariffs on a variety of light bulbs and LED luminaires.

What Does This All Mean For Contractors?

As existing tariffs continue to affect the global economy, it’s important to remember that all tariffs aren’t necessarily set in stone. They may increase, decrease or even be withdrawn altogether. In fact, the U.S. government lifted the steel and aluminum tariffs on Canada and Mexico in the spring of 2019. Some manufacturers, perhaps, may even choose to increase production on U.S. soil as opposed to dealing with import duties. Only time will tell.