January 20, 2025
by Jake Ring, PDM Co-founder and President
Trump’s proposed tariffs create tension for transformer buyers
Today is the day our new president was inaugurated and there’s been a lot of talk (and stress) around the impact of potential tariffs on the data center industry and related supply chain costs. As if the supply chain challenges lingering from Covid aren’t enough, now this.
If significant tariffs of 25% are imposed on goods from Canada and Mexico, incoming transformers from those markets are will be much more expensive than for the transformers coming from Asia, such as from our production facility in China.
More tariffs for China
For China, if we’re looking at an additional 10% tariff, well, it hurts. Remember, the U.S.’ average effective tariff rate on Chinese goods rose from 3% in 2018 to about 11% in 2024 and that’s before the 2025 proposed 10% additional levy. But the way many companies are addressing this is with a grandfather clause. In our case, we receive an order, provide a final quote, and we hold that price. So we really don’t see the impact for current clients in our product pipeline who we will grandfather in for current orders.
Strategy in place
Some strategies industry players should be considering are onshoring production and importing components versus importing the final product. Obviously, bringing production back to the USA avoids the risk of tariffs completely. Next, importing components generally have lower tariffs, as opposed to the finished products which typically are within categories for higher tariffs. These types of initiatives will work toward keeping costs in check in the likelihood of additional tariffs (and we do think Trump is serious).
Made in the USA
In hindsight, it’s another added benefit that we opened our US-based facility in Salt Lake City in November of 2024. This onshore infrastructure allows for assembly expansion if faced with higher tariff fees sooner rather than later.
Risk management is in full play with the additional tariffs being proposed. So it is never too soon to be putting your strategy in place.
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