For HVAC contractors attempting to protect their profit margins during the coming tariff regime, it’s important to know what percentage of parts and equipment are made in the U.S. versus being imported. Last year, the U.S. imported more than $10 billion worth of HVACR and commercial refrigeration equipment from Mexico and just over $2 billion from Canada. China represented about $5 billion of imports, $1.5 billion is imported from Thailand, and about $1 billion came via South Korea. In total, that’s about $20 billion of imported goods from the nations listed above. As a reference, the U.S. imports about $25 billion worth of HVACR goods in total. About 70% of all HVACR goods come from newly tariffed nations. 

A more complex issue is the potential for Mexico and Canada to introduce tariffs on Chinese imports. In fact, according to Bloomberg, Mexico has proposed this in conversations with the Trump Administration, and perhaps Canada could do the same. While this was floated as a way for Mexico to avoid U.S. tariffs, clearly that was not enough for President Trump and his team. Perhaps this proposal is still alive, but HVAC contractors cannot know for sure. 

Markets are highly dynamic animals and will begin to price in tariffs as soon as participants can place a probability on the impact and likelihood of the new laws. Currency markets began to react as soon as President Trump announced his intention to consider enacting tariffs on Mexico, Canada, China, and steel importers. The currency markets’ movements made conducting business and exporting to the U.S. in the countries above more profitable without the associated tariff costs impacting the P&L. When exporters begin paying the tariffs, some of the tax will be offset by a strong U.S. Dollar relative to the exporting countries’ currencies (i.e., Mexican Peso, Canadian Dollar, and Chinese Yuan). 

Sharing this burden will be manufacturers’ component suppliers, and then contractors and consumers will have to pay in the form of higher prices.  

What could this mean for the industry? While inflationary in the first year, without a commensurate increase in consumers’ ability or willingness to pay higher prices (i.e., a bigger paycheck), kitchen table conversations could be tougher. Consumers could trade from “best” to “better” and from “better” to “good.” Perhaps the repair/replace cycle will continue to shift towards repair, and perhaps some will simply go without. When consumers trade down, revenues and profits of all parties begin to face an uphill battle in their relentless growth, which could be deflationary from a macroeconomic perspective after year one, all else equal. 

That said, there’s a nuance that is important to understand. We have asked our manufacturer sources to opine on how tariffs impact pricing strategy by tier, though we are unsurprised that contacts have kept their cards close to the vest. 

A wrinkle here is in the pricing strategy of the major manufacturers of equipment. As a rule, our understanding is that high-end products are made in the U.S., while “builder grade” and “good”-tier products are made in foreign countries. While true, we will be watching to determine if manufacturers increase prices only on tariffed units on a SKU-by-SKU basis, or if the price increase is flat across the board. If it is the former, this could lower the price differential between “best” and “good” options, which could theoretically lead to consumers trading up versus trading down. If pricing strategy is the latter option, the trade down is more likely.  

Presumably, manufacturers have fine-tuned their pricing model and differentials pre-tariff to optimize profits, so there is an argument for keeping price differentials constant; however, nothing is truly in a vacuum when it comes to the consumer. Layering in the impact of a softening job market and, more importantly, the fear of what’s ahead, salespeople have their work cut out for them in 2025. 

We suspect that the optimal pricing differential changes based on consumer sentiment. Our “house view” is that residential consumers are far less rational than commercial customers. While a commercial customer may run the numbers, the average homeowner trusts his or her contractor to recommend the best value option, and often acts on emotion. 

We think it will be important for contractors to keep an eye on this pricing differential when entering customers’ homes and places of business to bid jobs, and think that this detail could be the best profit-protecting factor within the distributor and tradespersons’ control. Altogether, to truly assess the impact to HVACR professionals and consumers, pricing strategy will be very important.