Impact of US tariffs on the power transformer industry

The United States has imposed tariffs on some Chinese power equipment (including transformers) (for example, products of 69KV and above were once subject to a 25% tariff and import ban risk). This move may push up export costs in the short term. However, Chinese transformer companies have circumvented tariffs by building factories overseas, such as in Mexico. For example, Igor and Wangbian Electric have set up production bases in Mexico to reduce their dependence on direct exports to the United States.

Due to the aging of the power grid, the construction of new energy and the return of manufacturing industry in the United States, the demand for transformers continues to grow. Although tariffs may increase import costs, the domestic production capacity in the United States is insufficient (only 20% of demand can be met), and the supply-demand gap still needs to rely on imports. The cost-effectiveness of Chinese companies (such as the price of components produced in Southeast Asia is still competitive) has kept export orders growing. In the first quarter of 2024, China's transformer exports increased by 31% year-on-year.

The increase in tariffs will lead to the restructuring of the industry's competitive landscape. The US import restrictions on high-voltage transformers (such as products of 69KV and above) may force Chinese companies to increase investment in technology upgrades and localized production. For example, sales in the US market through overseas subsidiaries or joint ventures can bypass tariff barriers. Companies are accelerating the construction of factories in Southeast Asia, Mexico and other places to cope with trade risks. For example, Jinpan Technology signed long-term overseas orders and Igor expanded production capacity in Mexico, both showing a trend of supply chain diversification.

The increase in tariffs also leads to long-term opportunities and challenges. The upgrade of the US power grid, new energy power generation and the construction of AI data centers have driven a surge in demand for transformers. Musk has warned that the shortage of transformers may become a bottleneck restricting the development of AI and electric vehicles in the future, which provides long-term market space for Chinese companies. The shortage of oriented silicon steel (core material for transformers) in the United States, reliance on imports and insufficient domestic production capacity may limit its local production and further strengthen China's position in the global supply chain.