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Schneider Electric, ABB face national security tariffs, may need to transform supplies

Canada 409 China 2441 Industrials - Capital Goods 413 Mexico 683 Tariffs 1580 U.S. 4312

The United States Department of Commerce has begun a Section 232 investigation into electric power transformers, citing the component’s importance in the U.S. energy grid. The investigation covers transformer cores, the transformers themselves as well as regulator systems. It will aim to determine whether an increase in imports has resulted in a national security risk.

This also may be a follow up to President Trump’s Executive Order creating a blacklist of utility suppliers controlled by “foreign adversaries”. Previous investigations, on aluminum, steel, and autos, have had mixed success as discussed in Panjiva research of Apr 18.

Transformers, used in electric power transmission and distribution, allow utilities to step up and down the voltage of electricity for transport over long distances. Imports of transformers are organized in U.S. tariffs codes into three sizes of liquid dielectric transformers and others. Panjiva’s data shows the large scale transformers may be the main driver of the investigation having surged 33.8% year over year in Q1 as well as representing 37.3% of transformer imports in the 12 months to March 31.

The largest sources of imported transformers include Mexico, Canada and China. Mexico and Canada are part of the U.S.-Mexico-Canada Agreement but they were not immune from the initial stages of the earlier metals and autos section 232 reviews. 

Shipments from Mexico grew by 24.2% year over year in Q1 while shipments from Canada and China fell by 3.7% and 17.2% respectively. China’s import declined likely due to a mixture of tariffs already applied due to the trade war combined with COVID-19 related disruptions.

MEXICAN TRANSFORMER SUPPLIES SURGE

Chart shows year over year change in imports of transformers on a quarterly basis by selected country. Source: Panjiva

Transformer cores are a smaller market – imports in 2019 were only $199.9 million dollars as opposed to transformers which accounted for $2.5 billion – but saw faster growth. Cores are mostly sourced from Canada and Mexico which represented 56.8% and 42.9% of imports respectively in 2019 while China only accounted for 0.3% of imports.

Nonetheless, imports of cores from Mexico surged 165% year over year in Q1 while those from Canada jumped 29.4%. That may meet the increased import growth requirement of the review even if the national security issues may be less compelling.

USMCA CORES SPARK UP

Chart segments imports of transformer cores by origin on a monthly and three month basis. Source: Panjiva

While there’s a long way to go in the investigation – they typically take 270 days – major importers of the products covered may look to alter their supply chain behavior sooner rather than later. U.S. seaborne imports linked to Power Electronics grew by 181.2% year over year in Q1 but subsequently fell in April, likely due to the coronavirus pandemic. 

Schneider Electric has already been reducing their seaborne imports, which fell by 64.8% year over year in the Q1 and by a further 63.2% in April, potentially indicating a shift in their supply chain already. Similarly, shipments linked to ABB fell by 10.1% in Q1 and by a further 38.8% in April.

POWER ELECTRONICS LIGHTS UP, SCHNEIDER AND ABB SLIP

Chart segments imports of transformers by selected companies on a monthly and three month basis. Source: Panjiva

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