Wolfe Research on Thursday cautioned that a proposed overhaul of U.S. tariff treatment could increase costs for companies that import products from Mexico and Canada. The firm reviewed a White House proposal reported by a major news outlet that would replace the current 50% tariff assessed on non-U.S. steel and aluminum content with a uniform 25% tariff applied to the total value of the imported product.
Under the current approach, the tariff focuses on the metal content of a product. Wolfe Research noted that typical imported goods often include steel and aluminum costs that account for roughly 30-35% or less of the product's total value, including component supply. Moving to a 25% tariff on the full product value would therefore change tariff math in a way that could produce headline tariff increases across a broad set of imports.
The research firm pointed out that under existing rules, non-metal items that qualify as USMCA-compliant when imported from Mexico and Canada can face zero tariffs. If the 25% value-based levy were extended to those USMCA-compliant imports, companies with substantial manufacturing or assembly operations in Mexico could see material cost increases.
Wolfe Research named a group of companies it believes could be affected: Lennox International (NYSE:LII), Carrier Global (NYSE:CARR), Vertiv Holdings (NYSE:VRT), nVent Electric (NYSE:NVT) and Hubbell (NYSE:HUBB). The firm also flagged Fastenal (NASDAQ:FAST) as exposed because of its imports of high gross margin steel products.
Details of the proposal remain sparse. Wolfe Research emphasized questions about how product qualification would be determined under the new approach and how goods with varying proportions of metal content would be treated. The firm also observed that the shift could relate to the USMCA verification process that must be completed by July 1, 2026.
Until further details are released, Wolfe Research framed the policy as a potential source of inflationary pressure for sizable U.S. companies that rely on production and supply chains tied to Mexico and Canada, while noting significant uncertainty around implementation and product treatment rules.
Key points
- The proposed change would move from a 50% tariff on non-U.S. steel and aluminum content to a 25% tariff on total imported product value.
- Typical steel and aluminum costs often represent about 30-35% or less of an imported product's total value, meaning a value-based 25% tariff could increase headline tariff burden.
- USMCA-compliant imports that currently face zero tariffs could become subject to the proposed 25% levy, affecting manufacturers, HVAC and electrical equipment makers, and industrial distributors.
Risks and uncertainties
- Insufficient detail on product qualification criteria - impacts remain unclear for items with mixed metal content.
- Unknown treatment of USMCA-compliant goods under the new tariff structure - could raise costs for companies sourcing from Mexico and Canada.
- Timing and linkage to the USMCA verification process required by July 1, 2026 - potential compliance and administrative questions.