Marginalium

Shortage predictions from tariffs. I don’t actually care much about this, because I can never predict the likelihood of this stuff. But I was curious if AI could. So here’s the tweet prediction:

In ~3-6 months we are going to start having shortages of transformers, pumps, air conditioners, and other complex goods which are made (or their critical components) in China.

All because of the tariffs. And here’s what GPTo3 reckons will happen to markets.

– China’s past retaliatory measures have been targeted (rare earths, Micron ban) rather than blanket export stops on mid‑value, high‑volume goods that employ hundreds of thousands of Chinese workers. – Domestic capacity (ABB, Eaton/Cooper, SPX, WEG plants in the Carolinas, TX, MO) can cover roughly one‑half of normal U.S. demand for distribution transformers and is being expanded with federal grants; not great, but enough to avoid blackouts. – HVAC/Pump supply is more diversified—Thailand, Mexico, and Korea already account for >45 % of U.S. room‑A/C imports. – Timeframe: new tariffs can start in 30 days after notice, but actual shortages would show up after 4‑6 months if inventories are thin. Utilities usually carry 6–12‑month spares on critical units.

Probability estimate: 10‑20 % chance of noticeable, nationwide shortages inside six months; <5 % chance of a “collapse of basic services.” More likely outcome is higher prices and selective delays, not empty shelves.

Though, note it’s only trained to June last year, so adjust your estimates there because it’s worried about an election year. And the market activity:

• Likely near‑term losers if severe shortages materialise
• HVAC & building‑systems OEMs: Carrier (CARR), Trane (TT), Johnson Controls (JCI), Lennox (LII). Margin squeeze if they must air‑freight parts or halt some lines.
• Electric‑equipment distributors: Wesco (WCC), Rexel (RXEEY) rely on steady transformer flow.
• Retailers with big seasonal A/C sales: Home Depot (HD), Lowe’s (LOW), Best Buy (BBY).
• Grid‑mod/utility cap‑ex plays: Quanta Services (PWR), AEP, Duke (DUK) could see project delays.
• Small‑cap pump makers with China content: Franklin Electric (FELE), Graco (GGG), AO Smith (AOS).
• Import‑dependent logistics names: Matson (MATX), Expeditors (EXPD) get volume hit if trade slumps.

Possible winners / relative beneficiaries

• U.S./EU transformer makers with domestic plants: SPX Technologies (SPXC), Eaton (ETN), Hubbell (HUBB), ABB (ABB), Siemens (SIEGY). Could receive rush orders and favorable pricing.
• Latin‑American & ASEAN HVAC suppliers: Daikin (Japan, 6367.T), Midea‑listed appliance subsidiaries, Intercable (Mexico, private) → indirectly positive for local industrial REITs like Prologis (PLD) with Mexico exposure.
• North‑American rare‑earth or magnet plays that displace Chinese supply: MP Materials (MP)— though MP still sends concentrate to China for final processing, so benefits are capped until the Texas plant ramps.
• Domestic steel/copper producers if utilities scramble for conductor material: Nucor (NUE), Freeport‑McMoRan (FCX).
• Tariff‑proof “Buy America” ETFs: PAVE (infrastructure), XLI (industrials) could outperform broad market.

Market behaviour to watch

• Spot transformer lead‑time (published weekly by E‑Source). If it jumps from the current 40‑50 weeks back to 70‑90 weeks—2019 tariff‑war levels—utilities may guide cap‑ex delays.
• CARR, JCI input‑cost commentary on earnings calls (they flag compressor and ECM motor sourcing).
• Freight indices (Freightos Asia‑US East Coast) for a sudden collapse in volumes.
• Filings: Any Section 301 list that explicitly adds transformers or HVAC units is a red flag.

So price inflation and episodic delays, giving domestic manufacturers bargaining power. Let’s see. I’ll keep my eye on SPX, myself. I won’t invest in it though—historically that’s a surefire way to tank the price of something.