Tariff Applicability Framework
In late-February, the U.S. Supreme Court determined that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose broad, across-the-board tariffs. In response, President Trump invoked Section 122 of the Trade Act of 1974, which allows for the temporary imposition of an import surcharge to address balance-of-payments concerns. As a result, a new tariff structure was implemented under Section 122.
As shown in the figure below, U.S. HVACR equipment is primarily supplied by domestic manufacturing, supplemented by imports—most notably from Mexico, China, and Canada.
Source: U.S. Census Bureau, U.S. International Trade Commission, HARDI estimates
At the same time, existing trade measures — including Section 232 (steel, aluminum, and copper) and Section 301 (China) tariffs — remain in place. Because these authorities operate independently, products may be subject to more than one tariff program.
The framework below outlines how Section 232, Section 122, and Section 301 tariffs interact for purposes of determining potential duty exposure. This overview is intended for general informational purposes and reflects current CBP implementation guidance.
1. Section 232 Applicability
If the product’s HTS classification is covered by a Section 232:
The applicable duty (currently 50% for covered steel, aluminum, and certain copper articles and derivatives) applies to the dutiable base specified under that program.
For many derivative products, this means the duty applies to the declared value of the covered metal content.
In cases where the entire article is covered by Section 232 — or where required metal content value cannot be substantiated — the duty may apply to the item’s full value.
**Important: Articles subject to Section 232 are not subject to Section 122 duties on the portion covered by Section 232.
3. Section 122 Applicability (All other countries)
Is the product imported from a country other than Mexico or Canada? If yes:
The portion of the item not subject to Section 232 is subject to Section 122 duty.
If the entire product is subject to Section 232, Section 122 does not apply.
2. USMCA Qualification
Is the product imported from Canada or Mexico and properly claimed as USMCA-compliant?
If an item qualifies as an originating good under USMCA rules of origin and is properly claimed by the importer, then the item is exempt from Section 122 duties.
If the item does not qualify under USMCA rules, then the portion of the product not subject to Section 232 is subject to Section 122 duties (10% as of February 27th)
Note: Public statements by the President have indicated the potential for adjustments to the Section 122 rate. Members should monitor CBP guidance for updates to the implemented rate.
4. Section 301 Exposure
Is the country of origin China, and is the HTS code covered under Section 301?
If both conditions apply:
The applicable Section 301 tariff rate applies in addition to any Section 232 and/or Section 122 duties.
IEEPA-Based Refund Status
Following the Supreme Court’s ruling that IEEPA does not authorize broad-based tariff authority, questions have emerged regarding potential refunds of duties previously collected under IEEPA-based tariff actions.
At this stage, the Administration has taken steps that may delay the refund process, and early procedural efforts to accelerate refunds have not advanced. However, this issue is expected to continue through further litigation, and additional court proceedings are likely. Because the Supreme Court did not directly address the mechanics or timing of refunds in its decision, the path forward may require additional judicial clarification.
It is also important to distinguish scope. Any potential refunds would apply only to duties imposed under IEEPA authorities. For HVACR products, IEEPA-based tariffs represented a relatively small portion of the overall effective tariff rate. The majority of tariff exposure in the sector has been driven by Section 232 steel and aluminum measures, which remain in effect and were not impacted by the Supreme Court’s decision.
Members should monitor CBP guidance and court developments for updates regarding refund procedures and eligibility.
Tariff Toolkit
The HARDI Tariff Toolkit introduces the fundamentals of tariffs and their role in international trade, including the World Customs Organization's Harmonized System for classifying goods. This course provides our distributor members with guidance on reading the Harmonized Tariff Schedule (HTS) and offers specific tariff information relevant to the HVACR distribution industry, ensuring participants stay informed as trade regulations evolve.
