Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Energy

How Trump’s Steel Tariffs Could Mess Up His AI Plans

The grid needs transformers, and transformers need foreign steel.

A transformer.
Heatmap Illustration/Getty Images

President Trump wants to unleash American energy dominance, reduce consumer costs, and lead on artificial intelligence. But his 25% steel and aluminum tariffs, which are set to go into effect next month, could work directly against all of those goals.

The reason has to do with a crucial piece of electrical equipment for expanding the grid. They’re called transformers, and they’re in critically short supply.

Transformers serve to reduce losses along power lines by regulating voltage as electricity travels between generators and end uses, and they are made using a specific type of steel called grain oriented electrical steel, or GOES. There’s only one domestic producer of GOES — Cleveland Cliffs — and at full capacity it cannot meet even half of the demand from domestic transformer manufacturers, according to Joe Donovan, the executive director of the Transformer Manufacturing Association of America.

“We’re forced into the international markets,” he told me. “Reliance on a single domestic supplier for this critical material is a national security risk,” he added later in an email.“The grid is the foundation of our entire economy and should not be reliant on a single source for such a critical component.”

In a fact sheet about the upcoming steel and aluminum tariffs, Trump said he wants to end the “global dumping” of cheap foreign steel into American markets. It’s not yet clear whether he will impose blanket fees on all steel imports from all countries or use a finer tooth comb. But GOES only accounts for 0.15% of global steel production, Donovan said. “Any new restrictive tariffs would not onshore domestic GOES manufacturing, but would instead increase electricity costs for American consumers and delay upgrades to the grid nationally, putting manufacturing projects and developments at risk,” he told me. He said his trade group is advocating for the tariffs to exclude GOES imports from allied countries including Italy, South Korea, Poland and Japan, as well as derivative products from Mexico and Canada.

The problem is not just that the U.S. doesn’t produce enough of this material, Donovan added. Cleveland Cliffs lacks the capacity to produce GOES “in the size or efficiency levels that are needed in modern, efficient large power transformers,” he said. “Thus, domestic transformer manufacturers are unable to procure this GOES from any domestic source.”

Transformers come in many varieties and sizes, from the small metal boxes that sit atop local power lines to the larger containers at substations that have big metal coils springing out of them. Adding anything to the grid — whether it’s a generator like a new solar farm or natural gas plant, or a new source of demand like an apartment complex or a data center — requires adding transformers.

For nearly two decades, electricity growth was stagnant in the U.S., and there wasn’t much reason to invest in transformer manufacturing or supply chains. But suddenly, the rise of artificial intelligence, coupled with a push to reshore manufacturing and electrify transport, plus worsening natural disasters that damage electrical infrastructure caused demand to soar. These pressures have not just affected the U.S., and transformer manufacturers globally have not been able to keep up. Over the past four to five years, lead times for procuring transformers went from just under a year to upwards of three years, and prices jumped 60% to 80%, according to Wood Mackenzie.

“The increase in equipment costs is both threatening the economics of projects and increasing the price of electricity,” analysts from the energy research firm wrote in October. “One small ray of light from a transformer cost perspective is that the price of grain oriented electrical steel, a key commodity input, has declined 60-70% recently.”

Trump’s tariffs will cut into those declines.

“A lot of utilities and all of our clients across the country are very nervous about the potential implications of this,” Ben Boucher, a senior analyst at Wood Mackenzie, told me. “I think everyone knows their costs are going to increase as a result, even if they source domestically, because there’s going to be more competition for domestically produced products.”

When Trump imposed tariffs on steel during his first presidency, it did not lead to new investment in domestic manufacturing of GOES. Instead, there was an uptick in imports of transformer cores, a component that already contains GOES, from Mexico and Canada, Boucher said.

I reached out to the Edison Electric Institute, the main trade group for utilities, for comment on how the transformer shortage has affected its members’ ability to meet rising electricity demand, and what the tariffs could mean for them. The group did not answer my questions and sent back a statement attributed to Scott Aaronson, the senior vice president for energy security and industry operations, which said the group supports the president’s goal of bolstering domestic manufacturing and looks forward to working with him “to ensure that any new tariffs don't raise customer energy bills due to higher commodity prices.”

Jonas Nahm, an associate professor at Johns Hopkins, who worked as a senior economist at the White House under Biden, told me there was a concerted effort to increase transformer production domestically over the past four years. Several manufacturers, including Siemens Energy and Hitachi Energy, announced new plants and plant expansions. Nahm wondered whether Trump’s tariffs on steel could end up undermining his goals by making those investments riskier. “In econ terms, it’s sort of a tariff inversion, where we’re tariffing the intermediate inputs more than we’re tariffing the import of the final product.”

We often talk about industries like the “oil industry” or the “steel industry” as if they are making homogenous, interchangeable products. In reality, neither oil nor steel is one, uniform thing, and in the context of policymaking — like President Trump’s tariffs — the differences are consequential.

My colleague Robinson Meyer wrote about this when Trump was threatening to put 25% tariffs on Canadian imports. The U.S. is the biggest producer of crude oil in the world, but the oil that comes out of our wells is “light and sweet,” meaning that it has relatively low viscosity and sulfur content. Meanwhile, many U.S. refineries are designed to process the “heavy and sour” crude oil extracted in Canada. Tariffs on imported oil would lead to spikes in gasoline prices. “You couldn’t create a better scenario to destroy the economics of U.S. coking refineries,” Rory Johnston, an oil markets analyst, told Robinson. Similarly, the U.S. is a major steel producer, but we’re still heavily reliant on imports for certain types of steel.

It’s unclear whether the administration is aware of the issue. Trump is imposing tariffs on steel and aluminum under Section 232 of the Trade Expansion Act of 1962, as he did during his first term, which requires the Department of Commerce to first conduct an investigation and confirm that the import of these products threatens U.S. national security. But there’s been no new investigation since Trump took office. In his proclamation announcing the tariffs, the President referenced the investigation his administration conducted in 2018, adding in some recent data points that make the case that the threats from then are still an issue.

“They’re operating with 2018 assumptions about the state of the world, and then threw some updated data in there in order to accelerate the process,” Nahm said. “You can see how maybe this wasn’t a big deal six years ago. Now electricity demand is going up, and it’s getting more expensive. That wasn’t something that was on the horizon in 2018 at all.”

Green

You’re out of free articles.

Subscribe today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Energy

The Department of Energy Is ‘Giving Away the Future of Manufacturing’

Secretary of Energy Chris Wright canceled 24 decarbonization grants worth $3.7 billion.

The Department of Energy.
Heatmap Illustration/Getty Images

Secretary of Energy Chris Wright is clawing back 24 grants for projects to cut emissions from heavy industry after signaling earlier this month that he was reviewing the Biden administration’s award decisions. The total lost funding comes to just over $3.7 billion, and would have helped a wide range of companies, including those in food and beverage production, steelmaking, cement, and chemicals deploy cutting edge clean energy solutions.

The agency, however, decided that the projects “failed to advance the energy needs of the American people, were not economically viable and would not generate a positive return on investment of taxpayer dollars,” according to the announcement.

Keep reading...Show less
Blue
Climate Tech

The Climate Tech Investor Who Won’t Touch DAC

Especially with carbon capture tax incentives on the verge of disappearing, perhaps At One Ventures founder Tom Chi is onto something.

Direct air capture.
Heatmap Illustration/Getty Images

Technology to suck carbon dioxide out of the air — a.k.a. direct air capture — has always had boosters who say it’s necessary to reach net zero, and detractors who view it as an expensive fig leaf for the fossil fuel industry. But when the typical venture capitalist looks at the tech, all they see is dollar signs. Because while the carbon removal market is still in its early stages, if you look decades down the line, a technology that can permanently remove residual emissions in a highly measurable fashion has got to be worth a whole lot, right? Right?

Not so, says Tom Chi, founder of At One Ventures and co-founder of Google’s technological “moonshot factory,” X. Bucking the dominant attitude, he’s long vowed to stay away from DAC altogether. “If you’re trying to collect carbon dioxide in the air, it’s like trying to suck all the carbon dioxide through a tiny soda straw,” Chi told me. Given that the concentration of CO2 in the atmosphere sits at about 0.04%, “2,499 molecules out of 2,500 are not the one you’re trying to get,” Chi said. “These are deep, physical disadvantages to the approach.”

Keep reading...Show less
Yellow
Climate

AM Briefing: NEPA Takes a Hit

On the environmental reviews, Microsoft’s emissions, and solar on farmland

NEPA Takes a Hit From the Supreme Court
Heatmap Illustration/Getty Images

Current conditions: Enormous wildfires in Manitoba, Canada, will send smoke into the Midwestern U.S. and Great Plains this weekend • Northwest England is officially experiencing a drought after receiving its third lowest rainfall since 1871 • Thunderstorms are brewing in Washington, D.C., where the Federal Court of Appeals paused an earlier ruling throwing out much of Trump’s tariff agenda.

THE TOP FIVE

1. NEPA takes a hit

The Supreme Court ruled Thursday that courts should show more deference to agencies when hearing lawsuits over environmental reviews.

Keep reading...Show less
Yellow