Another casualty of the trade wars: now we don't have transformers

This is a transcript, for the video found here:

Bullets:

American companies can produce just 20% of our capital equipment needs in electrical power and transmission.

The United States will soon need to replace over 30 million power transformers on existing power grids, while somehow meeting the enormous new power demand from factories and AI data centers.

Under US law, all the new components and materials used by electric utilities must be build in the United States.

Wait times for new transformers and switches are now over three years, and costs are rocketing higher.

Report:

Good morning. Economists go back and forth about whether high tariffs and trade barriers are inflationary—they cause prices to rise—or that they are contractionary, which means that economic activity declines. The answer is that both are true. But there’s another result that we look at, which is that products frequently aren’t available at all, and we go without. If the products in question are toy dolls, for example, maybe not a big deal. But when it’s capital equipment—that’s a different story. And we’re going without critical capital equipment is not available, and we’re going without.

We shared last week that the United States doesn’t have enough natural gas turbines to generate the electricity we need to make all these new AI data centers go.

This is where the problem started—the “Build America, Buy America” law says that for all American infrastructure projects from May 2022 onward, everything needs to be made in America. No government funds can be used in an infrastructure project unless all the components are produced in the United States. Electrical transmission facilities, utilities, and energy distribution were included in the law.

Now we’re seeing power generation projects get slammed, because we don’t have the domestic production for the hardware and equipment that the industry needs. Electricity demand will be a lot higher five years from now, and we cannot build transformers fast enough. A new transformer ordered today will take up to three years. That’s a big jump from when that law was written, when the wait time was around a month.

Besides the demand for new transformers and new turbines and new switches to handle the new demand, we need to replace a lot of the old stuff. Duke Energy needed 16,000 transformers to replace the ones taken out by hurricanes, and crews in California are still waiting for transformers to repair what got burned up.

This is a government report, from a comprehensive survey of all the transformers currently in use in the Untied States. Over half of them are at least 33 years old, and they will need replacing soon. There are between 60 and 80 million transformers across the country, so we’ll need at least 30 million transformers, just to replace the old ones.

So we need to upgrade and replace the gear that’s old, and we also need huge increases in capacity for manufacturing and data centers. Those facilities need power 24/7. The power demands for factories and AI are very different than for residential markets, or downtown office buildings.

These problems all lead to one place, which is shortages of everything, everywhere. Prices are racing higher, and delivery times are getting longer. Lead times in early 2022 were 78 weeks; that sounds bad enough. Just sixteen months later it was 127 weeks—almost a year longer. In the case of the high-voltage equipment, it’s 151 weeks, which is more than doubling year on year.

It’s possible the industry just got lazy. From about 2000 through 2021, electricity production and consumption was about flat. American power equipment suppliers and electric utilities didn’t move with the same urgency that the Chinese companies obviously did. But now everything is hitting at once. We need to replace tens of millions of older transformers. Suddenly, we also need to build tens of millions more for Big Tech. And our utilities and customers aren’t allowed anymore to just pick up the phone and order a bunch of equipment from factories here in Asia. Nvidia and their trillionaire Silicon Valley friends would happily pay whatever the tariffs there are on Chinese gear, just to get their supercomputers turned on. But even they go without.

This is Nantong, in Jiangsu. Be Good.

Resources and links:

Build America, Buy America in the Bipartisan Infrastructure Law

https://bipartisanpolicy.org/explainer/build-america-buy-america-in-the-bipartisan-infrastructure-law/

Build America Buy America

https://www.commerce.gov/oam/build-america-buy-america

Woodmac, The challenge of growing electricity demand in the US and the shortage of critical electrical equipment

https://www.woodmac.com/news/opinion/the-challenge-of-growing-electricity-demand-in-the-us-and-the-shortage-of-critical-electrical-equipment/

New factory targets ‘critical’ power grid supply shortage

https://www.renewableenergyworld.com/energy-business/energy-finance/new-factory-targets-critical-power-grid-supply-shortage

Transformer supply bottleneck threatens power system stability as load grows

https://www.utilitydive.com/news/electric-transformer-shortage-nrel-niac/738947/

Visual Capitalist, Charted: China’s Energy Needs Keep on Rising

https://www.visualcapitalist.com/charted-chinas-energy-needs-keep-on-rising/

AP, Two dolls instead of 30? Toys become the latest symbol of Trump’s trade war

https://apnews.com/article/trump-two-dolls-tariffs-toys-7b0e5d3a9035471317e6dc4ee1fbfbc1

Largest tech companies by market cap

https://companiesmarketcap.com/tech/largest-tech-companies-by-market-cap