America Makes The Wrong Steel For Its Transformer Supply Chain

One of my favorite subgenres of business journalism / analysis are articles deeply exploring one particular, hyper-specialized product or resource that turns out to be strangely crucial to the whole economy. A great example is this piece in The Ecomodernist by Ryan Alimento on the production of “grain-oriented electrical steel” (GOES).

A specific alloy of iron and silicon, GOES is used to make cores for transformers. Transformers, an essential component in the grid that allow voltage to be adjusted for different types of transmission, are in extreme shortage, with order waiting times stretching to three years or more as the recent surge in electrical demand in the US forces more and more transmission buildout.

The US only has one steel plant making GOES, however, and its GOES is generally lower-quality and produces less efficient transformer cores than the GOES from Japanese and Korean mills. To make matters worse, the Trump administration briefly imposed steep tariffs on foreign GOES last year until outcry by the power sector forced it to reverse course.

Alimento gives a great breakdown of the problem, and an appealing suggestion for solving it: rather than rely on protectionism and import barriers, offer financing to enable US steel firms to develop new GOES-producing plants. He makes a compelling case that this is one specific area where industrial policy might be highly effective.