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The surge in AI and the rapid growth of large data centers are driving a sharp increase in electricity demand across the U.S.. However, according to a report from Anue, citing the Wall Street Journal, U.S. President Donald Trump’s tariffs on steel and aluminum could worsen the existing transformer shortage—further adding to the strain on the nation’s already aging and overburdened power grid.
As noted by the report, Mexico, Canada, and China are currently the top three suppliers of transformers, together providing 80% of those used in the U.S. If President Trump proceeds with 25% tariffs on imports from Canada and Mexico and also enacts tariffs on copper, transformer prices could rise by another 8% to 9%, according to estimates from Wood Mackenzie, as noted by Bloomberg.
Currently, as highlighted by Reuters, Mexico and Canada will largely be exempt from tariffs on goods that meet the requirements of the USMCA trade agreement, with the exception of auto exports and steel and aluminum, which are subject to separate tariff measures.
In March, President Donald Trump implemented broad 25% tariffs on all steel and aluminum imports into the U.S, as noted by CNN.
The Limited Capacity of Transformers
Transformers are used to step up or step down voltage within the power system to facilitate transmission and distribution. Whether for upgrading components in existing systems or for connecting renewable energy sources—such as wind, solar, and natural gas—to the grid, transformers are essential, as the report from Anue indicates.
The capacity of transformers is difficult to expand significantly, as manufacturers face high investment costs and long timelines to reach break-even. Additionally, because transformers must be custom-built and undergo rigorous reliability testing, replacing long-term suppliers remains a major challenge, as the report points out.
The report from Anue highlights that since January 2020, transformer prices have already surged by 70% to 100%. Citing data from the National Renewable Energy Laboratory (NREL), the report states that by 2050, distribution transformer capacity will need to increase by at least 160% to 260% compared to 2021 levels to meet projected demand.
The Increasing Electricity Prices
In the meantime, pressure on electricity prices is already mounting. The New Jersey Board of Public Utilities anticipates that starting in June 2025, average monthly residential electricity bills will rise by 17% to 20% over the following year, partly due to the electricity-intensive demands of data centers, as mentioned by the report.
Further supporting this trend, data from the U.S. Bureau of Labor Statistics shows that national electricity prices have increased at a compound annual growth rate of 5.7% over the past five years.
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(Photo credit: The White House)
