American Reindustrialization: Uncertainty in Power Markets and Tariff Chaos in Steel, Aluminum, and Copper Markets

     I believe that some American reindustrialization may be warranted and especially good for geopolitical purposes, by reducing reliance on China and other adversaries and competitors. However, we should be smart in deciding what is best, as some countries are better suited to produce certain products than the U.S. and others. The reliance on China has given China more leverage in trade talks than our allies in places like Japan and South Korea. Thus, due to that leverage, China is likely to get more favorable tariffs than our allies, which is not desirable in my opinion. What is the goal of punishing allies more than adversaries?

     On June 4, 2025, tariffs on steel and aluminum coming into the U.S. were raised from 25% to 50% for all countries except the UK, which is still at 25%. BCG estimates that the new tariffs will add $50 billion in tariff costs. BCG explains possible effects of the tariffs:

“These are some of the changes that have taken place in the period between the announcement of 25% tariffs and the subsequent increase to 50%:

“While prices for aluminum and steel are higher in the US than in the EU, this price difference increased by 77% for steel between February 7 and May 23, and by 139% for aluminum between February 7 and May 27.”

“More investments in US capacity have been formalized, including by Emirates Global Aluminum, which plans to build a new aluminum production facility in the US, and by two South Korean firms, Hyundai Steel and Posco, which are investing together in a new steel plant in Louisiana.”

“Some US customers have indicated they are considering shifting away from aluminum packaging or increasing the content of locally produced raw steel in US manufacturing lines.”

“This is what may happen after the 50% tariffs:

“In the near term, US prices are likely to continue to rise if demand holds steady.”

“In the medium or longer term, some non-US steel may be priced out of the US market altogether, for example, hot rolled coil steel imported from the EU. There may also be an increase in the amount of steel and aluminum produced in the US, as investors consider the likely permanence of the tariffs as well as other critical enablers such as power prices and capital intensity. This is also likely to impact downstream metal fabrication.”

“The sudden change in tariffs on these two metals exemplifies that uncertainty continues even in sectors that appeared stable again. It is imperative that aluminum and steel customers establish strong game plans to continue to navigate the dynamic,” says Marc Gilbert who leads BCG’s Center for Geopolitics.

     It seems fairly certain that U.S. businesses and consumers will pay higher prices for steel, aluminum, and soon copper as well. Trump had noted when he announced the tariffs that foreign countries were continuing to “offload low-priced, excess steel and aluminum in the United States.” While that was a bad thing in the past when countries were “dumping” low-cost, but also low-quality steel in the U.S., I remember back in the 90s when a company I was working for had a well-casing failure due to poor steel quality. However, that is no longer the case as steel production in places like China has advanced to a much higher quality. The problem now with foreign producers is that their governments often subsidize steel, aluminum, and other products to the point where they out-compete domestic steel in price by far. This is not true of our biggest foreign steel supplier, Canada, but it is true of China.

     Tariffs are generally good for the domestic steel and aluminum industries as they help them to compete better on pricing. However, they do this at the expense of American businesses and consumers. U.S. oil & gas companies have already lowered drilling plans due in no insignificant part to high steel and aluminum tariffs. They will affect other industries similarly. According to a June 4, 2025, report from PBS News Hour:

“Steel prices have already climbed 16% since Trump became president in mid-January, according to the government’s Producer Price Index. And as of March 2025, steel cost $984 a metric ton in the U.S., significantly higher than in Europe ($690) or China ($392), per the U.S. Commerce Department.”

     The logical conclusion is that steel prices will climb even further, perhaps another 16%. Meanwhile, the U.S. government can collect more tariff money. It seems that tariffs essentially divert money from businesses and individuals to governments, as is well-known.

     Copper is the latest metal to garner 50% tariff rates, but other metals may follow suit. Reviving U.S. mining, while possible, is likely to be hampered by regulatory and permitting issues as well as public opposition. Mining is also notoriously slow to get to production. Foreign countries have been selling as much of these metals as possible before tariff deadlines, but what happens afterward is the question. Will they seek new markets? Will they seek and find other ways to retaliate? According to an article in Bloomberg:

“The degree of impact will heavily depend on the details,” said Marcus Garvey, Macquarie Group’s head of commodities strategy. “Not only the rate of any tariff but which forms of copper it is applied to, and whether or not there is any grace period ahead of its implementation.”

     The U.S. is even more dependent on foreign copper than on foreign steel and aluminum.

“The US does not have nearly enough mine/smelter/refinery capacity to be self-sufficient in copper,” Jefferies LLC analysts including Christopher LaFemina wrote in a note. “As a result, import tariffs are likely to lead to continued significant price premiums in the US relative to other regions.”

     It is possible that there will be carve-outs for copper imports from Chile, which is the world’s largest copper supplier. That will alleviate price rises somewhat. They have already climbed in response to the speculation about universal 50% copper tariffs. U.S. Copper prices have climbed to an all-time high with a record one-day rise. Higher copper prices will affect many vital U.S. industries that expect increasing copper demand, including the power industry, renewable energy industries, the auto industry, and data centers.

“The longer term aim of the Trump administration may be for the US to be fully self-sufficient in copper, but mines take too long to develop for this to be achieved in less than a 10-year time horizon,” Jefferies analysts wrote. “The US will still rely on foreign mines to meet demand for the foreseeable future.”

     The U.S., which depends on foreign countries for 36% of its copper, is likely to utilize more copper scrap for production, but that plan is limited by a lack of sufficient smelting capacity. Scrap is currently exported, but that could change, and limiting scrap exports has been suggested as an alternative to tariffs.

     Meanwhile, the U.S. government is warning of impending power blackouts as reindustrialization and AI data centers begin to tap a greater share of existing power generation. Energy Secretary Chris Wright warned that this will require “a significantly larger supply of around-the-clock, reliable, and uninterrupted power.” Wright, in particular, has called for aging coal and gas plants to delay planned retirements.

“John Moura, director at the North American Electric Reliability Corporation (NERC), warned: 'We're seeing demand growth like we haven't seen in decades, and our infrastructure is not being built fast enough to keep up.'

     The delayed retirements may be necessary for a number of reasons: demand, the time it takes to build replacement baseload and dispatchable predominantly natural gas power plants, gas turbine orders are backlogged, power transformer orders are backlogged, the cost of raw materials to expand the power grid have already risen and are expected to rise further due to tariffs, and permitting, regulatory, and public opposition issues. Renewables can really only help if they are coupled with batteries. This, along with the impending loss of tax incentives, makes the cost unfeasible for more renewables-plus-batteries solutions. A potential result of inadequate baseload and dispatchable power generation is an unstable power grid. Wright also called for updating grid reliability risk modeling.

“Modern methods must move beyond peak load periods and incorporate outage magnitude and duration to properly safeguard reliability,” said Secretary Wright.

     While it is important we don’t run our power reserve capacities too lean, there are some possible arguments against this declared emergency scenario, I believe. AI may not ultimately use as much power as now expected. American reindustrialization may not manifest at the level the current administration envisions. Thus far, it has not, and announced plans do not indicate a Renaissance in American manufacturing, at least not yet.  

     Businesses around the country noted that they are already dealing with higher prices for materials and supplies, that some are trying to absorb as much as they can, some are increasing their prices, some are expecting lower profits, and that soon enough prices will go up for consumers, some prohibitively. Thus, the tariffs seem to be a clear lose-lose for businesses and consumers, as most economists predict. Below are some quotes from an article in the Cleveland Plain Dealer about Northeast Ohio's effects from the “tariffs rollercoaster.”

“Dan Babic, chief commercial officer for Solon-based Gardiner, a manufacturer’s representative firm in the construction industry that ranks No. 9 in the midsize category for Top Workplaces, says the company has seen price increases or surcharges from most of its manufacturing partners and is working with clients to manage the potential impacts.”

“Jason Aspinall, the chief financial officer for SSP Fittings Corp. in Twinsburg, says his company has seen a price increase for stainless steel, which is milled in Europe. SSP Fittings, which ranks No. 31 in the midsize category, manufactures fittings and valves.”

“Jackson Comfort Services, which ranks No. 26 in small workplaces, deals with heating, cooling and plumbing at its headquarters in Northfield. It has been affected by tariffs firsthand, says marketing coordinator Ryan Collins. Costs have increased for raw materials and components.”

“As a result, we’re seeing a ripple effect throughout our supply chain, with rising costs affecting nearly every aspect of our equipment procurement,” Collins says.

“In the short term, we’ve had to raise prices in response to vendor increases to protect our margins,” Collins says. “Long term, this volatility has forced us to rethink how we forecast, budget, and manage our inventory.”

“He says the company still is forecasting growth but it has been adjusted downward because of increased equipment costs.”

“We’re working hard to absorb as much of the financial burden as we can without passing it all onto the customer, but the reality is that these external pressures are reshaping our profitability expectations for the coming quarters,” Collins said.

     One strategy being used is pre-purchasing equipment and materials in bulk to lock in pricing before increases. However, this provides only limited temporary relief. The volatility and the potential effects on profitability have made some workers uneasy about their jobs. The people interviewed in the article compared the current economic fluctuations, struggles, and challenges to past ones, without noting the obvious: That this set of economic challenges was entirely manufactured by the current U.S. government.

 

Some Ideas About American Reindustrialization

     One can argue that the Biden administration supported American reindustrialization through the CHIPS Act, the Bipartisan Infrastructure Act, and the Inflation Reduction Act. He also favored EVs and renewable energy components with American components. In contrast, the Trump administration is focusing reindustrialization efforts on older industries like steel, aluminum, automobiles, etc., where American labor costs are higher and years of reliance on foreign imports have made those industries less competitive in other ways as well.

     Stephen Miran of the conservative Manhattan Institute had some interesting ideas about American reindustrialization in a February 2024 article. He noted that Biden’s focus on growing industries that require subsidization made for a “brittle” reindustrialization that could falter when the subsidies go away. We may see that happen soon as those industries contract due to recent loss of subsidies, at least after they try and deploy what they can before the subsidies run out, as well as buying their materials before the tariffs hit full on. After that, it seems likely to me that we will see more bankruptcies, downsizing, lower profitability, impairments, and project cancellations. That amounts to some future deindustrialization in the near term, which Miran seemed to acknowledge would happen. Miran writes:

“Policymakers across the political spectrum have embraced reindustrialization as an economic priority. But the current administration’s approach to reindustrialization—which includes generous subsidies to politically favored sectors of the economy for which there would be little demand at market prices, as well as counterproductive incentives for unionization and special environmental restrictions—will, at best, lead to a brittle form of reindustrialization that will leave us vulnerable to a second wave of deindustrialization once subsidies inevitably stop flowing.”

“There is, however, a better way to achieve robust reindustrialization. First, in order to make the U.S. the most attractive place to do business, we should pursue aggressive supply-side reform, lowering rather than raising the cost of production. Regulations serve as barriers to entry, reducing competition and raising prices. Environmental rules, labor laws, product regulations, zoning restrictions, and more can all be streamlined and updated for an era of reindustrialization.”

     Miran goes on to suggest that the defense industry should support American reindustrialization through “defense-driven procurement.” He also called for investments in science & technology and workforce training. He makes a good argument that subsidizing inefficient industries is not a good economic strategy. I agree with him that the IRA spending was too high on prioritizing such spending. However, there are a lot of important projects that may be impacted. He also argues that regulatory requirements and costs are too high. There is bipartisan agreement on that, yet Congress has yet to enact adequate permit and regulatory reforms, although executive actions have enacted some practical reforms.

      As the following graph shows, China continues to outcompete us in terms of labor costs per unit of GDP. This simply means that labor costs are still significantly higher here than in less developed countries. That cost will have to be absorbed in any American reindustrialization scenario. 

  

 

References:

 

Copper Market in Turmoil as Trump Touts 50% Tariff on US Imports. Katharine Gemmell and Martin Ritchie. Bloomberg. July 9, 2025. Copper Market in Turmoil as Trump Touts 50% Tariff on US Imports

Blackout crisis looms as Americans face full month of outages plunging hospitals into shutdowns. Osheen Yadav. Daily Mail. July 8, 2025. Blackout crisis looms as Americans face full month of outages plunging hospitals into shutdowns

June 2025 Update: The Impact of US Tariffs of 50% on Steel and Aluminum. BCG. June 12, 2025. June 2025: 50% US Tariffs Steel and Aluminum Impact | BCG

Trump’s 50% tariffs on steel and aluminum go into effect. Here’s what to know. PBS News Hour. June 4, 2025. Trump’s 50% tariffs on steel and aluminum go into effect. Here’s what to know | PBS News

Northeast Ohio companies brace for ride on the tariffs rollercoaster: Top Workplaces. Cliff Pinckard, Cleveland Plain Dealer. June 29, 2025. Northeast Ohio companies brace for ride on the tariffs rollercoaster: Top Workplaces

Brittle Versus Robust Reindustrialization. Stephen Miran. February 22. 2024. Manhattan Institute. Brittle Versus Robust Reindustrialization | Manhattan Institute