From chip shortages to transformer battles: the new focus of the global supply chain

One year ago, Silicon Valley elites were still reveling in the frenzy of competing for NVIDIA graphics cards, but they didn’t expect reality to arrive so quickly. By the end of 2024, an unexpected shift quietly occurred: the most scarce commodity in the global industrial chain was no longer chips, but a seemingly ordinary industrial product—transformers. This shift can be regarded as an industry version of a “black swan event,” reflecting a deep-seated crisis accumulated over many years in Western manufacturing.

Europe and the US Fall into a Dilemma: How Transformers Became the “Hard Currency”

Transformers may seem insignificant in power systems, but their critical importance has been severely underestimated. Every server in an AI data center requires transformers to stabilize current; electricity generated by photovoltaic and wind power needs to be integrated into the grid, which also depends on transformers; the construction of new energy vehicle charging networks demands大量 transformers.

In early 2026, the US energy crisis fully exposed this weakness. A series of transformer explosions in Cleveland and a fire at a substation in San Francisco shattered the traditional perception of developed countries’ power systems. Data shows that over 70% of transformers in the US are overdue for replacement, with an average service life of 38 years. These “retired veterans” can no longer meet the demands of modern society’s electricity needs.

The US market’s self-sufficiency in transformers has already severely declined. Currently, 80% of transformers in the US rely on imports, with domestic capacity barely able to sustain basic operations. If one wants to purchase a large transformer in the US, the delivery schedule is already queued for 2 to 4 years later. Europe’s situation is similarly worrying. The EU proposed an ambitious €584 billion grid upgrade plan, but due to insufficient transformer supply, this grand blueprint has stalled. Although Germany and France have completed the construction of wind and solar power stations, the lack of grid connection facilities for transformers has led to direct economic losses of up to €7.2 billion in 2025 due to “wind and solar abandonment.”

China’s Complete Industrial Chain Advantage: From Silicon Steel to Transformers

The core competitiveness of transformers lies not in assembly but in upstream industries. The most critical material is oriented silicon steel, hailed as the “pearl on the crown of steel” by industry insiders. This material must be carefully rolled to a thickness of 0.18 millimeters, with stable magnetic performance indicators. Only a few countries worldwide master this technology.

China holds an absolute industrial advantage in this field. Last year, China’s output of oriented silicon steel was eight times that of the US. Baosteel Group owns the world’s only ultra-thin silicon steel sheet production line, directly securing the supply of high-end transformer cores globally. From upstream silicon steel material procurement, to midstream transformer design and manufacturing, to downstream installation and maintenance, China controls the entire transformer industry chain, accounting for 60% of global capacity.

Efficiency and cost advantages are even more unmatched. Manufacturing the same transformer in China typically takes 6 to 12 months for delivery, with urgent orders possibly compressed to 3 months. European-made transformers with similar performance cost between $30,000 and $50,000, while Chinese products are priced around $10,000, showing a clear price advantage.

Policy Reversal: Forced Compromises and the Harsh Reality

The US previously imposed a 104% tariff on Chinese transformers, attempting to suppress imports through high tariff barriers, which pushed the unit price from over $3,000 to $6,800. However, faced with frequent power outages, stalled data center construction, and hindered AI industry development, the US government was forced to turn around and introduce various “tariff exemption” measures under different names.

In 2025, China’s total transformer exports soared to 64.6 billion RMB, with an average export price of 205,000 RMB. Exports to Europe surged by 138%, and buyers in the Middle East, such as Saudi Arabia, increased their procurement volume, signing large orders worth 16.4 billion RMB. To secure supplies more quickly, some European clients even proactively offered a 20% premium for priority shipping.

Orders are now scheduled into 2029, with many companies’ order books multiplying several times. Transformers have become not only the most tightly supplied industrial product globally but also a new standard for measuring the competitiveness of the industrial chain.

Deep Reflection: The Cost of Manufacturing Hollowing Out

The root cause of all this lies in a long-term neglect of manufacturing. Over the past decades, Western countries have overly focused on high-value sectors like finance and design, viewing manufacturing as a low-end industry and allowing it to decline. As a result, when a real industrial crisis hits, they find themselves lacking the most basic manufacturing capabilities.

The transformer shortage crisis essentially reflects the consequences of an imbalanced industrial structure. Power systems, AI infrastructure, and new energy industries all point to the same bottleneck, which exposes the fragility of Western manufacturing. Excessive “deindustrialization” has gradually caused them to lose influence in global competition, and rebuilding this capacity will require long-term effort and sacrifice.