Import taxes on Mexico risk planting the seeds for another serious power crisis in Texas. US tariffs, slated to take force on March 4, could limit access to essential electrical components, making it more difficult for Texas to construct the resilient power grid it needs.
Take transformers, which are used to step up generation voltage for long-distance transmission, or step down voltage for distribution. There is a nationwide—and global—shortage of transformers, as lead times have surgedfrom fifty weeks in 2021 to 120 weeks in early 2024. But US production of transformers meets only 20 percent of domestic demand.
Before US President Donald Trump paused Mexico-related tariffs on February 4, Mexican-produced transformers—and other electrical components—were on the list of imports that were going to be slammed by a 25 percent tariff, which would have significantly impacted new electricity generation and transmission.
Tariffs could theoretically push prices of finished goods above 25 percent due to “pancaking” taxes on cross-border shipments of intermediate goods, where each border crossing incurs a fee. Furthermore, across-the-board25 percent tariffs on steel and aluminum will raise prices of a specialized steel product called grain-oriented electrical steel, which is used in transformers, elevating the price of transformers made in the United States.
Higher prices for transformers, especially transformers imported from Mexico, because of tariffs will raise project-development costs and delay infrastructure upgrades, hitting Texas hardest. As the top US importer of transformer units, Texas relies heavily on Mexico, which supplies nearly half of all high-voltage transformer imports through the Laredo Census District. Not all of these transformers are ultimately installed in Texas, of course—but many are.
Consequently, tariffs on Mexican transformers are bad for attracting business to Texas, bad for consumers, and bad for the energy sector.
In a worst-case scenario, the tariffs are planting the seeds of another calamitous—and potentially deadly—electricity outage.
That’s a big problem. The Electric Reliability Council of Texas (ERCOT) has only avoided a repeat of the Winter Storm Uri disaster in 2021 thanks to greater electricity generation, which rose by 70 terawatt hours (TWh) from 2021 to 2024 even as coal use declined. Advanced energy technologies—such as solar, wind, and battery energy storage systems—accounted for 91 percent of new electricity generation capacity from March 2021 to December 2024, although ERCOT’s natural gas generation rose significantly.
Solar electricity (plus storage) has been especially valuable for ERCOT’s grid stability. Solar generation tends to be correlated with hot summer days, improving reliability of the grid during sweltering summers. Indeed, solar and battery capacity reduced ERCOT wholesale electricity prices during summer demand from $332 per megawatt hour (MWh) in 2023 to $80 per MWh in 2024.
Texas has big plans to double power generation by 2030. A transformers shortage, exacerbated by new tariffs, may prevent Texas from building out the electricity generation it needs.