The Peter Zeihan Podcast Series - The Fire Hose of Chaos: Steel and Aluminum

Episode Date: May 7, 2025

The Trump administration has given us a masterclass on how to set supply chains ablaze using tariffs. While some supply chains are smoldering, others are raging wildfires. So, let's look at two that are in the thick of it: steel and aluminum.Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/the-fire-hose-of-chaos-steel-and-aluminum

Hey all, Peter Zillion here coming to you from Denver International. And today we're going to do the most recent in our fire hose of chaos series about how the domestic and international policies of the Trump administration are affecting the American economy. And today we're going to dive into those two base materials on which everything runs, and that's steel and aluminum. There are similarities within the markets, but I think it's best to just kind of break down what you do with these things and how you get those things. And then we'll go into the broader impact.

So let's start with steel. Roughly 75% of the steel that the United States uses is actually recycled. Steel is one of those wonderful materials that you can recycle it once or a thousand times and it'll still work. But that doesn't mean that all steel is equal. Recycled steel tends to be kind of ugly. And so you use it in places where you need strength. Car frames, eye beams for construction, that internal skeleton you see in high rises, ships, that sort of thing. But if you're going to do something where it needs to be pretty or where it needs to regulate electricity, you need something different.

Basically, there's two kinds of steel. You've got hot rolled, which is the ugly stuff. It's usually recycled. And you've got cold rolled, which is virgin steel made from iron ore and coke. And cold rolled steel can be used in more advanced applications specifically in manufacturing. And in the world that we're in now where most manufactured steel products aren't about high. strength they're about regulating electricity, you have to have something called grain-oriented or non-grain-oriented steel. Different types of those things regulate electricity flows at different speeds and different insulation levels.

And that really needs to come from virgin steel. The complication is something called a roller. When you pull the steel out of the molten mix and you get your really hot bars, you then push that through a roller. Because the way the steel cools determines the crystalline structure, which determines how well electricity does. or does not conduct through it. Now you can take recycled steel and put it through a roller. The rollers are big and expensive and you only usually put that on a very large foundry, and only the very large foundries are making virgin steel. Recycled steel, hot rolled steel, typically, is made locally because you basically take down a building in your state

and then you've got a local facility that can turn it into hot rolled steel. If you wanted to get it to a roller, you'd have to get a completely different facility that operates on a different scale. Well, the United States needs to roughly double it. the size of its industrial plant. That means a lot of industrial construction. That means a lot of that ugly high-rolled steel. And while the United States is the world's greatest steel recycler, there just isn't enough to double the size of the industrial plant on anything less than a two-century time scale, which means we just need more, more, more, more, more, more, more. And if you're going to get more, more, more, more, more, more,

you're probably going to be importing it. And if you want to go into manufacturing, you need a lot more cold-rolled steel. And if we're going to triple the amount of steel products that we put into manufacturing, we need more, more, more, more, more. If you want to do this with Foundries, you're talking about a 10-year build-out. If you want to do with imported steel, you could do it now. And what the Trump administration has done is put a 25% tariff on anything that is imported, which has brought construction and manufacturing costs up while decreasing the flow-through of the input that we need to make any of this work at the base level.

So everything is now moving more slowly, at a higher expense, at a time we just need more. Second metal, of course, is aluminum. There is somewhat similar policy. About 45% of what we use, we produce ourselves, and almost all of that is recycled. But just as with steel, if you want to manufacture something that is pretty, that has the combination

of corrosion resistance and lightweight and strength and flexibility, then it's probably going to have to be from virgin material. And the United States just doesn't have the raw material here. The raw material is bauxite. You basically mine that, you dissolve it in sodium hydroxide, hydroxide, you get a white powder called lumina, and then you electrocute the crap out of it to turn it into a luminaum metal. And just as with steel, you can use recycled steel for construction, things like window frames, for example.

But if you're going to do high-end work, like say, I don't know, airplanes, you're going to want the virgin stuff. And the US just doesn't smelt much of the virgin stuff itself. And again, just as with steel, we need to use two, three times as much, and we have yet to get the smelters online. And so this is an ongoing problem with all of the Trump administration's policies. The cart has been put several steps before the force. We've raised the cost of imported steel and aluminum, but we have not first built out the capacity of the U.S. economy to smelt or foundry more of the stuff itself. So we get lower supplies at a higher cost when we need huge increases in the volumes that we use to build out the industry as the Trump administration says it wants to.

So everything's just slowed down and gotten more expensive. But there's no sector where this is more true, where it's more of a problem than construction and especially residential real estate. And that's what we'll turn to tomorrow.