Tariffs hit trade
Trade is critical to a now disrupted energy transition.
Trump’s tariff tsunami has hit.
The long-term implications for climate and energy transition will be profound — though shrouded in the short term by the immediate economic and political fallout.
I’ll focus on the energy here — since that’s our adventure — after just a few thoughts on the tariffs and their fallout, which are being well-covered elsewhere.
The big picture: Trump’s “liberation day” tariff blitz is not just sweeping all the chips and cards of the global trading system off the table. Trump is angrily overturning the table itself, upending the very foundations of the global economy.
The shock that swept over global markets stemmed not just from Trump smearing a thick layer of tariffs across global trade, gumming up supply chains and production on a worldwide scale.
It’s also a letting go of all hope — especially by Trump’s biggest supporters in business and finance — that the global order governing economics, security and politics will survive the president’s tenure.
Seeing is believing. Domestically, Trump is determined to transform the U.S. from a country governed by laws to one dictated by an authoritarian center. In parallel, he’s trying to transform the U.S.-led international rules-based order into a casino where he decides the winners based on...whatever he feels like basing it on.
Trump is no doubt looking forward to global leaders queuing up for the same sorts of desperate deals that prestigious U.S. law firms and universities have signed on to in recent weeks under duress from the White House.
Will sovereign nations the world over now return to the table for another round after a slurry of punitive tariffs tailored to enhance Trump with little regard to the U.S. economy, much less their countries.
In the short-term, almost certainly they will. Most have no choice for now, although some will show up with more leverage than others — China, say, compared to Japan.
Those with the least leverage will be America’s allies. Almost by definition they have the most to lose. They structured not only their economies but also their security and politics around rules written by the U.S.
China has the most leverage, but also a lot to lose in the short run. Its response, retaliating in kind to the tariffs alongside mostly measured rhetoric, made clear it will negotiate if it must. The tariffs are a blow to a Chinese economy already struggling mightily. But they’re also a gift to Chinese leader Xi Jinping, who has a scapegoat for China’s future economic woes and his own failures.
However it plays out, all know the game has changed — and will continue to change further if the Trump administration consolidates authority at home and uses that to remake the international landscape.
This will play out slowly if America’s (ex-)allies have their way, Trump proves flexible and the administration manages to keep the economic fallout in check. Or it may happen fast if financial markets continue to spasm and the administration can’t contain the damage.
The gut-churning reality is hitting home for businesses and market. What they hate most, uncertainty, is not a bug but a feature of Trump’s return — the central feature, in fact. The order they know is unraveling. What will replace it, exactly, is unclear.
More tariffs and less certainty will change much about the energy transition. U.S. solar projects will struggle to obtain solar modules after Trump topped Biden administration tariffs on Vietnam, a leading module manufacturing hub. Critical mineral supply chains that undergird the global market for batteries will be disrupted.
But over time, ironically, the opportunity Trump’s tariffs open for China could be their most lasting legacy. They may put China in the driver’s seat of the global energy transition, pushing the country from clean energy powerhouse at home to clean-energy factory floor to the post-Pax Americana world.
Under a tariff-happy Trump administration, “energy dominance” for the U.S. is coming to mean inward-looking, fossil fuel-based independence. That may feel reassuring to isolationists, but it’s a recipe for lagging in global manufacturing, not surging ahead.
Europe and Asia may scoop up some extra liquified natural gas in the next few years as U.S. LNG producers make a huge amount of new production available. But over the longer haul these countries will be reluctant to bet too big on unreliable America for an essential commodity delivered over sea lanes secured — or not — by an unpredictable and overweeningly self-interested U.S.
Their alternative may turn out to be a steadier, more reliable China.
China will be only too happy to ship them solar panels, wind turbines, nuclear reactors and electric vehicles. They will be more likely to buy them to bolster their own energy self-sufficiency. Already, half of China’s exports of clean technologies — solar, wind, electric vehicles — go to the global south.
Last year, Pakistan and Saudi Arabia were China’s biggest buyers of solar panels. China’s BYD motors, the world’s biggest electric car maker, is building a fleet of ships to deliver its vehicles across the globe. CATL, the biggest battery maker, is moving its products the world over. And Chinese wind developers are expanding overseas at an accelerating pace. Even Europe, reeling from Trump’s assault on the Atlantic security alliance and now U.S. tariffs, is coming to terms with a closer trade relationship with China that could help the union reach its clean energy goals.
China’s next step, as it works through its economic challenges, will be to focus its updated overseas infrastructure building plan to support these companies and many more like them.
In the 2010s the country spent many tens of billions yuan in Italy, Pakistan and all across Asia on roads, bridges, railways and other infrastructure that benefited Chinese construction companies. Now China will step up spending on electrical grid infrastructure and EV charging that will support its clean technology industries.
