Could Trump's Tariffs Spark a Global Climate Tech Trade War?

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Trump's slew of tariffs could have a global impact on the production and price of climate technology | Credit: Getty
Trump's tariffs on Chinese imports and suspended duties on Canada and Mexico raise fears of a global trade war, with climate tech supply chains at risk

US President Donald Trump's latest move to impose sweeping tariffs on China has sparked concerns of a global economic conflict - one which could have huge repercussions for the future of renewable energy, electric vehicles and climate technology.

The 10% levy on all Chinese imports imposed by Trump was immediately met with a suite of retaliatory tariffs from Beijing, with the Chinese government restricting US imports of oil, LNG, vehicles, farming equipment and much more.

Meanwhile, Trump's planned 25% tariffs on all imports from Canada and Mexico were temporarily suspended, following last-minute crisis talks with Canadian Prime Minister, Justin Trudeau, and Mexican President, Claudia Sheinbaum.

Xi Jinping, President of China | Credit: Officia do Palácio do Planalto

This comment hinges strongly on Trump's wish to clamp down on border security with his neighbours. Canada and Mexico both agreed to Trump's terms, which demanded a renewed focus on illegal immigration and drug smuggling.

And then, there's Europe. While President Trump is yet to impose any tariffs on European goods, business leaders and government officials are bracing for potential US restrictions, which he has strongly hinted at since his election campaign.

After the imposition of the tariffs, China immediately filed a complaint with the World Trade Organisation (WTO), with the Chinese Ministry of Commerce suggesting that the tariffs are of a “malicious nature”.

Nevertheless, Trump has made it clear this is only the beginning, calling his initial tariff spree an “opening salvo”, warning that, if negotiations are not to his liking, tariffs on China could become “very, very significant”.

US President Donald Trump

Tariffs and the sustainability sector

Trump's tariffs may not explicitly target clean energy, but they are expected to have significant consequences for climate technology.

In recent years, trade has been the primary facilitator of renewable energy's huge growth.

Subsidiaries, feed-in tariffs and competition from international markets were all crucial factors in the scaling and price drops of solar technology, for example.​​​​​​​

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According to research by Lazard, a global investment bank, the price of energy storage fell by 89% between 2009 and 2024, while the cost of offshore wind projects fell by 65%.

Erecting barriers to trade has the potential to stimulate the growth of the renewable energy and climate technology sectors.

“It probably slows down the energy transition because it drives up costs, especially the tariffs on China, and creates chaos in supply chains", said David Victor, Professor of Innovation and Public Policy at the University of California, San Diego .

David Victor, Professor of Innovation and Public Policy at the University of California, San Diego | Credit: Brookings

A looming trade war?

While international governments are always locking horns over tariffs, experts believe that Trump's tariffs could mark the beginning of a trade war.

Before Trump's decision, though, China had started to consider imposing restrictions of its own, particularly focused on battery technologies and the critical minerals that comprise them.

According to the IEA, approximately three quarters of the world's lithium ion batteries (which are often used in climate technologies such as EVs and energy storage units) are manufactured and sold by China.

Now, in immediate response to Trump's tariffs, the Chinese government has officially imposed tariffs on 25 critical minerals, also known as rare earth minerals (REMs).​​​​​​​

Restrictions on REMs and batteries could have a huge impact on global supply chains for climate technologies

Likewise, Canada and Mexico are international powerhouses for steel (used in wind turbines) and EVs. Canada, Mexico and China are all major players in energy grid technologies too.

The imposition of tariffs could see the margins for these products plummet in the US, meaning that producers are likely to drive costs up to compensate. 

This might not just affect the US population either. As one of the world's largest economies, the US commands an influential position in global supply chains. 

If imports decrease due to the tariffs, companies from Canada, Mexico and China may see fit to raise prices around the world to make up the difference.

“It is highly disruptive to the global supply chain, and of course the clean energy one as well,” said Gernot Wagner, Climate Economist at the Columbia Business School.

Gernot Wagner, Climate Economist at the Columbia Business School

Europe's response and CBAM

The European Union has yet to be hit by Trump's tariffs, but fears are growing that it will be next.

German automakers such as BMW and Mercedes rely heavily on US sales, while French manufacturers export a significant portion of their vehicles across the Atlantic.

Dr Aurélien Saussay, Assistant Professor at the Grantham Research Institute on Climate Change and the Environment, has warned that retaliatory tariffs from the EU could be disastrous for both sides.

“These tariffs will impact the American economy, not just Chinese and European sectors, so Donald Trump plowing ahead with these policies if elected would be awful for economies across the globe,” he says.

Dr Aurélien Saussay, Assistant Professor at the Grantham Research Institute on Climate Change and the Environment

The EU's newly introduced Carbon Border Adjustment Mechanism (CBAM) could also become a tool for economic retaliation. Designed to impose carbon costs on imports, CBAM could be leveraged to penalise US exports should tensions escalate.

However, Aurélien's paper warns against using CBAM as a weapon in a trade war.

“The EU should refrain from using its carbon border adjustment mechanism as a conduit for retaliatory measures as it would require an unrealistically high carbon price on the embodied emissions of US imports and could weaken the acceptability of the border carbon tax for the EU’s trade partners, “he explains.

“The agreement in the Council on the Carbon Border Adjustment Mechanism is a victory for European climate policy," says Bruno Le Maire, French Minister for Economic Affairs, Finance and Recovery.

What next?

With tariffs already in effect and threats of further economic restrictions looming, global trade relations are at a critical juncture.

If tensions continue to rise, businesses in the climate tech sector could face increased costs, supply chain disruptions and reduced market access.

“Retaliatory measures by China or the EU would likely worsen economic outcomes for all parties involved, potentially sparking a damaging trade war,” Aurélien says.

As the US, China, Canada, Mexico and Europe navigate these uncertainties, the clean energy transition could become collateral damage in a growing economic battle.


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