Tag: Tariffs
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Could Trump’s tariffs end up spurring green innovation?
U.S. President Donald Trump has never been a champion of the environment. From gutting climate policies to rolling back crucial environmental protections, the track record of the U.S. president speaks for itself.
But his announcement this month of steep tariffs on a sweeping range of foreign-made goods intended to boost U.S. production may also inadvertently fuel a global shift toward green innovation and a more sustainable future.
During his first term, Trump pulled the United States out of the Paris Agreement, slashed pollution regulations and gave the fossil fuel industry a free pass. One of his most controversial moves was opening up the Arctic National Wildlife Refuge (ANWR) to drilling — a pristine, ecologically-sensitive area home to polar bears, caribou and Indigenous communities that depend on the land.
Now, he’s back — and this time, his weapon of choice is tariffs. The Trump administration has imposed tariffs on all imports from China, Mexico and Canada, as well as on steel, aluminium and cars from around the world.
By targeting key imports like clean energy components and critical minerals, Trump’s latest trade war threatens to derail climate progress, drive up costs for renewable energy and push the United States further into fossil fuel dependence. The damage is real and the consequences could be catastrophic.
Tariffs could hamper climate change efforts.
The implementation of broad tariffs is poised to significantly hinder efforts against climate change and weaken environmental legislation. Here’s how:
Disruption of clean energy supply chains: The tariffs, particularly those targeting imports from China like steel, aluminium and lithium directly affect the availability and cost of clean technology components. For instance, the United States imports a substantial amount of lithium batteries from China — $1.9 billion worth in December 2024 alone. Increased tariffs on these imports could raise costs for renewable energy projects and electric vehicles, slowing the transition to cleaner energy sources.
The energy sector is already grappling with shortages of essential parts. New tariffs exacerbate this issue, making it more challenging to procure necessary components for renewable energy infrastructure. This could delay projects and increase reliance on fossil fuels, counteracting efforts to reduce greenhouse gas emissions.
Strain on environmental initiatives: The stock market’s negative reaction to the tariff announcements, with the Dow Jones dropping nearly 1,700 points and erasing approximately $3.1 trillion in market value, indicates broader economic instability. Such financial turmoil can lead to reduced funding and support for environmental programs, as both public and private sectors may prioritize immediate economic concerns over long-term environmental goals.
As Trump imposes tariffs, his administration is also rolling back environmental protections. His Environmental Protection Agency is now questioning a key 2009 ruling that classifies greenhouse gases like carbon dioxide as harmful to human health. If the courts overturn it, this could weaken U.S. climate laws and make it harder to fight climate change.
Unintended consequences
While Trump’s tariffs largely threaten climate progress in the United States, they could have unintended environmental benefits elsewhere.
Boosting green manufacturing in other countries: If U.S. tariffs make Chinese solar panels, batteries and EV components more expensive, other countries — especially in Europe, India and Latin America — may ramp up their own clean energy production. China itself may increase investment and focus on domestic EV adoption, hydrogen technology or battery recycling.
This could lead to a more diversified and resilient global supply chain for renewable technologies, while also strengthening domestic energy resilience by encouraging countries to develop and secure their own clean energy resources, reducing reliance on foreign imports.
Strengthening regional trade alliances for green tech: With the imposing trade barriers, countries looking to avoid tariffs might strengthen regional partnerships, such as the EU-India green energy collaboration or China’s push to supply African and Latin American markets with solar and wind technology. This could decentralize the clean energy economy, reducing reliance on any single country.
Reducing export-driven deforestation: If tariffs make U.S. imports of commodities like beef, palm oil and timber more expensive, countries that export these products (e.g., Brazil, Indonesia) may face declining demand. Less demand equals less incentive to clear forests for agriculture.
On the other hand, the EU Deforestation Regulation (EUDR), adopted in June 2023, aims to block imports of commodities linked to deforestation unless they can be verified as deforestation-free. The EU is a huge consumer of these commodities.
With two major markets (U.S. and EU) becoming less profitable for deforestation-linked goods, exporters might change their practices to comply with stricter regulations. This could encourage more sustainable supply chains.
However, this would depend on whether other countries, like China, pick up the slack and implement EUDR-like regulations.
Backing off petroleum
If trade wars escalate and tariffs disrupt global markets, long-term investments in fossil fuel projects could become riskier due to economic uncertainty. Tariffs on fossil fuel-related goods — like equipment, machinery or raw materials — can increase production costs for oil and gas companies.
As the cost of extraction, refining and transportation rises, companies could face shrinking profit margins, making fossil fuel investments less appealing. This, and shifting focus to clean energy, might push investors toward renewables, which are increasingly seen as more stable and future-proof.
There’s a catch: These benefits depend on how other countries respond. If the U.S. tariffs cause economic slowdowns, some nations might double down on fossil fuels to stabilize their economies. So while tariffs could have some green silver linings, they’re more of a chaotic wildcard than a deliberate climate strategy.
While the tariffs imposed by the Trump administration present significant challenges to global climate efforts, they also create opportunities for positive change. The disruptions in the clean energy supply chain, economic instability and rollbacks of environmental protections are certainly concerning. However, the unintended side effects of these actions might just catalyze a shift in global energy dynamics.
In the long run, this “chaotic wildcard” could make fossil fuel investments riskier and accelerate the global pivot toward renewables. Countries and industries could be forced to innovate and adapt faster than expected.
While the path ahead may seem uncertain, there’s a silver lining: resilience, innovation and adaptability are key to overcoming these challenges. As the world adjusts to these new realities, the opportunity to cultivate a cleaner, more sustainable future is within reach — if leaders recognize this moment and take bold action to seize it.
So, while the road ahead may be bumpy, there is still reason to hope and act.
Questions to consider:
1. How can governments turn the economic disruptions caused by tariffs into opportunities for advancing clean energy and climate goals?
2. How can a decentralization of green energy technology be a good thing?
3. How can government intervention combined with market forces, like the rising cost of fossil fuels, accelerate the transition to renewable energy?
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Globalization peaked before Trump’s tariffs
“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” according to Larry Fink, the boss of BlackRock, the world’s largest asset manager.
If Fink means an end to the cross-border movement of goods, services, money and data, he is almost surely wrong. Economies are too intertwined to make economic self-sufficiency an option; the advances in computing that underpin global manufacturing, logistics and markets cannot be “uninvented.”
But if he means the war could turn out to be the high-water mark for globalization, Fink is on firmer ground.
The shockwaves Moscow’s war has touched off are likely to prompt firms to re-examine their supply chains and bring more business closer to home, even if that means lower profits.
The trend towards greater economic self-reliance will have far-reaching consequences. Shifting production away from emerging economies will be costly, boosting inflation.
But it will also create well-paid manufacturing jobs, reducing income inequality. Overall growth will suffer as efficiency is sacrificed for economic security, but neglected post-industrial regions could get a new lease on life.
Russia’s invasion of Ukraine will accelerate trends.
Signs that globalization is past its peak were mounting before the West curtailed economic links with Russia.
Notably, COVID-19 highlighted the drawbacks of outsourcing manufacturing to the other side of the world; the West relied heavily during the pandemic on China for medical kit and basic personal protective equipment such as face masks.
Likewise, as economies have bounced back from the pandemic, factories in Asia have struggled to meet red-hot demand, clogging up global supply chains for everything from building materials to bicycle parts.
Policymakers have been especially shocked to learn just how badly the West depends on Asia, principally Taiwan, for computer chips.
The upshot is a push by governments to encourage companies to build factories at home (“reshoring”), in neighbouring countries (“nearshoring”) or in countries that are political allies (“friendshoring,” US Treasury Secretary Janet Yellen’s neologism.)
Thus, Intel is investing $36 billion to boost chip-making in Europe, including a pair of factories in Germany, and another $20 billion on two new plants in Ohio, while Apple has started manufacturing iPhones in India, reducing its dependence on China.
The invasion of Ukraine can only magnify these trends.
Sanctions on Russia form part of a trend.
Europe, in particular, has been made painfully aware that it counts on Russia for about a quarter of its oil imports and 40% of its natural gas imports.
Similarly, countries in North Africa, the Middle East and South Asia are perilously dependent on grain supplies from Russia (and Ukraine). Governments are scrambling to diversify supplies and find ways to hold down fast-rising prices.
Sanctions on Russia speak for themselves, given Moscow’s naked aggression. But they form part of a pattern.
Western governments have been increasingly willing to use trade and investment policies to try to get recalcitrant countries to change their ways. China has been the main target, and globalization has been the casualty.
Exhibit A is the tariffs imposed on imports from China by former U.S. President Donald Trump and maintained by his successor, Joe Biden, aimed at persuading Beijing to end subsidies and intellectual property abuses that, in Washington’s eyes, give Chinese companies an unfair advantage.
But Washington wants a lot more than a level playing field for trade.
It regards China as a growing threat to America’s military, economic and geopolitical dominance and wants to slow its rise. Hence a slew of restrictions on technology exports to companies deemed to have links to the Chinese military, as well as steps to deter Americans from investing in China and vice versa. European policy is moving in the same direction.
At the same time, Chinese leader Xi Jinping has proclaimed a policy of “dual circulation” that boils down to China relying more on its domestic market for growth and less on export demand. Foreign companies in China report a distinctly chillier business environment.
No wonder, then, that some are scaling back in China, especially as labour costs are rising.
The heyday of globalization may be over.
Moving production to countries like Vietnam can be seen as an extension of globalization, not the end of it.
But China remains the key link in global supply chains thanks to its unrivalled manufacturing scale. So any weakening of this link supports the case that the heyday of globalization — if defined as the quest for maximum production efficiency — is over.
Many analysts go further and conclude that the U.S. and Chinese economies are decoupling and could end up forming, and dominating, their own economic blocs with separate trade alliances and digital standards.
If China’s tacit support for Russia’s invasion of Ukraine leads to closer trade, energy and political ties between Beijing and Moscow, the splintering of the global economy will only get worse. Other countries could be forced to take sides.
“Much like the pandemic, the invasion of Ukraine will deepen the global rift between U.S.-led rules-based economies and their authoritarian adversaries,” according to Diana Choyleva, chief economist at Enodo Economics in London.
A tell-tale sign that decoupling is for real will be if China makes progress in its long-standing aim to reduce its dependence on the U.S. dollar and persuades global investors and central banks to make more use of its own currency, the renminbi, in trade, investment and financial markets.
For now, the dollar shows no sign of losing its lustre. But until recently few were predicting the retreat of globalization. Russian President Vladimir Putin has piloted the world economy and political order into uncharted waters.
Three questions to consider:
1. Has globalization been good for the man in the street in rich countries and in developing economies?
2. Why doesn’t Apple make iPhones in the United States or in Europe?
3. Are Western consumers willing to take the economic pain that a ban on importing Russian oil and gas would involve?
