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Trump’s Tariffs and the Costs to the Global Energy Transition

A mere two years after the Inflation Reduction Act (IRA) galvanized private investments in clean energy, the United States now finds itself at a crossroads. The Trump administration's return to power has catalyzed a U-turn in various realms of U.S. policy.


US President Donald Trump
US President Donald Trump. (Image: Wikimedia Commons)

Tariffs have been weaponized, fossil fuels made a priority and climate skepticism has become national policy when climate policies are described as “burdensome” and “ideologically motivated” according to Trump’s own executive orders. Individual states find it increasingly difficult to navigate this environment, which threatens to stall the very transition once championed by Washington, DC. 


Out of all his changes in climate policy, Trump’s volatile tariff regime has perhaps had the most immediate effect on the global energy transition. On April 14th, Reuters reported that the administration levied a 25% tariff on all steel and aluminum imports, in addition to additional tariffs on China, including on clean energy technologies. 


Reuters also reports that the net effect on the Energy, Utilities, and Resources industry in the US is expected to surge from $400 million to around $53 billion annually. This would consequently raise the costs of developing and deploying clean energy technologies in the States and introduce instability across all clean energy supply chains running through the US. 


The ‘energy transition’ has become a common way to refer to the movement in shifting energy production from a fossil fuel-heavy mix to one that reduces the amount of greenhouse gases released, a central strategy in limiting global warming.


Within this framework, solar energy has emerged as one of the most important factors in this transition. Pourasl, Barenji, and Khojastehnezhad show how solar energy has become one of the most widely accessible energy resources on Earth. The International Renewable Energy Agency reports that solar energy had an installed capacity of 1,053 GW globally in 2022, second only to hydropower. 


This is not difficult to fathom. Solar energy is not dependent on the availability of very specific environmental conditions, like viable wind corridors for wind energy while not suffering from the safety and security issues surrounding other sources like nuclear energy. In a 2023 Nature study by Nijsse et al, there is even evidence that energy technologies have already passed an irreversible tipping point, which will see solar energy dominate electricity markets the world over, even without any additional climate policies.


Section 301 of the US Trade Act of 1974 gives the US Trade Representative powers to take unilateral action, such as import duties or other trade restrictions, against countries that engage in unlawful trade practices with the US that ‘burdens or restricts’ US commerce. Under this, former United States President Joe Biden took steps to protect US commerce against China. The idea was that China had developed an overcapacity for many technologies to the extent that they were being dumped into the US market at the expense of domestic US production. 


Therefore, in September 2024, the United States Trade Representative announced an increase in tariffs on aluminum and steel products from an initial maximum of 7.5% to 25%. On solar cells, these had risen from 25% to 50%. The Biden administration, furthermore, used a combination of funding and tax credits to support the development of clean energy projects. Trump reverses these incentive-based approaches in favor of a strict tariff regime.


Trump’s tariff-based approach will be counterproductive: it will fail to block Chinese products and will undermine domestic solar panel production through higher input costs. 


The Fault in Our Protectionism


In their March 2024 paper titled ‘Strategic Avoidance and the Welfare Impacts of Solar Panel Tariffs', economics researchers from NYU, Cornell, Yale, Duke, and the US Department of Justice argue that the last round of similar tariffs against China contributed to an offshoring of solar panel production to third countries where taxation was lower. The study shows that the share of production outside of China for Chinese firms has more than doubled between 2010 and 2020, from 0.06% to 0.15%. 


This was not a coincidence. The study focused only on Chinese firms that were exporting to the US markets prior to the tariffs. This pattern is supported by the Department of Commerce (DoC), which found that several companies were skirting tariffs levied on China by moving what were essentially Chinese products through these countries. They investigated eight companies across four countries and found that five of them had resorted to minor processing in Southeast Asia before shipping off to the US. 


Thus, there is some precedent to suggest that Chinese solar products will make their way to the US through other markets. Findings from the study above suggest that this could happen even with the recent, more aggressive tariffs against China. This is not to say that the same rerouting will happen, but the tariffs are likely to reshape global supply chains in a way that would undercut the protectionist objectives they seek to achieve. 


Domestic Manufacturing Taxed but Not Subsidized 


The tariffs are likely to be counterproductive for US manufacturing and its national clean energy transition. First, Chinese dominance over the solar energy product sector is very clear. The International Energy Agency finds that after a decade of investments, China dominates every stage of solar cell manufacturing. Their market share exceeds 80% on average for every component. For polysilicon, a key input in solar cell manufacturing, North America as a whole represents 5.6% of total manufacturing capacity while China accounts for 79.4% at the time of writing. 


Second, it is difficult to say that the US will quickly revamp its production to reflect the changing trade realities. It is true that the States continue to boost their manufacturing capacity, however, they are still reliant on solar cells from abroad to keep costs low.


While Trump’s tariffs may incentivize some growth in solar manufacturing, the rollback of IRA provisions could simultaneously constrain domestic firms’ ability to meet demand. Specifically, benefits such as the 45X production tax credit and the 48C investment tax credit for renewable energy production had incentivized a wave of solar manufacturing by effectively lowering the cost of production.


To illustrate this, we can look at how, after the IRA was passed, the largest solar panel maker in the US, First Solar, announced a $1.1B investment for a new 3.5 GW production facility in Louisiana. The IRA had made it cheaper to set up such plants in the US instead of in India or Europe. Solar panel production cannot be expected to continue to grow at the same trajectory if the catalyst for this change is removed.


The mainly Republican opponents of the IRA argue that some of the subsidies end up going towards Chinese-backed firms in the US. These firms essentially receive subsidies from both governments. However, the effect is still the same: it boosts the production of solar energy technology and benefits the US by making sure this manufacturing is onshored. For the energy transition, producing a win-win scenario for these large players is important, while derailing supply chains through tariffs slows the transition down. 


There is some scepticism around this claim since the IRA has only been functional for 2 years, and so there is not enough evidence to suggest that subsidies have crowded out local US players with those that are Chinese-backed. This would be the biggest losing scenario for the US. 


Thirdly, demand for solar panels has continued to grow in the US. The US Energy Information Administration reports that the US electricity sector added 37 GW of solar capacity in 2024, which doubled the installations added in 2023. Growth in other energy sources is expected to slow down, as per the EIA. 


In 2024, natural-gas-fired capacity, the largest power generator in the US, only rose by 1 GW. This rising demand for solar energy provides some basis to suggest that the US will continue to seek imports to support this demand, even with Trump’s volatile tariffs. Indeed, the US demand is so great that they still imported 68.3 MW of solar panels directly from China in 2024 in spite of the gradually rising tariffs against the foreign adversary. 


The demand for solar panels is a function of the demand for energy in general. Given that the US needs solar panels due to growing energy needs and has not been given the time to keep up with demand, the country has to outsource. It may continue to rely on China and Southeast Asia. 


Since the US has relied on solar cells imported from elsewhere for its domestic production, and these raw materials face tariffs, a rise in the cost of domestic US production of solar panels can be expected. Tufts Associate Professor in Economics, Steve Cicala, believes that solar installations will become more expensive as these costs are passed on to consumers. 

 

Given Chinese supply chain dominance, an expectation of slow growth in domestic US solar production, and continued demand for solar energy products, it is anticipated that US consumers and manufacturers will have to bear the brunt of a large portion of the higher prices around these technologies. 


One Morningstar senior analyst argues that clean energy investments will be affected. The inflationary risk of clean energy development has already prompted some stakeholders, such as Robeco, a €200 billion Dutch asset management company, to decrease their investments in US-based clean energy. This has a big effect on the clean energy transition, even beyond the borders of the US. 


The Effect on Electric Vehicles


A ‘slow-down’ of the transition towards solar energy is a cause of concern, given the above. 


While the effects on the solar energy market are not immediately clear to the public, the recent 40% decline in Tesla stock paints a clearer picture of how Trump’s tariffs affect the energy transition, as reported by BBC in April 2025. 


BBC also finds two reasons behind this decline: limitations around finding some inputs within the US despite Trump’s aggressive push to move auto manufacturing to the US, and retaliatory tariffs on Tesla EVs in China (the company’s second biggest market).


Noah Gordon, in his report for the Carnegie Endowment, finds that the challenge for manufacturers like Tesla does not come from the Chinese tariffs. Chinese EVs have been almost non-existent in the US market due to the high previous tariffs. The issue comes from two other places: the tariffs on steel and aluminum mentioned above and those applied directly to autos and auto parts. For now, the EV industry is hoping that critical minerals continue to be protected from these tariffs. However, they could be another point of contention if other countries retaliate with tariffs on them.


A Hypothetical Model


A study by Coffin, Crotty, Walling, and Yuan simulates an experimental scenario of interest. Using a Computable General Equilibrium model, they find that if there were to be a global tariff on Chinese parts used to make  EVs, a rise in EV part exports from other countries could be observed. With cheaper domestic prices for parts, the study argues, this would spur an increase in Chinese EV production and an increase in Chinese exports by 13% to 20%. 


This would happen even though ‘welfare’ in China would decline by $3.6B in the case of a ban on EV parts. In other markets, though, the study predicts a loss in competitiveness and a decline in EV production since parts are no longer cheap. This is still a drawback for the global energy transition, as one country continues to dominate other markets, and there is animosity during this transfer of technologies between countries. This fear is shared by EU leaders, as shown below. 


Global Climate Governance in Flux


The World Trade Organization predicts a 0.2% decline in global trade, not just in energy transition technologies, amidst Trump’s tariffs against multiple countries. The organization makes this prediction even amidst a 90-day tariff pause. There is an uncertainty emerging out of the Trump administration’s new tariffs, which dampen trade flows and weaken economic activity. 


This introduces two effects into global energy transition movements. Firstly, recessionary pressures mean that capital-intensive industries, such as grid deployment and renewable energy technology manufacturing, will suffer. The clean energy transition has been heavily reliant on these capital investments to push towards carbon neutrality. This movement is now likely to slow down. There is not enough evidence to argue that it will stop altogether.


Perhaps more importantly, the recent policy changes open a vacuum in global climate policy leadership. Besides its tariffs, the US has also backed out of the Paris Agreement on Climate. As the energy transition is ramping up, this was an opportunity to set climate technology standards, phase out fossil fuels, and creatively finance energy transitions in the Global South. This is an opportunity missed for the US. 


While China’s technological and manufacturing position is enviable, the EU has introduced a carbon-price adjustment through its Carbon Border Adjustment Mechanism (CBAM), which requires low-carbon production as a condition for trade with the EU. This creates opportunities for collaboration. 


The CBAM presents countries with two options: decarbonize or accept tariffs on their exports. In the ‘Global Energy Interconnection’, Wang, Wen, and Zhang find that under CBAM, China may be levied tariffs up to 6.9% on all of exports to the EU. However, since these can be avoided by complying with carbon regulations, the policy offers a clear incentive for exporters to decarbonize and remain competitive.


The EU will emerge from Trump’s tariffs with concerns around its relationship with the US, China and the rest of Asia. The Deutsche Bank recently predicted that the tariffs could cost the EU as much as 0.4-0.8 percentage points of its GDP. Moller-Nielsen argues that the tariffs also create fears around China dumping billions in cheap green technologies into the EU, since they would be harder to sell in the US. 


This is a valid fear since the EU’s deficit with China has already grown from €291 billion to €304.5 billion from 2023 to 2024. While giving a small boost to the clean energy transition, green technology dumping risks potentially wrecking domestic manufacturing in the EU. 


The EU should seek a different approach to its geopolitics in this area. It would be beneficial for the EU, for example, to realize that it is a large market for Chinese exports and to foster a collaborative production of these technologies. This would ensure that the EU has some share of the technological know-how and job creation from these activities. 


These changes also come in the backdrop of the emergence of a “Greater Asia.” There is an emphasis on a movement away from Western leadership, perhaps exacerbated by President Trump’s tariffs and a focus on intra-Asian cooperation. Asia is perhaps most negatively affected by the material effects of climate change. 


Rising sea levels, droughts and flash floods are all real phenomena for this region. According to the World Meteorological Organization, Asia is the world’s most disaster-prone region. It accounted for 47% of all natural disaster-related deaths in 2023. For Asia, it is increasingly important to accept the effects of climate change and move towards adaptation.


In the meantime, as the US alienates important Asian economies, the countries themselves continue to be producers of climate solutions and grow strong trade amongst themselves. 


Though early signs of resource nationalism can be observed—with Indonesia and the Philippines having already applied restrictions on the export of nickel—and technological sovereignty, there is also an opportunity for cooperation and engagement with both the EU and the US.


Aggressive tariff policies paired with a retreat from multilateral climate commitments signal a disruptive phase for the global energy transition. While intended to shield American industries and reduce foreign dependency, these measures may backfire. They risk raising domestic costs, weakening investor confidence, and slowing the deployment of solar and electric vehicle technologies at a critical point. More broadly, they negatively impact global cooperation at a time when coordinated leadership is needed the most.


The European Union is asserting itself through tools like the Carbon Border Adjustment Mechanism, while emerging powers in Asia pursue climate adaptation strategies that reflect their unique vulnerabilities and technological capacities. Whether these shifts lead to constructive realignment or further fragmentation will depend on the choices made now.


Ultimately, the success of the energy transition rests not just on the right technologies but also on the political and economic frameworks that enable it. Tariffs, if used without complementary support and international coordination, may offer short-term political gains but at the cost of long-term climate progress. While national security is important, there are immense dividends to be shared throughout the globe if we push for a renewed global collaboration and recognize that energy security and climate action are inseparable.




Edited by Tatenda Dlali


Adil Ashraf writes on climate issues for Political Pandora’s Climate Department. He is a Local Government Budget Analyst in Maryland, where he contributes to budget development and performance management. He holds a Master of Public Administration from Syracuse University with a concentration in Public Policy Data Analysis.


Originally from Pakistan, Adil is deeply passionate about sustainability and equitable transitions. His experience spans fundraising for climate initiatives as well as working on sustainability projects across both the public and private sector.



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Keywords: Trump Tariffs, Clean Energy Transition, Solar Panel Costs, US Solar Market, Renewable Energy Policy, Electric Vehicle Industry, Climate Policy Reversal, Global Energy Supply, Trade War Impact, Inflation Reduction Act, Solar Manufacturing Challenges, Energy Security Concerns, Carbon Border, Fossil Fuel Prioritization, Global Climate Leadership.

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