The escalating trade tensions between the United States and China are fundamentally reshaping the landscape of U.S.-China relations, with far-reaching implications for both nations, as well as for the global economy and climate change initiatives.
As the trade war unfolds, extensive tariffs imposed by both countries threaten to undermine bilateral trade, leading to significant economic challenges. China’s introduction of export controls on critical minerals, including rare earth metals, exacerbates these challenges and poses risks to its clean energy transition.
China, as the largest greenhouse gas emitter globally, accounts for over 30 percent of global emissions. However, it also stands as a leader in clean energy technology, showing remarkable deployment of renewables and electric vehicles (EVs). Therefore, the progress China makes toward its emission reduction and environmental targets will not only affect its own economy but also the global trade landscape and international investment in clean energy.
**Impact on China’s Energy Transition and Climate Policy**
The ongoing U.S.-China trade dispute could have profound effects on China’s energy transition and climate policies. Without an agreement to reduce tariffs, a sharp decline in trade is anticipated, putting further negative pressure on China’s already tepid economic growth.
Historically, when faced with economic slowdowns, the Chinese government has responded with stimulus programs focused on traditional infrastructure and industry rather than services and consumption. Such a shift in focus might lead to an increase in greenhouse gas emissions, complicating China’s ability to meet its ambitious climate targets.
Analysts predict that China may fall short of its goals for reducing carbon dioxide emission intensity, a situation significantly exacerbated by the post-Covid-19 recovery’s focus on manufacturing.
As nations are expected to announce their 2035 Nationally Determined Contributions (NDCs) under the Paris Agreement, the impact of a negative economic outlook might lead to diminished climate ambitions in China. Missing the initial February deadline for NDC submissions, China and the European Union are expected to disclose these targets before the 2025 UN Climate Change Conference, COP30, in Brazil.
In this context, the presence of the United States absented from the Paris Agreement could push the EU and China toward leadership roles at COP30. However, a less optimistic economic outlook for China may further diminish its climate aspirations, sending negative signals both domestically and internationally.
**Effects of U.S. Tariffs on Other Countries**
In addition to the direct impacts of tariffs on China, secondary effects may emerge as tariffs influence trade with other nations. For example, EU regulations restricting emissions from imported goods can spur progress in creating reliable carbon accounting mechanisms within China.
If the European Union opts to ease regulations in response to economic pressures from tariffs, it could inadvertently lessen China’s incentives to decarbonize its value chains. Recent tariff developments, including a pause of extra tariffs imposed on various countries and a shift to a blanket 10 percent import duty, have heightened global economic uncertainty, especially with intact tariffs on sectors like automotive, steel, and aluminum.
**Impact on China’s Clean Energy Technology Industry**
Each clean energy sector will experience different impacts from the U.S.-China trade war, largely depending on their reliance on the U.S. market. In 2024, 25 percent of China’s lithium-ion battery exports were destined for the United States, whereas exports of EVs and solar panels to the U.S. are relatively minor.
Moreover, the U.S. has been importing solar panels from Southeast Asia, which may be produced by Chinese companies utilizing components sourced from China. Consequently, trade tensions with other nations could affect Chinese firms significantly due to increased scrutiny concerning product origin.
The situation regarding Chinese critical mineral producers remains uncertain following the introduction of export controls by China. Foreign companies could face significant challenges in accessing rare earth elements due to delays and restrictions, negatively impacting their operations.
However, if these controls persist too long, Chinese firms may also suffer from declines in foreign exports exacerbated by trade barriers and economic slowdown.
The internal demand within China remains a crucial determinant for the success of clean energy technology companies. Key factors such as new trade-in programs and low-carbon demonstration projects can significantly influence deployment rates of solar and wind energy, especially as feed-in tariffs are set to be phased out in July.
Yet, a diminishing economic forecast combined with increased uncertainty might lead to reduced domestic deployment of clean energy technologies. Such reductions could also hinder advancements in new technologies and R&D efforts within China, as firms may become hesitant to invest in higher-risk projects.
Although the central government might uphold support for R&D, dependency on local government and private corporate budgets may impose further constraints. Additionally, any research collaborations with American firms could face significant jeopardy amid ongoing restrictions.
The clean energy technology sector in China appears poised for consolidation, a notion the government has indicated it endorses to counteract ‘involution’. An economic decline may suppress investment and sales domestically, leading to corporate restructuring, mergers, or bankruptcies which, despite being disruptive, could fortify the industry in the long run.
Nevertheless, early indicators suggest local governments may intervene to bail out struggling solar panel producers, which could compound the overcapacity issues that have historically strained China’s international relations.
**Future of Chinese Clean Energy Technology Exports**
As the trade war continues, the rest of the world is preparing for an increase in Chinese exports largely fueled by tariff-induced shifts. Specifically, the lithium-ion batteries sector is anticipated to undergo reconfiguration in response to U.S. tariffs.
Countries, both developed and developing, are seeking to cultivate domestic industries capable of producing these critical technologies. This could lead to calls for stronger tariffs on Chinese battery imports within the European Union, particularly as the number of EVs rises and seeks local production.
Chinese clean energy technology producers are likely to diversify export markets, along with localized production efforts to reach new customers. In recent years, there has been a steady increase in exports of EVs and solar panels to Asia and Latin America, markets where barriers to entry may be lower, potentially continuing that trajectory.
For nations lacking substantial domestic clean energy industries to champion, increased Chinese exports can be advantageous. For instance, affordable solar panels from China have modernized Pakistan’s energy infrastructure, while EV exports from China have positioned Costa Rica as a leader in electric mobility.
European imports of solar panels have surged in recent years as the continent reduces dependence on Russian fossil fuels while grappling with soaring energy prices. Countries like Brazil, despite lacking explicit EV targets, are experiencing rapid EV adoption driven by attractive Chinese models entering the market and subsequently aim to establish themselves as a manufacturing hub through foreign investments.
**Potential Consequences of Exclusion from a Global Trade Deal**
If the global community reaches an agreement with the United States that excludes China, the latter’s clean energy technology firms may find themselves compelled to relocate portions of their production abroad. This adaptability has become evident in the solar sector, where a significant share of manufacturing shifted from China to Southeast Asia, thus avoiding U.S. tariffs and restrictions linked to the Uyghur Forced Labor Prevention Act.
Consequently, the U.S. now imports few solar panels directly from China, but continues to receive a notable quantity produced by Chinese firms or utilizing Chinese components.
Should restrictions against China persist while other countries negotiate reduced tariffs with the U.S., it is plausible that Chinese companies will look to further decentralized production, seeking out countries inclined to attract foreign direct investment to develop independent value chains.
However, the increasing global scrutiny surrounding the internationalization of Chinese value chains signifies that the U.S. may enforce stricter regulations on countries believed to be facilitating the introduction of Chinese goods.
Reporting has emerged indicating that the Chinese government is also apprehensive about potential technology leaks as Chinese firms expand overseas production capabilities, especially in battery technology.
Given the complexity of the current trade landscape, the outcomes of the U.S.-China trade war will not only shape the two countries’ futures but could also fundamentally alter global energy transitions, affecting market dynamics and the pace of climate initiatives worldwide.
image source from：https://www.csis.org/analysis/analyzing-impact-us-china-trade-war-chinas-energy-transition
