President Trump’s recent tariff announcements, even after revisions, have significantly impacted the post-war trade system, suggesting a departure from the free flow of goods that has characterized global economics. These international tensions are expected to disrupt clean energy supply chains, especially considering China’s dominance in clean energy technology manufacturing, where tariffs now exceed 100%. The key question is what global trade system will emerge and how it will affect long-term climate efforts.
Climate considerations are increasingly integrated into trade discussions. Despite the U.S. stepping back from its climate agenda and the EU facing pushback on its climate policies, climate could become a central point in trade negotiations.
The intersection of climate and trade has been discussed for decades. Trade restrictions could theoretically address the free rider problem that hinders aggressive emission reduction efforts. Countries acting on climate change could impose restrictions or fees on products from countries with insufficient efforts. However, leaders have historically avoided climate-linked trade barriers due to concerns about geopolitical disruption.
This changed during Trump’s first term. As the EU aggressively reduced emissions, its industry raised concerns about competitive disadvantages due to climate policies, especially carbon pricing. Trump’s trade measures—small then but significant at the time—prompted the EU to implement a carbon tax on imports in 2023 for large firms in specific sectors.
Trump’s renewed trade actions are again creating opportunities to link climate and trade. In the U.S., some policymakers suggest imposing a carbon fee at the border to penalize China’s reliance on high-emitting coal power. This rationale is driven by both environmental and economic concerns, as the U.S. industrial base is often cleaner than those of other countries, even without a carbon price.
Republican Senators Lindsay Graham and Bill Cassidy have introduced legislation to this effect, supported by climate advocates like Ceres and the America First Policy Institute. Cassidy stated that the fee would acknowledge the U.S.’s investments in emission control, giving them an unfair advantage over countries like China.
Cassidy also suggested a potential partnership with the EU and other allies to align border standards, though this might conflict with Trump’s stance towards traditional U.S. allies.
Meanwhile, a different dialogue is occurring concerning climate and trade in emerging markets like India and Brazil, focusing on solidarity and reciprocity rather than competition. These countries argue that carbon taxes are unfair given the historical emissions from developed nations. They believe such fees harm local companies and hinder decarbonization investments. Instead, they advocate for stricter emission policies in countries like the U.S. and increased financial support to incentivize decarbonization in developing countries.
This issue was prominent leading up to the United Nations climate conference last year in Azerbaijan and is expected to resurface at this year’s conference in Brazil. According to a Brazilian diplomat, cooperation is the only way to resolve such issues.
However, the U.S. is unlikely to participate meaningfully in the November talks as it nears its withdrawal from the Paris Agreement under Trump. This fragmentation could splinter climate standards and clean technology supply chains, requiring companies to adapt and invest in low-carbon technologies tailored to various border requirements.
The future remains uncertain, but a new trade agenda is emerging, and climate will undoubtedly play a role.
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