Are Tariffs A Bad Idea For Climate Change?

Can tarrifs impact climate change? Since coming to power, the new Trump administration has taken active steps to introduce tariffs. One recent step has been enforcing section 232 of the US Trade Expansion Act of 1962— which allows a president to use tariffs in the interest of national security— to raise tariffs on steel and aluminum. Some countries impacted by this move are already announcing intentions of retaliatory tariffs, making the situation seem like a global trade war. Tariffs are a tax on imported goods. It’s an economic policy tool governments use to protect domestic industries from foreign competition. Within a few weeks of the new administration, the US imposed a 25% tariff on imported steel and aluminum and an additional 10% tariff on all Chinese imports.

Tariffs are not unique to the Trump administration; the Biden administration also introduced tariffs against Chinese solar panels and electric vehicles. Infact, there is nothing new about governments using tariffs to protect the interests of their national economy— even though they often have adverse consequences. For instance, the US in the 1930s introduced Smoot-Hawley tariffs, which many believe led to the worsening of the Great Depression of the 1930s, significantly plummeting the economy. To prevent a rise in protectionist tendencies among countries, the international community established the General Agreement of Trade and Tariffs in 1947. Twenty-three countries signed the agreement, which eventually led to the creation of the World Trade Organization in the 1990s. The WTO ensures a system for rules-based international trade with checks for discriminatory trading patterns and trade barriers.

Most economists agree that tariffs are bad for the global economy. Economists from the International Monetary Fund, using data from 51 countries from 1963–2014, found that tariff increases are associated with a persistent decline in output growth. However, these findings contrast that quoted in a recently released White House document stating that the effects of President Trump’s tariffs in his first Administration strengthened the US economy. The link to the study quoted in the White House document could not be found. So, it is tough to know more details about the study.

Given the current landscape, it’s reasonable for people to wonder whether tariffs can adversely impact global efforts to address climate change. Here, we explore this question by examining two key areas that can help clarify the impact of tariffs on broader efforts to tackle climate change.

What Do Climate Scientists Say About Retaliatory Tariffs?

The situation of retaliatory tariffs we are in today is not something that climate scientists did not foresee; it is the scenario in which the world moves towards high emissions. It is captured in climate scenario narratives of the IPCC, the scientific body on climate change.

In a scenario of regional rivalry, emissions can be expected to increase to around 76 to 86 GtCO2 by year 2100— roughly 2 to 4 times higher than the sustainability focused scenario. This scenario is captured by scientists in the narrative of the SSP 3- RCP 7.0 scenario, where the world’s average temperature will rise by 3.6°C by the century’s end. Scientists use scenarios to understand the uncertain impact of climate change. These scenarios and narratives show how scientists expect the world to evolve in the future based on socioeconomic information such as GDP, population, and trade. Of the five key scenarios scientists have created to understand future uncertainty, the third narrative- SSP 3-relates to a future with a rise in protectionism where national interests are prioritized.

Regional rivalry and retaliatory tariffs significantly increase the risk that the transformations needed to address climate change will not be met. These transformations include scaling up of existing clean technologies such as solar, wind or hydro as well as investments in newer technologies such as hydrogen or carbon removal.

Can Tariffs Impact Clean Energy Transition?

China is establishing itself as the world leader in clean energy technologies in terms of scale and speed of production. In 2022, China roughly installed as much solar power as the rest of the world combined. It is set to account for as much as 60% of all renewable energy capacity installed worldwide between now and 2030, according to the International Energy Agency. The country has already surpassed its wind and solar capacity addition targets for 2030, six years ahead of schedule. One in seven panels produced worldwide is produced at a single facility in China, according to IEA. Such concentration in the global supply of a product is a vulnerability.

The recent increases in tariffs for China by the US and other European countries are attempts to prevent their national supply chains from over-dependence on a foreign country’s products. Experts in security and public policy consider this a legitimate concern, as there have been cases where countries have used economic dependence as coercion to get things done. For instance, many Arab countries put an oil embargo in 1973 against the United States as a reaction to US military aid to Israel.

While high import tariffs may be justified on national security grounds, the reality is that there is a vast production gap in the clean energy supply needed to meet net zero, if the world were to decouple its clean energy efforts from Chinese production. The production gap is particularly huge for clean energy technologies such as batteries and electrolyzers, according to an analysis by the Carnegie Endowment for International Peace. At present, China’s share in all manufacturing stages of solar panels ((such as polysilicon, ingots, wafers, cells and modules) ) exceeds 80%. Such a gap, if unmet, can significantly slow down the world’s progress in clean energy.

Experts suggest a better way out would be to further encourage joint ventures and technology transfers into the US and Western countries. President Ronald Reagan adopted a similar strategy in 1980 when Japanese cars flooded the US. More recently, in 2023 —aligned to this direction —an agreement between Ford and the Chinese battery manufacturer CATL took shape. However, it did not come to fruition, as it was later made known that the Chinese company was involved in forced labor from the Uighur community of China.

Ultimately, can tariffs impact climate change? The answer will depend on how well our political leaders manage national security concerns through tariffs and the urgent need to scale up renewables, which is a delicate balance. As we look into our shared future, leaders must not underestimate one priority over the other. They must make decisions that are good for our immediate needs as well as for our long-term sustainability.