Energy Demand Falters Amid Global Slowdown and Trade War

The global energy landscape is undergoing a seismic shift as the intensifying trade war between the US and China, coupled with a slowing global economy, erodes energy demand. The tariffs imposed by President Donald Trump, which include a blanket 10% rate on all countries with many facing much higher penalties, are rippling through global supply chains, impacting everything from solar panels to electric vehicles. This disruption comes at a critical juncture as the world grapples with the urgent need to transition to cleaner energy sources to mitigate climate change.

The immediate impact of these tariffs is a significant increase in the cost of renewable energy technologies. China, a major exporter of clean tech, now faces a 34% tariff on its goods, on top of existing penalties. This cumulative increase will make it more expensive for the US to import solar panels, electric vehicles, and batteries, which are crucial components of the energy transition. As Antoine Vagneur-Jones from BloombergNEF noted, "The tariffs are essentially throwing up entire walls that will impact all industries, particularly those that rely on supply chains going back to China and other countries."

The volatility introduced by these tariffs is already affecting investment decisions. Extreme price fluctuations and uncertainty make it difficult for companies to commit to long-term projects, which are essential for scaling renewable energy technologies. This volatility is particularly detrimental to the energy sector, where projects often have depreciation timelines of 20 years or more. As Vagneur-Jones pointed out, "Extreme volatility puts firms off putting money down for assets with a 20-year depreciation timeline, and inflating the cost of inputs makes scaling manufacturing considerably harder."

The trade war is also leading to a shift in export markets for renewable energy technologies. China, facing high tariffs in the US, is expected to redirect its exports to low- and middle-income countries. This trend, which has been accelerating since 2022, could potentially slow down the energy transition in developed countries like the US, as they may face higher costs and reduced availability of renewable energy technologies. However, it could also present opportunities for countries like India, which has a relatively lower tariff rate of 26% and is ramping up its clean tech manufacturing capacity.

The impact on the US solar industry is particularly stark. The US imports a vast majority of its solar panels, with Vietnam being a top supplier. However, Vietnam now faces a 46% tariff, which could significantly reduce US solar imports from the country. This could lead to increased domestic production of solar panels in the US, but it may also result in higher costs for consumers and businesses. As Vagneur-Jones noted, "The lower duties could potentially boost future exports" for countries like India, which could benefit from the trade war by increasing its exports to the US.

The trade war is also adding uncertainty to the liquefied natural gas (LNG) market. China's tariffs on US LNG could disrupt the industry, which plays a crucial role in America's global energy dominance. As Charlie Riedl from the Center for LNG trade association stated, "China’s choice to slap tariffs on U.S. LNG adds 'uncertainty into an industry that will play a crucial role as part of America’s global energy dominance.'"

The long-term effects of these tariffs on the energy transition are multifaceted and complex. While the tariffs are designed to bolster US manufacturing, the increased costs and volatility may actually hinder domestic manufacturing efforts. As Vagneur-Jones pointed out, "The tariffs are essentially throwing up entire walls that will impact all industries, particularly those that rely on supply chains going back to China and other countries." This could make it more difficult for US companies to compete in the global market for renewable energy technologies.

The trade war is also impacting US energy exports to China, which include natural gas, coal, and crude oil. For instance, in November 2024, 3% of US LNG exports were sent directly to China. However, the exact volumes traded on the international market are hard to track, making it difficult to predict the full impact. As Courtney Manning, a China expert at the think tank American Security Project, said, "We’re kind of putting ourselves in the line of fire as far as our LNG strategy is concerned."

In conclusion, the trade war between the US and China, coupled with a slowing global economy, is eroding energy demand and disrupting global supply chains. The tariffs imposed by President Trump are increasing the cost of renewable energy technologies, introducing volatility into supply chains, and shifting export markets. While there may be opportunities for some countries to benefit from the trade war, the overall impact on the energy transition is likely to be negative. The full extent of these impacts remains to be seen and will depend on how the trade war evolves. However, one thing is clear: the energy transition is facing significant headwinds in the face of this global economic slowdown and trade war.