Tariff Troubles

This Week's Trend In Brief:

• Earlier this week, China filed a World Trade Organization (WTO) complaint against U.S. electric vehicle subsidies, arguing tariffs placed by the Biden Administration violate international trade rules by unfairly favoring domestic manufacturers. 
   

• How this case plays out will have big implications for green subsidies globally, with both positive and concerning impacts for energy companies, especially if the Biden Administration opts to defend its policies by arguing climate change is an international emergency. 
   

• Win or lose at the WTO, Biden’s tariffs and China’s subsequent response highlight what Axios calls “Bipartisan anti-China trade policy [that] is shaping the energy transition,” and companies making energy investments in the U.S. or Europe must understand the political and reputational challenges facing them when it comes to China, even when an association with China is not immediately apparent. 
   

• As the WTO prepares to consider China’s complaint, it is essential for companies in the energy industry to understand where their exposure to China is to anticipate and manage reputational and regulatory challenges while seizing any emerging opportunities.

Digging Deeper:

 
Earlier this week, China filed a complaint against U.S. electric vehicle subsidies at the World Trade Organization (WTO), arguing tariffs placed by the Biden Administration violate international trade rules by unfairly favoring domestic manufacturers. Chinese officials claimed the complaint was filed “to safeguard its interests in the electric vehicle industry,” contesting what it called “discriminatory subsidies” under the Inflation Reduction Act (IRA), “that it said resulted in the exclusion of goods from China and other WTO countries.” The White House argued the tariffs are necessary for “creating good jobs in key sectors that are vital for America’s economic future and national security.” As we have noted before, as countries push to accelerate the energy transition, nations are confronting the reality of global trade rules that can cause tension between energy transition priorities and the desire to protect and reshore industries with national and economic security implications. China’s complaint against the U.S., as well as its looming retaliatory action against the European Union should it raise its own tariffs against China, are the latest examples of these dynamics.
 
The WTO is set to consider China’s complaint later this month, and how this case plays out will have big implications for green subsidies globally, with both positive and concerning impacts for energy companies. If the Biden Administration defends its tariffs by arguing climate change amounts to “an international emergency” and justifies the subsidies included in the IRA, it could “broaden the scope of when countries can invoke a national security exception from trade rules.” This step could allow countries to enact measures and tariffs their policymakers believe will help domestic companies by citing climate change and “open the door to countries imposing a number of trade-distorting measures to reduce carbon emissions without fear of the WTO striking them down.” As we noted last year, a climate emergency declaration “could have broad impacts across the energy value chain” by granting governments unprecedented authority to regulate a wide range of industries, especially those that activists wrongly deem incompatible with climate goals.
 
The clash over tariffs highlights what Axios calls “Bipartisan anti-China trade policy [that] is shaping the energy transition,” and companies making energy investments in the U.S. or Europe must be prepared to navigate this growing political and reputational risk, even when an association with China is not immediately apparent. U.S. officials have spent years advocating for policies to get tough on China. At the end of last year, a group of bipartisan lawmakers were “united in their concern over the economic, technological and security threats that China poses” and discussed “ways to crack down on American investments in Chinese energy companies.”  In March 2024, Congressman James Comer (R-KY) launched a government-wide investigation into China’s “ongoing efforts to target, influence, and infiltrate every sector and community in the United States,” including energy. Energy companies, especially battery manufacturers and solar power developers, will continue to face intense scrutiny over their ties to China, even when they may not be readily apparent.
 
As the WTO prepares to consider China’s complaint, it is essential for companies in the energy industry to understand their exposure to China in both perception and reality so they can anticipate reputational and regulatory challenges. Policymakers across the ideological spectrum at both the federal and state levels are aiming to protect American interests against China, especially as policymakers look to bring certain manufacturing and critical mineral sourcing operations to the U.S. While scrutiny of companies and organizations that work with or tangential to China is not new, the political and reputational damage to firms could be far more severe and enduring than before. Public affairs professionals must understand these risks and have a full assessment of which policymakers and stakeholders are likely to scrutinize their ties with China and can have a real impact on their companies’ interests.

Trends in Energy is your weekly look at key trends affecting the energy industry, brought to you by the competitive intelligence experts at Delve. As the political and regulatory landscape continues to shift, reach out to learn how our insights can help you navigate these challenges.

MTrans?