The United States and China are locked into an escalating trade war with broad implications for U.S.-China relations, the global economy, supply chains, and global governance. After several rounds of retaliation, both sides have put in place extensive tariffs that jeopardize bilateral trade, and China has introduced new export controls on critical minerals, including certain rare earth metals, among other things. The trade war could impact China’s and the world’s clean energy transition. China, the world’s largest greenhouse gas emitter, is responsible for over 30 percent of global emissions but is also a clean energy technology juggernaut with record deployment of renewables and electric vehicles (EVs). China also supplies much of the world with EVs, batteries, and solar panels. Consequently, the country’s progress on its emission and environmental targets has large-scale implications for global trade and investment and the global energy transition.

Q1: How will trade tensions with the United States affect China’s energy transition and climate policy?

A1: Unless the United States and China find an agreement to reduce tariffs, trade between the two countries is expected to decline sharply, putting negative pressure on China’s already stagnant economy. If the government responds with an economic stimulus program that prioritizes industry and traditional infrastructure, as it has in the past, rather than consumption and services, this could lead to a growth in greenhouse gas emissions, making it much harder for the country to meet its own climate goals. Analysts already expect China to miss the goals it set for itself on carbon dioxide emission intensity reduction in part due to the post-Covid-19 recovery’s emphasis on manufacturing.

This year is particularly important for climate diplomacy because countries are expected to announce their 2035 Nationally Determined Contributions (NDCs) as part of the Paris Agreement. The NDCs were due in February, but most countries, including China and the European Union, missed that deadline and are expected to submit them in advance of the 2025 UN Climate Change Conference (COP30) in Brazil this fall. With the United States having announced its withdrawal from the Paris Agreement, many observers are hoping the European Union and China will take leadership roles at COP30. A negative economic outlook for China may reduce climate ambition further. This would be a negative signal for other countries, and for bureaucracies within China that often look at central government signals for guidance on which policy goals to prioritize.

Q2: Will U.S. tariffs on the rest of the world affect China’s energy transition and climate policy?

A2: A second-order effect may come through the impacts of the tariffs on other countries. EU regulation on the emissions of certain goods entering the bloc and other environmental regulations on batteries, for example, are important drivers for expanding efforts to establish reliable carbon accounting mechanisms in China. If the European Union were to further relax regulations to help companies affected by tariffs and an unstable macroeconomic environment, China may also have less of an incentive to clean up its value chains. At the time of writing, the tariffs originally announced on April 2 for the European Union and much of the rest of the world were paused for 90 days and replaced with a blanket 10 percent import duty. However, extra tariffs remain in place for the automotive sector and steel and aluminum, which could have negative repercussions on the already fragile global economy.

Q3: How will the ongoing trade dispute with the United States impact China’s clean energy technology industry?

A3: Each sector will be affected differently depending on how dependent it is on the U.S. market. For example, 25 percent of China’s lithium-ion battery exports in 2024 were headed for the United States (see Figure 1), but exports of electric vehicles, solar panels, and solar cells to the United States are minimal (see Figure 2). However, the United States imports solar panels from Southeast Asia, often produced by Chinese firms with components made in China. So Chinese companies may feel knock-on effects from trade tensions with other countries, or due to increased scrutiny on products’ countries of origin.