China can win an energy trade war with the US

The challenge ahead for Chinese manufacturers of solar panels, EVs, and batteries is what to do with their excess manufacturing capacity if they don’t have the US as a market after Trump increased tariffs on imports from China to 125%. The good news, from their point of view, is that there are a number of options on how to profitably pivot in response. A narrowing export market may actually force China’s clean tech companies to do some long-overdue housecleaning that could both strengthen their bottom lines and support China’s progress toward decarbonization. That may not matter much to Trump, who is already no fan of US clean energy industries, but it promises to widen the gap between China and the US on technologies that most energy experts agree will be increasingly vital in the years ahead.

Chinese solar-panel exports have already been largely walled off from the US for several years, which has caused Chinese firms to push much of their production to Southeast Asia. Even prior to the current trade war, Chinese solar producers were also making a concerted push into the Middle East, as a lucrative new venue both for customers and for investments in new manufacturing facilities. That will definitely continue now, with no sign of a slowdown in global solar panel demand anywhere. China’s domestic solar market is probably saturated — in 2024, the country added more than 270 gigawatts of solar, five times more than overall US power capacity additions from all sources that year — but the government was already taking steps to curb the domestic manufacturing glut that had pushed some solar companies into bankruptcy.

All told, the industry seems to be moving in a healthy direction. US solar companies, meanwhile, will continue to be hit hard by rising prices for steel, raw minerals, and other components — in part because of China’s retaliatory export controls.

China’s solar industry could be helped by US tariffs in another way. Up until this trade war, Chinese manufacturers of grid-scale batteries still had an important market in the US. If that dries up, it will severely hamstring the US energy transition. But it would force Chinese companies to focus more on their domestic market, at a time when a lack of energy storage options has become a major bottleneck for the deployment of more renewables on the country’s grid. China’s national and regional governments will likely respond to US tariffs by increasing incentives for local energy storage projects, Greenpeace East Asia project lead Yao Yi said: “These tariffs may provide the unintentional incentive of strengthening China’s energy transition for its energy storage sector.”

China’s electric vehicle makers were also already mostly barred from the US, still have plenty of room to grow domestically, and seem to be moving toward a mutually beneficial tariff deal with the EU. But the levies will be painful for the EV efforts of major US automakers, which still rely heavily on Chinese batteries and other components.

Solar deployment in China may also get a boost from the country’s own tariffs on US liquefied natural gas imports. China hasn’t imported any US LNG for two months, the longest break in at least five years. That means there’s an opening in the country’s power supply market that renewables could be well-positioned to fill (although coal will also likely get a boost). China can source more LNG from US competitors like Qatar or Australia. Meanwhile, an economic slowdown in China and greater EV adoption there also work against the US oil industry, which had seen China’s gasoline market as one of the few growing corners of global oil demand. Over the last few years the movement of global oil prices has become increasingly pegged to China’s economic health, so the steps Trump takes to weaken it will make his US “energy dominance” agenda harder to fulfill.

Finally, China is an important market for US petrochemical producers — yet US imports make up a relatively small share of China’s petchem supply, giving China an advantage in that corner of the trade war as well.

Outside the energy sector, other corners of China’s economy may be less well positioned to survive a trade war. For many mass-produced goods, the US is still the market of choice.