The new normal: How trade tensions and policy uncertainty may reshape the US cleantech landscape

As the US implements substantial tariffs on imported goods, the implications for the clean energy sector -- particularly for solar photovoltaic, wind and battery technologies -- are multifaceted. The rising costs associated with these tariffs, coupled with limited domestic manufacturing capacity and policy uncertainty that deters new investments, pose significant challenges for the US energy transition.

The announcement of President Donald Trump's tariffs April 2 marked a significant shift in the trade landscape. Initially perceived as a broad-based trade strategy, these tariffs quickly evolved into a high-stakes US-China standoff, with tariffs reaching as high as 145% for China.

While tariffs for China have been decreased from 145% to 30% as of May 12, this ongoing volatility in tariff announcements and the potential for retaliatory measures from trade partners have created an unpredictable environment, complicating investment decisions and long-term planning across the board -- from power plants to factory development.

More damaging than the tariffs themselves have been the inconsistency and uncertainty that have followed as the tariffs are revised.

The volatility of the tariff announcements over February to April highlights the uncertainty that supply chains are facing in the US. These new tariffs in 2025 are in addition to any already-existing duties and tariffs, including antidumping and countervailing duties, Section 232 tariffs on steel and aluminum imports, and Section 301 tariffs on Chinese-origin goods, making the impact on cost for some of these clean technologies even higher than expected.

Rising costs across the board, but varying by technology

The current tariffs are projected to increase the capital expenditure of developing projects across the clean energy sector.

Solar PV modules are expected to see a moderate increase of 5% in the short term, potentially rising to 19% if initial tariff rates are restored. Wind technology faces an increase of 8%-12%, while battery energy storage systems (BESS) experience the steepest hikes due to their reliance on lithium-ion battery components sourced from China.

When tariff rates were raised to 145% for China, the cost of developing a full BESS project in the US using a Chinese DC block doubled overnight. While tariff rates on China have lowered to 30%, costs for developing a full BESS project in the US using a Chinese DC block are still around 20% more expensive than costs prior to the current administration.

These cost increases could escalate further if the Inflation Reduction Act (IRA) subsidies are rolled back.

Tariffs expose critical clean energy technology supply chains' vulnerabilities

The clean energy supply chain is highly exposed to tariffs, particularly for technologies dependent on imported components from China. Wind subcomponents and battery technologies are notably at risk. BESS faces significant challenges in sourcing domestically produced battery cells, potentially leaving the industry with no option but to continue importing from China. Solar PV, however, has shown resilience through growing domestic manufacturing capacity, driven by a decade of political intervention and tariffs that have diversified the supply chain. Nevertheless, solar PV could become more vulnerable if exemptions for key inputs like wafers are not maintained.

For solar PV, inflated channel inventory from over-procurement in 2023 and 2024 is expected to cushion demand impacts in 2025. However, without this safety net, demand in 2026 may be vulnerable due to reliance on global wafer capacity that is still pending policy confirmation a. Wind capacity installation will also be moderately affected by tariffs, but the dominant driver of new buildout will continue to be IRA incentives and state-level policy mandates. In contrast, the battery sector faces a significant supply-demand gap, with over 95% of LFP battery cells, the chemistry of choice for BESS, coming from China. There is insufficient domestic cell capacity available for the BESS market against the nearly 50 GWh of projects that were originally expected to be completed by the end of 2025 prior to all the policy uncertainty. This gap could have knock-on implications for the solar and wind outlook, given that many projects are planned to be collocated with batteries.

Beyond tariffs: Additional headwinds for cleantech in the US

While tariffs continue to grab headlines, they are far from the only challenge facing the US cleantech sector. Uncertainty with regard to the future of the IRA incentives, combined with executive orders that potentially cancel federal wind permits, state clean generation policies, while helping reignite domestic coal production, could weigh significantly on the renewables sector should these policies remain in place.

The "One Big Beautiful Bill" passed by the US House of Representatives on May 22 now moves on to the US Senate, where it can ultimately be approved by a simple senate majority. This latest version significantly fast-tracks the expiration of key IRA incentives, including the PTC/ITC. Developers will now have to start construction within 60 days of the bill's execution and put projects into service by year-end 2028. Key provisions, including gradual credit step-downs and safe harbor for under-construction projects, have been eliminated. The bill will also significantly impact renewables supply chains by restricting access to IRA program tax credits for projects with "material assistance" from China. To avoid those restrictions, projects must be put into service by the end of the year.

Moreover, the impacts stemming from the executive order targeting state-level policies will be difficult to predict until the US attorney general identifies which policies to target and releases its recommendations by June 7. However, recent announcements seem to affirm that the administration is determined to centralize control over how the power system evolves moving forward.

Demand growth forecast: A silver lining for US cleantech?

Despite the challenges, project developers who can navigate the rising costs, regulatory risks and supply chain hurdles may still find strong interest from buyers in the US. Data centers continue to drive power demand growth, expected to be at least triple the growth rate of the previous decade.

Given the scale of new data center development and the urgency for power, many offtakers may be willing to accept higher prices and share more risks to help push new projects forward, mitigating some of the impact on the outlook.

Additionally, weakening domestic demand in China could push some manufacturers to absorb a greater share of US tariffs to retain access to the American market, offering a possible, if limited, cushion on costs

Few easy choices as industry plots a path forward

To mitigate the impact of tariffs, stakeholders may choose to delay projects in the short term while pivoting toward diversified supply chains, increased domestic production, and strategic partnerships to lessen reliance on tariff-exposed imports. Emphasizing local manufacturing and exploring alternative sourcing options will be crucial for maintaining competitiveness and ensuring sustainability in the face of evolving trade dynamics.

Furthermore, the potential for retaliatory measures from trade partners adds another layer of complexity, making it essential for businesses to remain agile in their strategies. Ultimately, the combination of tariffs, an uncertain future for incentives, and increased federal interference in state policies and project permitting make for an extremely challenging development environment for a power market that desperately requires new investment to meet soaring demand.

Analysis by Paola Perez Pena, Alex Kaplan, Tiffany Wang, John Murray, Timothy Stephure. With contribution from Indra Mukherjee, Tom Kim, Jiani Wang, Jessica Jin, George Hilton, Cinthya Pena, and Edurne Zoco