Hari Chandana Chinni, MiM student at ESSEC Business School suggests that Climate won’t be solved by economic nationalism. As tariffs and trade barriers rise, clean energy projects stall – revealing a dangerous gap between climate ambition and economic policy. The path forward? Global cooperation, not isolation, before the window for 1.5°C closes.

Building Walls or Bridges? How trade wars shape our sustainable future by Hari Chandana Chinni.

When climate ambition collides with economic protectionism, trade becomes more than just an exchange of goods. It becomes a battle over the future. In 2018, the United States placed tariffs on Chinese solar panels, aiming to support local manufacturers and reduce dependence on imports. But the outcome surprised many. Over 1 gigawatt of clean energy projects were delayed, prices increased, and carbon reduction goals were set back (Solar Energy Industries Association, 2023). Rather than accelerating the energy transition, the move disrupted it.

This example is not unique. Around the world, efforts to go green are being tangled in economic disputes. Trade, once a vehicle for growth and cooperation, is now a stage for environmental disagreement. What happens when policies designed to fight climate change start clashing with the rules of global commerce?

Trade Meets Climate Tensions

Trade has shifted from a question of cost and efficiency to a contest of climate responsibility and national interest. Countries are designing their own climate-aligned trade policies, often without international coordination.

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is one such initiative. It adds fees to imports based on their carbon footprint, aiming to prevent companies from moving production to countries with weaker climate policies. While the idea is to create a level playing field, CBAM has been met with concern by many developing economies. For exporters without access to green technologies or funding, this mechanism can feel more like a barrier than a bridge.

In the United States, the Inflation Reduction Act (IRA) offers major subsidies for clean energy projects but strongly favours domestic producers. This has created tension with trade partners, especially in Europe. Subsidies can spark innovation, but when narrowly designed, they risk sidelining global partners and distorting fair competition.

For sustainable businesses operating across borders, this creates uncertainty. The desire to meet climate goals now runs into rising costs, administrative challenges, and unpredictable rules. More importantly, the absence of a global framework means these policies often work at cross-purposes.

Clean Energy Hits Barriers

Trade restrictions are having real impacts on the roll out of clean technologies. In the case of solar energy, U.S. tariffs disrupted supply chains and increased installation costs. A follow-up policy, the Uyghur Forced Labor Prevention Act, introduced further complications by limiting imports of key solar materials from China.

Together, these moves delayed projects and affected more than a gigawatt of planned capacity. Electric vehicles face similar hurdles. Their batteries rely on materials like lithium and rare earths, much of which are processed in China. Trade tensions have pushed countries to look for new sources or relocate production, often at higher costs, delaying timelines and squeezing margins.

In the European Union, compliance with CBAM adds administrative costs for exporters. Small firms in developing countries may not have the capacity to measure or report emissions at the level the policy demands. These delays and costs all feed into one outcome: slower progress on decarbonization.

Moreover, companies dependent on global supply chains find themselves facing fragmented regulatory landscapes, making long-term planning difficult. As governments tighten climate rules through trade policy, the unintended result may be an increase in delay rather than acceleration. The urgency of the climate crisis demands speed, but the current structure of trade is making sustainability harder to access.

The Global South Squeezed

The costs of climate-related trade measures are not evenly shared. For many developing nations, the sustainability transition was already difficult. Now, with new tariffs and regulations, it is becoming even harder. India, for example, has set a target of net-zero emissions by 2070. But CBAM’s new carbon fees on Indian steel, aluminium, and fertilizer exports add extra pressure to industries that already face challenges in accessing green technologies and finance.

In Africa, the situation is more acute. Many countries export raw materials like copper and cobalt, which are crucial for green technologies, but lack the ability to refine them locally or track their environmental footprint.

In the Asia-Pacific region, countries like Vietnam and Malaysia have attracted investment as global manufacturers diversify away from China. Yet, the environmental standards in these fast-growing sectors are often secondary to economic concerns.

On the other hand, South Korea has taken a more balanced path, combining clean technology development with strategic trade alignment. Its Green New Deal and multi-sectoral climate coalition have enabled decarbonization efforts to proceed while minimizing trade disruption. Grassroots and indigenous movements across regions continue to call for borderless cooperation and climate justice, resisting extractive trade dynamics that leave frontline communities out of decision-making. Their voices underscore the importance of not just “green growth,” but equitable and inclusive transitions.

Uneven Innovation, Unequal Gains

Some argue that trade friction can drive sustainability. In some sectors, this is proving true. Shipping giant Maersk is investing in carbon-neutral methanol vessels, partly in response to EU regulations. In the U.S., steel producers are upgrading their facilities to meet climate-linked trade standards.

These shifts show that strong trade policy can push firms to act. In some cases, firms in emissions-intensive sectors have accelerated innovation to maintain market access. This is progress—but progress with limits. Much of the innovation is reactionary, driven by policy pressure rather than proactive transformation.

Instead of widespread transformation, we see uneven progress, with a few winners and many left trying to keep up. This results in a fragmented system. While some regions advance, others fall further behind. Innovation becomes a survival strategy for a few, not a shared path forward for all. Smaller firms, especially those in countries without climate financing or industrial subsidies, are at a disadvantage.

Over time, this two-speed dynamic may entrench the divide between high-tech green hubs and carbon-intensive peripheries. As climate-linked trade tools multiply, the gap between the best-resourced and most vulnerable firms and nations may widen.

Rethinking the WTO Rules

A major obstacle to coherent green trade policy is the current structure of the World Trade Organization (WTO). It was built in an era before climate change became a global priority. The WTO protects against trade discrimination but does not yet include environmental exceptions tied to carbon emissions or sustainability goals.

As more countries introduce climate-related tariffs, subsidies, and standards, the WTO’s lack of clarity becomes a problem. Without reform, it cannot guide or govern the growing intersection of trade and climate. Trade disputes over “green protectionism” are likely to increase unless a common framework is established.

Reimagining the WTO for today’s challenges means building a system that integrates environmental accountability into its core. That includes shared rules for carbon tracking, standards for green subsidies, and mechanisms to support developing countries.

Some policy experts have proposed the idea of a carbon passport, a digital record that shows the emissions footprint of a product from its origin to destination. If adopted globally, it could provide a common metric across borders and reduce disputes over “greenwashing” or regulatory unfairness. A future WTO could function not just as a trade arbiter, but as a climate enabler, supporting innovation, inclusion, and transparency through multilateral cooperation.

Bridges, Not Barriers

Trade and climate policy are now deeply linked. Measures like CBAM and the IRA show that countries are trying to meet their climate responsibilities. But without coordination, these tools risk deepening global divides.

They risk building a future where sustainability becomes a privilege of rich nations rather than a shared global standard. As Professor Mariana Mazzucato once said, “In the struggle between global ambition and local fairness, we must remember that sustainability is not a race of the richest, but a pact with the planet.”

The real challenge lies in choosing a path forward. Do we continue using trade to protect national interests, or do we rewrite the rules to include everyone? In a world facing a climate crisis, we can no longer afford to treat sustainability as a premium benefit. It must become a global standard, accessible, fair, and shared.

Aligning trade and climate policy will require more than adjustments in tariffs and subsidies—it will require a fundamental shift toward cooperation, trust, and inclusive design. Because in the end, we do not need higher walls. We need stronger bridges.

Useful links:

• Link up with Hari Chandana Chinni on LinkedIn
• Read a related article: From Conflict to Catalyst — Can Trade Wars Accelerate the Green Revolution?
• Discover ESSEC Business School France–Singapore–Morocco
• Apply for the ESSEC Master’s in Management degree programme.

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