President Trump promised energy dominance. But his sweeping new tariffs are delivering the opposite – creating unprecedented uncertainty for every sector of the energy economy.
Faced with a market in revolt, the president blinked. Just hours after his tariffs went into effect, he put a 90-day pause on reciprocal tariffs, keeping a 10% baseline tariff and a 125% tariff on China.
In this episode of Open Circuit, we examine the contradictions at the heart of the administration’s economic agenda. With trade expert John Smirnow, we explore how the “biggest trade shock in history” is upending global supply chains, raising costs, and complicating America’s energy future.
We dive into the philosophy driving trade populism — a growing intellectual movement now reaching the height of power. Smirnow explains the three-part strategy behind these tariffs: rebuilding domestic manufacturing, enhancing national security, and containing China’s influence on global supply chains.
We unpack the mechanics of how these tariffs will impact clean energy specifically. Plus, we examine whether these tariffs signal a temporary disruption or the beginning of long-term U.S. policy. Will they accelerate reshoring of production or simply raise costs while slowing deployment? And how do businesses make investment decisions when policy signals are deeply contradictory and unstable?
Sign up for our live virtual show on April 16 at 1:00 PM Eastern.
We’ll also be live in person at Latitude’s Transition-AI conference on June 12th in Boston with special guest Caroline Golin of Google.
Open Circuit is supported by Kraken, the only proven, AI-powered operating system for utilities. Learn how Kraken helps unlock excellent customer experiences, increased innovation and reduced operational costs at kraken.tech.
Open Circuit is brought to you by On.Energy. As one of the fastest-growing battery storage IPPs, On.Energy delivers turnkey resiliency solutions for utilities and enterprise customers. Whether you’re managing data centers or local grids, we help bring storage to your fleet. Learn more at on.energy.
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and Katherine Hamilton. Produced and edited by Stephen Lacey. Original music and engineering by Sean Marquand.
Transcript
Stephen Lacey: Did the penguins of Heard and McDonald Islands reach out to you for counsel yet?
John Smirnow: The poor penguins. Well, at least they’re getting some airtime.
Katherine Hamilton: Hang on. Wait a second. I did some research on this. And penguin movies have made $1.2 billion globally. You need to understand that there’s a huge trade imbalance because the penguins are exporting cute-
John Smirnow: Yes.
Katherine Hamilton: …and they don’t need anything from us.
John Smirnow: Yes.
Stephen Lacey: From Latitude Media, this is Open Circuit. Virtually, every sector of the economy is scrambling to adapt to the most sweeping protectionist shift in a century.
News clip: We are following breaking news for you this morning. Take a look at the markets this morning taking a plunge as investors react to the sweeping tariffs.
News clip: I always say tariffs is the most beautiful word to me in the dictionary.
News clip: This time, it’s much, much higher tariffs, and it applies to every country and every good. Every part of your life is about to change.
News clip: One of the biggest questions about the president’s approach is whether they can help revitalize American manufacturing.
News clip: No other president would be willing to do what I’m doing or to even go through it. Now, I don’t mind going through it because I see a beautiful picture at the end.
News clip: Over and over again, the president said, “Listen, it’s going to be reciprocal. So you do it, we do it.” And that was going to be so good, and I really believed in it. And I feel like a sucker tonight.
Stephen Lacey: This week, energy dominance meets economic chaos. We’ll try to decode the energy impact of Trump’s tariffs, what they might mean for energy demand, supply chains, and the future of domestic manufacturing. I’m Stephen Lacey. I’m the executive editor at Latitude Media. Welcome. I’m joined by my co-hosts, Katherine Hamilton and Jigar Shah. Katherine is the co-founder and Chair of 38 North Solutions. Katherine, how are you?
Katherine Hamilton: I’m great. You need to start taking me seriously and literally.
Stephen Lacey: Are you doing any panic buying?
Katherine Hamilton: Yeah. My daughter just had a baby in November, and she said that she had gone on New York Magazine. And they’ve said that baby goods are going to be the things that are the most impacted. So she’s buying baby goods. I think she would have anyway, but she’s definitely exacerbating it.
Stephen Lacey: Jigar is an investor and former Director of the Department of Energy’s Loan Programs Office. Jigar, I’m imagining you pushing two shopping carts down a Costco aisle, buying things like a microwave, gym equipment, and a seven pound bucket of Nutella.
Jigar Shah: No, I’m actually just going through all of my son’s crap and posting it on eBay. I’m like, “We are never going to get more money for your crap.”
Katherine Hamilton: We’re going to totally buy it.
John Smirnow: Resale is up. Resale is the new sale.
Jigar Shah: I’m a thrifter now.
Stephen Lacey: That voice you heard is our guest, John Smirnow. John is Principal of Smirnow Law, and he brings nearly three decades of international trade experience, most recently serving as General Counsel and Senior Vice President for Supply Chain and Sustainability at the Solar Energy Industries Association. John, hi. Thanks for being here.
John Smirnow: Thanks for having me. Looking forward to a robust conversation.
Stephen Lacey: Indeed. Would it be fair to call you a trade populist?
John Smirnow: My personal views certainly lean more trade populism. But as an advocate, certainly, you put the client’s interest first. But it’s the one thing I did try to focus on when I left SEIA was to have a bit of a mission focus to my private practice. And really, the heart of that is all about helping to grow US manufacturing. Big proponent of reindustrialization in the United States.
Understanding Trump’s tariff policy
Stephen Lacey: Yeah. We brought you on here to figure out, is this going to work? Is this tariff strategy actually going to support more domestic production here in the US? So before I do my windup, let’s just timestamp this conversation. We are recording together on Wednesday morning at 10:00 AM. Tariffs went into effect at midnight. Markets don’t seem to be reacting well. China and EU are already retaliating. John, give us the lay of the land. Give us a brief snapshot of where the tariffs stand in this moment in time.
John Smirnow: Yeah. So last week… Well, let’s just back up to the first set of tariffs. I think probably most important are the 20% tariffs that the president put in place on China under the IEEPA, International Emergency Economic Powers Act, linked to the administration’s belief that China’s not doing enough to stop the flow of fentanyl into the US. So that was in place, country-specific. Last week, the president imposed reciprocal tariffs on every country. There are two exceptions. Canada and Mexico. Goods coming out of Canada and Mexico that qualify for the USMCA Agreement, US-Mexico-Canada Agreement, are not subject to these reciprocal tariffs. And those range from 10%, I think, upwards of 46 or 47% are applied on a country basis. If you don’t have a custom rate, your own country number, the rates kicked in on April 5th. For everybody that has their own country rate, i.e., greater than 10%, those tariffs applied this morning at 12:01. So anything that enters the customs territory of the US beginning at 12:01 will now be subject to those tariffs.
Now, those tariffs are in addition to other tariffs. China, for example, you have the 20% IEEPA, you have the new reciprocal tariff of 34, you have the Section 301 tariff of 25% in most instances, there are some exclusions for that, and you have anti-dumping, countervailing duty. You also have Section 201, safeguard tariffs. So those are all stacked on top of each other.
The last thing I’ll note is that China retaliated. So when the US announced the 34% tariff on China last week, China retaliated with matching tariffs. And then the US added an addition of 50% because of China’s retaliation. So the tit-for-tat begins. We saw that with the 301 during the first Trump administration where there were four rounds of tariffs and expansion of goods. So today, we have tariffs on all goods coming into the US except for Canada and Mexico, USMCA, ranging from 10 upwards of 50% just as of last week. And then you stack all the other additional tariffs on top of that.
Jigar Shah: And then the other thing I thought that they changed was, weirdly, the tariffs don’t apply to shipments that leave their port by 12:01 this morning.
John Smirnow: Yeah. So it’s the final leg of the port. So if you have, let’s say, a ship left the port of Shanghai two weeks ago and it’s being offloaded, reloaded onto another ship in Singapore, that last leg of the trip to the US has to have started before 12:01 this morning. So the thinking there is that ships on the water, they want to provide an exclusion for that.
The other couple exclusions, Jigar, that you raised is products that are subject to the existing 232 steel tariffs, that rate will apply, not the additional reciprocal tariffs. So if your product is subject to 232, then you’re not going to be subject to the reciprocal tariffs. They also said that any future 232 cases, same rule would apply. There’s an ongoing 232 case on copper, for example. In addition, semiconductors are not subject to this. Now, solar is a semiconductor, but it’s not on the list of eligible products that are semiconductor products that are excluded from these tariffs.
Katherine Hamilton: So, John, if there is a product that’s used in a solar piece of equipment that has steel and aluminum in it and that’s imported, it would only fall then under the steel and aluminum tariffs, not under the other country tariffs?
John Smirnow: No. So the threshold question is, is the article subject to the Section 232 tariffs? And those for steel and aluminum, initially, they were designed for base metals, so hot-rolled coil, plate, strip, pipe and tube. And then they added to that derivative products. And so derivative products is a category of, let’s say, you have a coupler or something that is more than just a pipe and tube, but is mainly comprised of steel. Those additional tariff items were added. If you’re bringing in a product that may have contained some of those components, but it enters at the time of entry, it’s classified in a tariff provision that’s not on the 232 list, the 232 won’t apply. Your product at the time of entry has to fall within one of those tariff provisions. If it does, then the 232 will apply to the steel portion of that item for derivative products.
Market reactions and industry implications
Stephen Lacey: Let me set the stage for the rest of the conversation. So I want to talk a little bit about how markets are reacting. John, you have a window into the administration’s thinking. So I want to talk a little bit about the strategy here, what they say is the strategy, and, of course, I want to talk about the long-term outcomes here for energy and for clean energy, specifically. And I also think we just need to grapple with this contradiction at the heart of Trump’s economic agenda. On one hand, you have the president promising energy dominance and pledging to lower energy costs for Americans. On the other hand, he’s imposed what economists are calling the biggest trade shock in history, tariffs that are definitely going to raise costs for virtually every sector of the energy economy and make it much more difficult to build a variety of resources. The president campaigned with substantial backing from oil and gas interests. But thanks to tariffs, crude prices plummeted below profitable drilling levels for many US producers. And LNG export terminal plans could be in jeopardy due to rising costs.
It’s also a potential shock to another strategic goal with a direct impact on energy, AI dominance. The administration promoted this $500 billion AI data center initiative called Stargate, and it’s now virtually increased the cost of virtually every component needed to build those facilities. These tariffs, of course, interact with an extraordinarily complex global supply chain that defines modern energy infrastructure. Consider like a wind turbine. The tower might be fabricated in Mexico with steel from another country. The nacelle assembled in Spain with electronics from Taiwan.
So the questions confronting us right now are pretty profound. Can domestic manufacturing actually replace these global networks at scale and at a cost that keeps the energy transition viable? Will these tariffs accelerate reshoring of production or just raise costs for deployment? And most importantly, how do companies make investment decisions when policy signals are still quite unclear?
So let’s first look at how the markets are reacting. Katherine, this Wall Street Journal article put it very succinctly. It reads, “Trump promised lower energy prices, but it wasn’t supposed to be like this.” How would you sum up the concerns about how these tariffs will impact energy markets?
Katherine Hamilton: Yeah. It’s pretty big. I mean, I think that, as Paul Krugman said on The Ezra Klein Show, we thought this would be across the board. And instead, it’s like 23% average and all over the map. So it’s the biggest trade shock in history. Basically, the stock market dropped 20% from the peak that happened after the president was elected and after he started. And everybody thought this was going to be great. And they’ve just taken a nosedive.
And on energy, oil and gas were exempted from these tariffs, and yet the implications are enormous. So global oil prices declined. And that’s because of trade tensions, volatility, uncertainty, investor apprehension that they’re not going to make any money. Brent crude dropped to $61 a barrel, West Texas Intermediate to $57 a barrel. OPEC+ announced they’re going to increase supply starting in May. So that also doesn’t help prices. And it certainly, with those prices, does not incentivize drilling and producing more, which was exactly what the administration wanted to do, was to try to drill, baby, drill. And nobody’s going to want to do that because the price is too low.
Stephen Lacey: Jigar, we saw these dramatic stock drops in energy. Vistra, GE Vernova, Constellation, they all took a beating, even though they’re domestic power producers. Oil and gas companies took a big hit. Energy Secretary, Chris Wright’s former company, Liberty Energy, was down 31% in just days. What are the capital markets telling us they think is going to happen?
Jigar Shah: I mean, they think that the strategy that has been laid out to them is categorically unsound, right? They just think that Navarro, who’s a noted liar, right? Basically that his tariff approach is roundly rebuked, right? By Wall Street. And so we’re in this weird spot where they’re like, “Yes, we are clearly like chasing degrowth policies in the United States.” And when you’re chasing degrowth policies, then if you’re in the business of owning existing electricity production facilities, those electric production facilities will trade at much lower wholesale prices, right? And so the value of the companies that own them will go down. Remember Vistra and Constellation, their stock price went way up because we thought that at the margins, all of this clean power that they own, including nuclear plants, would be worth $95 a megawatt hour. I think if you’re entering a world where we’re crushing US economic growth, then that power doesn’t have that same pricing power.
John Smirnow: So I think what’s happening is you have a reordering of the global economy. The Trump administration folks, the people who are driving a lot of these decisions, believe that this is not about degrowth, that this is about reindustrialization, that the way our economy was built was on consumption, other countries producing it. Previously, you’d hear the narrative, “Look at Apple. They produce all their stuff overseas. All the high level engineering services jobs are in the US.”
But what I think we’ve seen over the last two presidential cycles, both Trump one and the Biden administration, is that that is not a long-term path to success of being purely a services economy, that if we want to be strong economically from a national security perspective, we actually need to reindustrialize this country. And I think that’s at the heart of what they’re doing. So I guess from the Trump administration’s perspective, I’m not speaking on behalf of them, but my view as to how I think they’re looking at this is, this is not about degrowth. This is about reindustrialization of the American economy.
Jigar Shah: But why didn’t it work, John, for steel? I mean, we have tariff steel for so long.
John Smirnow: Yeah.
Jigar Shah: And all of our companies are not in the top 20, right?
John Smirnow: Yeah. The problem, Jigar, is China. I mean, at the heart of this, everything that’s being done in the tariff context, I think at the heart of it, it goes to, how do we address China’s massive global overcapacity? Increasingly, in steel, their production capacity is double global demand. We see it in the solar industry. They have a capacity to produce two million metric tons of polysilicon, where global demand right now is about a million. And so even with the tariffs, product will flow from China directly into the US, you tariff that. Then product flows from China to Southeast Asia, you tariff that. Then it flows from China to Mexico, comes in in a assembly operation into the US, you tariff that. And so by having, I think, an effectively a universal solution, tariffs applied to all countries, that’s how they’re finally going to get to the heart of this massive overcapacity.
One thing I would encourage people to read, Keith Bradsher had an article April 7th in the New York Times. The title of the article is The Tsunami is Coming: China Global Exports Are Just Getting Started. And statistic he quotes is, in the past four years, the Chinese government has overseen the lending of $1.9 trillion in expanding industrial capacity. So when the China real estate segment crashed, the government pivoted all of the resources to building massive capacity, EVs, cars, batteries, solar panels, polysilicon plants. And that wave, that tsunami that literally is just getting started now is what these tariffs, I think at their heart, are designed to address.
The Future of energy manufacturing and global supply chains
Stephen Lacey: I just don’t buy the regrowth narrative. I mean, they’re actively dismantling or trying to dismantle the CHIPS and Science Act. The administration is actively trying to dismantle the Inflation Reduction Act. And if you wanted these tariffs to work, it feels like you need a stick like tariffs and domestic incentives to promote domestic manufacturing. And so they’re crushing all of these programs that were highly effective in promoting new domestic production capacity. And so, sure, I realize that there’s this intellectual movement close to the Trump administration that has been actively working on tariffs for a long time. But if we truly are going to believe that this is about regrowth and not just raw power, you would think that they would be supporting things like the IRA and the CHIPS and Science Act and others. And I don’t see that the actions actually are about regrowth.
John Smirnow: So I think there are two ways to get to expanding in an environment of massive global overcapacity. How do you help create competitive manufacturing in the US? One, you build a tariff wall around the US. Force people to build factories here. This is the shock that we’re seeing now. But I think that is too much of a shock to the system. Stephen, I think the approach that you talked about is industrial policy. The Inflation Reduction Act is the first industrial policy we’ve seen in this country at scale, I think, in our lifetimes. And it’s working, just working really well. So I think you really do need industrial policy or federal investments to help grow these industries, get them out of green shoots into factories. But then you also do need protective tariffs because you can’t invest billions of dollars in a new manufacturing facility and then expect them to compete against nine, 10 cents per watt solar panels that are being funded basically by the Chinese government and Chinese subsidies.
And so I really think it’s that combination of protective tariffs coupled with industrial policy is the best path forward. But I think the administration’s approach is, “Well, we don’t need the industrial policy or industrial policy is tariffs. It’s all about tariffs.” And I see some value of that, but I think a more strategic, more effective way to do it is, Stephen, as you described.
Jigar Shah: But I think, John, the challenge I have with all of this is we have to assume that tariffs are a consumer tax, right? So we’re saying to the American people, “You have to take on all this pain, but we have a strategy,” right? And the person that’s leading that strategy is incompetent, right? So Peter Navarro. So now the question becomes, who is competent in this thing? Who is exactly… If you’re the person who’s going to invest billions of dollars into manufacturing in the United States, who are you actually counting on to execute the strategy that you are suggesting, right? Because Scott Bessent wasn’t in the room and looks like he might quit as Treasury Secretary at any moment, right? Separately, if you think that China is ultimately the challenge, right? Then what’s the strategy on China? I get the fact that there’s a strategy to piss off our EU colleagues and piss off Canada and piss off Mexico. But exactly how does all of this craziness get me to want to invest multibillion dollar checks for manufacturing in the United States against the bulwark that you suggest, which is China?
John Smirnow: So I guess I can’t agree that Peter Navarro is incompetent. I think it’s fair to say maybe people have differences of view of his trade philosophy. He has a view, and it’s not just Peter Navarro. His views on trade are very bipartisan. I would also encourage everyone to look at the Coalition For A Prosperous America. It’s an organization that has called for a 10% universal tariff, highly supportive of what the Trump administration is doing, has its former executive directors now in the Trump administration. And the board of directors of that is bipartisan. You have Democrats, mainly Republicans, but Democrats have been supportive of that. Some of the leading US solar companies have funded that organization. And they’re very in line economically from what Peter Navarro is saying. And again, it’s all about addressing the China massive overcapacity, the importance of manufacturing, regrowing manufacturing, the importance of manufacturing to-
Jigar Shah: These are all words, John.
John Smirnow: They are, but-
Jigar Shah: I’m trying to figure out, who exactly is in charge of convincing the private sector to put up billions of dollars of investment into economies? And as you suggested, there’s already billions of dollars that have been committed under the Inflation Reduction Act. So who exactly is in charge of convincing those people not to pull the plug on their existing manufacturing investments? Because when you talk to Qcells down in Georgia, they still have to import paste. They still have to import other items that they need to finish their projects. Who exactly is in charge? Who are they supposed to call?
John Smirnow: So I think that Secretary Bessent is the one who’s stepping forward. Supposedly, he went down to Mar-a-Lago to talk to the president about starting to encourage moving towards negotiation, which, I think, is the right strategy. I have no expectations, Jigar, that he’s going to resign. I think he’s actually stepping into a greater leadership role into the administration. He’s going to lead the negotiations with Japan and South Korea with Jamieson Greer, who is a highly respected trade attorney in private practice with General Counsel under Bob Lighthizer. The philosophy, everything they’re doing, they’ve been talking about this for decades.
Jigar Shah: And they have been ridiculed for decades. I just think that they-
John Smirnow: They have, Jigar, but what did the Biden administration do when it came in? For the most part, it carried on the Trump trade policy. Most of the trade policies, Biden carried that on.
Jigar Shah: We’re not disagreeing about the 10% tariff. What we’re disagreeing on is that people actually have to invest in what it is that these people are suggesting will make the environment better for manufacturing here in the United States. And when I talk to people who allocate capital, they’re thoroughly confused. With all of these trade associations and all of these think tanks and all of these things, right? People are like, “What the hell do you want me to do? What exactly is it that is your strategy against China? Show me exactly what it is that you were doing for the last few decades in an intellectual framework that I can invest into.” And everyone’s like, “I don’t know. I forgot to put that framework together.”
Stephen Lacey: Well, let me just jump in because I think one of the areas of confusion is just how the administration is justifying the tariffs. So they say that they want to revitalize manufacturing. So that requires stability and tariffs to be in place for a long time. They also want to use it as negotiating leverage. So that might imply that these tariffs are temporary or they might shift dramatically. And then they’re talking about them as a tool for generating revenue for tax cuts, which requires a lot of volume of imports that have tariffs on them. So it feels like there’s a lot of contradiction here, which is confusing the business world. Is there a coherent theory tying this together, John, in terms of actual policymaking?
John Smirnow: Yeah. I mean, what I think is unfolding, and I think this is what certainly Treasury Secretary Bessent is anticipating, is use tariffs to move supply chains away from China, ensure that other countries don’t serve as a throughfare for Chinese products and then encourage US manufacturing, but also work with other countries. I don’t think the intention is to shut down imports from… I think we’re going to see growth in imports from India, a lot of raw materials. I think we’re going to see growth opportunities from India, from Brazil, Japan, South Korea. I think we’re going to find more common ground with them. I think that’s the strategy is that these tariffs are forcing a reorganization of supply chains that are not dominated by China. I think that’s the intent. Now, how do you do that? They’re doing it, I think, with a sledgehammer. Are there better ways to do it, more efficient ways to do it? Targeted tariffs, is a 10% universal tariff the right way to go?
One thing I would say is that the tariffs that we’re seeing now, they’re going to be around for a while. We are definitely going to see fluctuation in tariffs. As we do negotiate bilaterals, country-specific tariffs will come down. But my expectation is we’re in a world now where we’re just going to see a base tariff that’s going to be in place for a while. But we’re also going to see more targeted industry-specific tariffs. I think these reciprocal tariffs are just a foundation, but I still think we’re going to see potentially more solar tariffs, potentially tariffs on copper, batteries, some of these critical sectors that are necessary to the AI, all the power generation that we’re going to need, and solar energy storage’s ability to rapidly scale.
I think the administration will eventually see the wisdom of that, be supportive of that. I think eventually, they’re going to… They haven’t really directly attacked the solar industry, solar manufacturing. They’ve gone after a lot of the programs that all of us, I think, believe are critical to growing solar, but they haven’t taken on solar like they have the wind industry. So I think you could see some industry-specific protection measures coming that will be more targeted that some of these broader tariffs won’t address.
Stephen Lacey: Katherine, what do you make of the shifting narratives within the administration over justifying these tariffs?
Katherine Hamilton: Yeah. It’s just totally paradoxical because it’s ostensibly to reshore manufacturing. But it just assumes that manufacturing is this one thing, and manufacturing is complicated and it’s built on a global order, which, as John said, they’re reordering that. And so what you’re finding is in any manufacturing, you have upstream, you have raw materials, you have pieces of equipment that are manufactured all over the world. And in some places, you can only get some of these raw materials in China or other countries that you need to put into batteries and other equipment that we use for clean energy and for all kinds of other things. Then you need to build your factories. And there, you have steel and aluminum tariffs on the equipment that you need to build the factory. And then downstream, you need demand. Well, I can see demand globally is going to go down because people don’t trust us as good partners anymore. That trust is being eroded. And then the prices are going up because of that.
So our superpower here is innovation. Our superpower is not only to come up with the great ideas, but to take all these raw materials, these things that other countries have or can do better and cheaper than we do and make them into something of higher value. And I think that is what is going to be lost here. And so what is the incentive then for someone, as Jigar says, to even invest in manufacturing? I mean, uncertainty is the biggest enemy of investment. And I think that’s where we’re headed right now. And I think it’s just paradoxically going to create a disincentive to do exactly what they say they want to do.
John Smirnow: The example that we can only get raw materials from China, well, that’s a problem in many instances. I mean, if we can only get batteries from China, if we can only get some of these rare earth elements or critical minerals. I mean, look what China did with Japan. They cut them off. And in their retaliation, they’re cutting off access to some of these products. And so I think that’s part of what the administration is trying to do is to force people to build factories away from China to break those chains, this idea of decoupling, breaking our overreliance on China is another critical element of what the administration is trying to achieve.
Katherine Hamilton: Yeah. I don’t disagree with you on that at all. I do think we need to move that out of China and our dependence on it so wholeheartedly. But then you need a plan, you need a strategy, you need to be able to actually encourage investment and give it time. So stage it over time so you’re not just cutting everything off at once, because what that’ll do is just cut off the whole manufacturing system.
Stephen Lacey: Yeah. I mean, this gets us back to the crazy paradoxes within this administration. They are putting high tariffs on critical minerals, but at the same time, they’re dismantling and getting rid of employees at the US Geological Survey. And the people who are going to help us tap those resources are now getting pushed out of government. And then simultaneously, the equipment to build those mines is going to get radically more expensive. And I just can’t make cohesive sense out of any of this. I mean, I get why tariffs could be a valuable tool in theory, applied with care. And I think most people would agree with the general populist agenda that we need to put in place trade practices that bring domestic manufacturing to this country. But I cannot make heads or tails of this. And it seems like most people out in the market are having the same problem.
John Smirnow: Yeah. It’s just an overly broad application of what you just discussed because I do think most people do support industrial policy through tax credits. I mean, bipartisan R&D tax credit, everybody supports that. Now, the IRA is being politicized, I think give it a different name. Providing 45X tax credits for manufacturing and solar, I think that’s something that everyone would agree with can be supportive. And then having targeted tariffs. Certainly, trying to address the China overcapacity and the direction of that capacity coming directly to the US, being stopped there and then flooding to other markets, and other markets willing to absorb it. I mean, Europe basically said to China, “Look, we’re going to make a conscious decision to not have a solar manufacturing industry. We’re just going to rely on China and take advantage of the 10 cents per watt module.” And they decided they would rather have the energy production capacity rather than the manufacturing capacity. I think the Trump administration believes we can have both. We can have the manufacturing capacity and create our own energy infrastructure.
Jigar Shah: Well, that is 100% not true, John. Let’s just be clear that Qcells does not feel better about their decision to manufacture in the United States today than they did three months ago, right? I just want to make sure that we’re being crystal clear about this stuff, because I get that theoretically, all the stuff you’re saying wins votes. But for the people who are on the ground, who are actually suffering through this moment right now, they do not feel better protected by the Trump administration than they did in under the previous four years.
Stephen Lacey: Well, that brings me to another question, Jigar, and, Katherine. You’re working with lots of different companies in this space. What are the main anxieties or feedback that you’re hearing thus far? Jigar.
Jigar Shah: They just feel under assault, right? Whether it’s the [inaudible 00:35:49] Grant that they’re like, “Well, we’re not sure we’re going to honor your grant. The people that were working on your grant have now been laid off and been offered a fork, right? We’re not sure whether we’re issuing the money under the loan that you’ve validly closed or whatever else. Do you want new loans? We’ll see.” I just think that in general, everyone feels under assault, right? Now, maybe, John, a year from now, everyone is going to find a calmer place. But, my God, a year is a long time. And in a year, they could have folded shop and gone elsewhere or just shut down. I just think that when you think about what the potential was and the 900 plus factories that Trump was handed on a silver platter, all 900 of them right now are fearing for their existence.
But I think that is a place where the Trump administration is like, “We’re going to be comfortable having Chinese companies build factories here. There will be reasonable safeguards. Maybe their ownership interest has to be below a certain threshold. But here’s some certainty that if you bring this technology here…” CATL builds their battery factory here. There’s going to be certainty that they’re going to be able to do that without worrying about whether they can compete, the tax credits are going to get pulled away, or the local communities protesting against them. I think that could be a really important element of what could be a reasonable compromise between the US and China where Chinese companies are not just looking to the US as an export market. They’re looking into a market where they’re investing, they’re building manufacturing capacity, they’re bringing their technology here.
And, Katherine, when you’re talking about the innovation, the US is a lead innovator in the manufacturing sector. Innovation happens on the factory floor, to a very large degree. And so we really need to have some of these technologies here that we don’t have today, like ingot manufacturing, wafer manufacturing, heterojunction cell technology. Some of these technologies that Chinese companies have the IP for, we want them to bring that, invest in the United States, but, again, with reasonable safeguards. And if the US and China are able to find some common ground, I think that could really help in encouraging people to invest in the US and bring a lot more certainty, addressing some of the concerns Jigar has about companies making manufacturing investments in the United States.
Stephen Lacey: Katherine, what are you hearing? What are the anxieties you’re hearing?
Katherine Hamilton: Gosh. Well, that sounds like a very rosy picture, John, and that is not at all what I’m hearing. I don’t think Congress is anywhere near there. I’m hearing even from companies that are here and have, say, new battery chemistries that don’t rely on China. There is still the issue of, “How do we build a manufacturing facility when we need all these parts that are only available globally?” They can’t just manufacture the parts to manufacture the parts. There is still a global regime that is out there that is going to adversely impact everybody. And you can say, “They’re going to cut deals with all these different countries.” But everybody is under assault with these tariffs. And is Vietnam going to be able to cut a good deal? Is Bangladesh going to be able to cut a good deal? Is India… It’s going to take so long for this thing to settle out.
I’m very worried about what’s going to happen. I mean, I’m hopeful that the Congress decides, “Well, at least we can’t cut the CHIPS Act and Inflation Reduction Act because then we’re really in trouble,” and that they keep those in place so that we have something because those are factories that have actually been announced. I cannot see investors saying, “We’re going to build a bunch more here,” knowing also that EU is finding friends elsewhere, like, “All right. Maybe we’ll just buy our goods from China,” which they’re already doing. But there’re going to be different friend groups now because of this, because we’ve also damaged a lot of those relationships. And I think it’s going to take a while to build them back.
John Smirnow: Yeah. No, I agree. And their plan for reindustrialization, I mean, I believe I understand the basis of it. But as we talked earlier in the discussion, the idea that Stephen put forward about an industrial policy and what we did with the Inflation Reduction Act, targeted tariffs really is the best path forward. But I can’t just entirely dismiss what the Trump administration is doing. There are elements of it that I think are necessary to address this massive global overcapacity that we see from China in not only the base industries like metal, but now all of these new technologies.
Jigar Shah: I think part of what Katherine was maybe insinuating, and I apologize, Katherine, if I’m saying it incorrectly, is that I think that if what you’re saying is that they are taking a maximalist strategy to try to weaken China further because China’s only hope in the world is overcapacity, right? China has tried for years to get their population to stop saving as much money as they save and start becoming a consumer society, but none of that’s worked, right? And so that’s why Xi is basically investing $1.9 trillion to build overcapacity and just do more export because that’s the only thing that seems to be working for his economy. I think China’s in a extraordinarily weak position right now and actually quite fragile. Then the Trump administration might be trying to really weaken China further to get them to capitulate. But I think that’s going to be a multi-year process.
And so I just think everyone needs to recognize that we are taxing the American people who are the consumers of products from the world for many years, probably at least two years to try to weaken China. And during that period of time, we will not have enough certainty for people to invest in manufacturing here in the United States. And so we are literally just in a trade war with China for two years. And when that settles itself, then maybe some semblance of a policy can be put into place to give people certainty to invest here in the United States. But during that two-year period of time, everyone’s just going to be taxed to holy hell.
John Smirnow: Jigar, I don’t think it’s about weakening China. I think it’s about no longer sacrificing American manufacturing for China’s gain. I think that’s-
Jigar Shah: There is no way for China to back down. I don’t think you understand that China has tried everything it can to get its consumers to buy more goods, and they just will not. They just save a lot of money. So China is in a liquidity trap. The only thing China can do right now is overproduce capacity. And Janet Yellen came out against it. Lots of people will come out against it. So the only way to stop China from doing what they’re doing is actually to beat them in a trade war. And that is not a fast process.
John Smirnow: So what’s the alternative solution to China’s massive overcapacity and prices and-
Jigar Shah: The alternative solution is what Katherine was suggesting, which is that you have to have off ramps. You have to have ramped up your partnership with India already before you instigate a trade war with China. You had to have ramped up your partnership with Argentina and all the other critical mineral suppliers and put the processing in place, give it time to have all of those grants, produce manufacturing facilities in the US. All of that stuff needed to have more time before you went maximalist against China. But instead, we’re going maximalist against China and we haven’t put up all of the plan Bs, plan Cs, and plan Ds in place. And so we’re just hurting the American consumer on purpose.
Katherine Hamilton: Yeah. The good news is there’s a lawsuit, you all, and the lawsuit has been brought by the New Civil Liberties Alliance. And let me tell you, they are no lefties. Their goal is to take down the administrative state and they are upset by these tariffs. And part of this is that the administration did not use the Trade Act to enact these tariffs. The Trade Act gives the executive branch a process. But I think that they thought that might be too slow. So instead, they use the International Emergency Economic Powers Act, which is very broad and very vague and doesn’t have very many guardrails.
But the New Civil Liberties Alliance is arguing that this is a major questions issue, and the major questions doctrine is at stake. So it’ll eventually go to the Supreme Court. It’ll take a while, but it’ll be very interesting to watch. It will also be interesting to watch Congress. There are some bipartisan bills percolating to try to get Congress to take back what is their constitutional job to regulate trade. And we’ll see. I mean, they would have to get two-thirds veto proof majority on anything that they do. It’s hard to imagine that happening, but there are some policy things and legal things percolating out there.
Stephen Lacey: So, John, it sounds like you think this tariff policy is here to stay. Tariff rates may change, but you really believe this is a long-term strategy. What are you hearing from companies? How should they prepare? How should they be approaching this new policy framework long-term?
John Smirnow: Yeah. So, I mean, I agree with everyone, Jigar in particular. This is just having a massive adverse impact on US manufacturing. I have a client that’s got containers full of product on the way from China that they had in all the previous tariffs. Now those have doubled or tripled. How do you run a business in that context? What people are doing is, if they’re relying on China, they’re starting to look away. They’re looking to other markets. I think I talked previously about a couple teams now in India as raw material supplier. And so looking at all the bilateral developments that are happening, trying to give them some sense of the direction of some of these negotiations, and have those countries or companies start thinking about diversifying, if they’re not already, their supply chains.
But also, to the extent that it’s possible, just wait. Don’t take any immediate action. If you’re sourcing from China, you can’t wait. You have to look for other directions. But to the extent that you can wait and see how some of this develops over the next couple months, see if we get a group of, six, seven, eight countries where tariffs are better, reasonable, something that people can deal with. But also, look to US manufacturing. If you’re not manufacturing in the US, bringing some type of manufacturing capacity to the United States. But certainly, moving whatever you can away from China is what I’ve been encouraging people to do.
Stephen Lacey: Katherine, what are you watching as this story unfolds?
Katherine Hamilton: Yeah. I’m watching Congress, of course. I have about 16 meetings this week with members of Congress to try to make sure that they stick to the Inflation Reduction Act and that they don’t pull that down because we want to at least maintain the incentives that we currently have so that folks who’ve already started to invest in this country in clean energy won’t then suddenly stop. So I would rather them not pause yet, but keep going.
Stephen Lacey: Jigar, how are you watching this story?
Jigar Shah: Honestly, the only thing I can fathom is that we’re really doing a trade war with China, right? The rest of this stuff, this manufacturing stuff, is all just random talking points that people are talking about. No one in their right mind is thinking about doubling down on manufacturing in the United States right now while all this uncertainty is occurring, right? And so it’s just fundamentally sad.
The bright spot is that clean energy has never been stronger. So we got 50 gigawatts of panels sitting in inventory already here in the United States. A lot of folks are moving forward, a lot of people safe-harbored by December 31st, 2024. And so folks are employed, folks are moving forward, they’re doing stuff. There’s obviously some folks who didn’t manage their risks properly and they’re going to go under. But the category as a whole, I think, has never been stronger. And the private sector has never been more enthusiastic about clean energy, right? I just talked to the big guys at KKR and Apollo and Aries, etc, I mean, they are actively buying companies in the space at more attractive valuations. And so my sense is that I think that the fossil fuel industry is on its back right now, and the clean energy industry continues to be ascendant.
Stephen Lacey: One of the biggest economic stories of our time. And, John, we really appreciate you coming on and giving us a first stab at it, helping us understand what’s at play here. Really appreciate your time.
John Smirnow: Thank you very much. Thanks, everyone.
Stephen Lacey: John Smirnow is Principal of Smirnow Law. Katherine Hamilton and Jigar Shah are my co-hosts. Katherine, good luck on Capitol Hill today.
Katherine Hamilton: Thank you so much.
Stephen Lacey: Jigar, good to see you.
Jigar Shah: Good to see you.
Stephen Lacey: Open Circuit is produced by Latitude Media. The show is edited by me, Stephen Lacey. Sean Marquand is our technical director. Anne Bailey is our senior podcast editor. Latitude is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. And you can go to latitudemedia.com to sign up for all our newsletters, our daily, weekly, and AI-Energy Nexus. Just hit the subscribe button there on the homepage, and, of course, give this show a rating and review wherever you get your podcasts. We’ll see you next week. Thanks for being here.
