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Speaker 1: This is Kamala Schelling and you're listening to Switched on

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Speaker 1: the Bloomberg ENYF podcast. Friday was a big news day

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Speaker 1: in the US, as the Supreme Court struck down the

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Speaker 1: so called Liberation Day tariffs President Donald Trump imposed last spring.

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Speaker 1: Just how this will play out for the US and

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Speaker 1: the global economy remains to be seen. But here at BNF,

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Speaker 1: our analysts are hard at work figuring out what it

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Speaker 1: means for the energy transition. Just a few hours after

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Speaker 1: the ruling was handed down, two BNF analysts, Derek Flakel

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Speaker 1: from BNF's Policy team and Matthew Hales from our Trade

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Speaker 1: and Supply Chains team, published a story titled Trump's tariff

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Speaker 1: loss opens window for clean tech imports. As that headline suggests,

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Speaker 1: some technologies and some countries stood to gain considerably from

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Speaker 1: the Supreme Court decision, but others may be left in

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Speaker 1: the cold. So I'm delighted to welcome Derek and Matt

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Speaker 1: to the studio today for another of BNF's bite sized

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Speaker 1: analyst reaction podcasts. BNF clients can find Derek and Matt's note,

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Speaker 1: as well as other analyst reactions by heading to BNF

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Speaker 1: go on the Bloomberg terminal or at BNF dot com.

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Speaker 1: If you'd like to learn more about how BNF approaches

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Speaker 1: strategy research on the energy transition, including developments and commodity markets,

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Speaker 1: trends across different sectors, and the cross cutting technologies shaping

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Speaker 1: the future. You can find more information on BNF dot com,

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Speaker 1: and if you'd like to speak with a member of

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Speaker 1: our team about becoming a client, email us at Sales

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Speaker 1: dot BNF at Bloomberg dot net. One quick note before

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Speaker 1: we dive in. This story is developing rapidly, so we'll

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Speaker 1: be updating our analysis on BNF dot com and at

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Speaker 1: BNF go as things change. But for now, let's dive

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Speaker 1: into my conversation with Derek and Matt. Derek, let's start

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Speaker 1: by going back to Friday, in the immediate aftermath of

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Speaker 1: this ruling. What changed for the energy transition?

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Speaker 2: So, the Trump administration had opposed a wide variety of

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Speaker 2: tariffs through what's called the International Emergency Economic Powers Act.

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Speaker 2: It had never previously been used to impose tariffs, and

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Speaker 2: this rewort basically ruled that it can't be used to

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Speaker 2: impose tariffs. And so, because that was a very fluid,

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Speaker 2: fast changing statute without a lot of process requirements attached

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Speaker 2: to it. It allowed the from administration to quickly raise and

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Speaker 2: lower tariffs on a variety of goods, imposed about twenty

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Speaker 2: percentage point tariffs on Chinese goods in particular, which raised

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Speaker 2: the sort of tariffs on energy imports from China, particular batteries,

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Speaker 2: as well as to sort of do a lot of

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Speaker 2: deals with other parties around the world which involved the

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Speaker 2: US to negotiate more energy exports to those countries up

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Speaker 2: primarily oil and gas. So the teriff rates that Trump

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Speaker 2: raised through IEPA are now lower, often by twenty to

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Speaker 2: fifteen percentage points as a result of the court case,

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Speaker 2: and Trump might have a bit less leverage when it

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Speaker 2: comes to energy related deals with other parties.

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Speaker 1: And matt what clean tech sectors specifically would those IEPA

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Speaker 1: tariffs have impacted.

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Speaker 3: Well, this was an absolute game changer for two sectors.

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Speaker 3: First one was solar and the second is batteries, specifically

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Speaker 3: the non EV battery. So there's are batteries being used

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Speaker 3: in energy storage projects. The reason why is because other

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Speaker 3: products your electric vehicles or electric vehicle batteries for example,

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Speaker 3: as well as your wind products, they were all subject

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Speaker 3: to different tariffs imposed under different tariff authorities which were

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Speaker 3: not struck down by the Supreme Court.

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Speaker 1: So before we delve into that much more deeply, I

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Speaker 1: want to talk about what happened over the weekend, because

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Speaker 1: news out of this particular administration comes really really fast,

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Speaker 1: and as soon as the Supreme Court handed down it's ruling,

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Speaker 1: Trump said, oh, we're going to find a way to

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Speaker 1: reimpose those tariffs. Anyway. On Saturday, he said he was

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Speaker 1: going to impose fifteen percent blankets across the board. Is

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Speaker 1: that right?

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Speaker 2: That's correct, And that was actually an update of the

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Speaker 2: ten percent across the board terraffs that Trump had threatened

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Speaker 2: to impose on Friday. Right now, as of this moment,

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Speaker 2: the ten percent has actual documentation out about it, so

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Speaker 2: we can see what it includes and what it exempts.

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Speaker 2: That ten percent maintains existing exemptions for things products that

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Speaker 2: are already tariffed, like critical minerals or stealing aluminum or

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Speaker 2: auto parts. And if it is raised to fifteen percent,

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Speaker 2: if Trump maintains that threat that he put on Saturday,

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Speaker 2: then you would see some of the gains to countries

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Speaker 2: like Japan or South Korea not only minimized, but eliminated.

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Speaker 2: Right there, would be. There have been slight rate cuts

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Speaker 2: under a ten percent blanket tariff and no effective rate

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Speaker 2: cuts under the fifteen percent tariff. There are some countries

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Speaker 2: like Indonesia, India and China that would still see rate cuts,

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Speaker 2: and depending on what's exempted, you might actually see a

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Speaker 2: net rate increase for countries like the United Kingdom, Argentina

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Speaker 2: and Australia, although again it remains to be seen whether

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Speaker 2: and how Trump does the full fifteen percent he's entitled

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Speaker 2: to do for one hundred and fifty days under Section

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Speaker 2: one twenty two. That's how he raised those across the

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Speaker 2: board tariffs this time around.

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Speaker 1: So, Matt, starting in January, when we knew that this

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Speaker 1: decision was going to be coming down at some point,

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Speaker 1: you actually crunched a bunch of the numbers on not

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Speaker 1: just which technologies, but which countries really stood to benefit

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Speaker 1: if the IEPA tariffs were overruled. So again, let's just

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Speaker 1: go back to Friday and say, IEPA has now gone

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Speaker 1: not worry about that fifteen percent tariff yet, which are

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Speaker 1: those countries and specifically which technologies in which countries could

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Speaker 1: really come out as the winners?

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Speaker 3: Yeah, great question. What we did in January is we

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Speaker 3: looked at if those IPA tariffs fell both on solar

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Speaker 3: and batteries. What we saw is the for batteries, for example,

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Speaker 3: there would be significant rate cuts on South Korean and

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Speaker 3: Japanese battery makers, and that really changes the game in

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Speaker 3: terms of if you are a energy storage project developer,

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Speaker 3: that completely changes your project costs. Batteries tend to account

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Speaker 3: for about fifty percent of an energy storage project's costs,

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Speaker 3: and so that is a significant cost increase to account for.

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Speaker 3: On the solar side, what we saw is a kind

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Speaker 3: of split in the market of who you could be

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Speaker 3: sourcing from your kind of legacy key sources for solar.

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Speaker 3: The people who can produce solar the cheapest Chinese and

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Speaker 3: Southeast Asian producers would still face very high tariff rates

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Speaker 3: because there are tariffs that have been imposed under different

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Speaker 3: tariff authorities that weren't impacted. But what this did is

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Speaker 3: this reshuffle the middle of the pack, and your producers

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Speaker 3: in India or maybe Turkey both saw significant cost reductions

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Speaker 3: as well in the amount of tariff that they would

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Speaker 3: have to pay if you imported a product from India

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Speaker 3: or Turkey. But what's key here as well is that

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Speaker 3: Turkey was really the sole beneficiary because India, Indonesia, and

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Speaker 3: Lao are facing looming duties coming within the next month,

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Speaker 3: whereas Turkey is not. And so this was a kind

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Speaker 3: of golden moment of opportunity for your Turkish exporters to

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Speaker 3: send their product to the US. We're expecting to see

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Speaker 3: anti dumping duties and countervailing duties.

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Speaker 1: What does that mean?

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Speaker 3: So anti dumping duties and countervailing duties are tariffs that

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Speaker 3: are put in place because of alleged trade disort of

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Speaker 3: effects either from unfair pricing or from over subsidization of

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Speaker 3: certain firms.

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Speaker 1: So Turkey is essentially the only country that's able to

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Speaker 1: skate out from under the ie put tariffs and not

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Speaker 1: also face these anti dumping tariffs. So it's the one

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Speaker 1: that's really getting a cut in its rate.

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Speaker 3: As on Friday.

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Speaker 1: And is Turkey a big solar exporter.

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Speaker 3: Turkey hasn't had that much success of being a solar

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Speaker 3: exporter yet just because its products are more expensive than

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Speaker 3: you can buy from South East Asia or China, and

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Speaker 3: there really hasn't been a high enough tariff on other

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Speaker 3: countries to erode the pricing kind of cost increase of

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Speaker 3: using a Turkish made solar panel. But with that cost

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Speaker 3: reduction that we sold from my EPA, we expected to

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Speaker 3: see a lot more growth in the export market from Turkey.

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Speaker 1: Do we see a similar thing happening in the energy

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Speaker 1: storage space.

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Speaker 2: So I would point out that as of Friday, that

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Speaker 2: did seem like there would be some benefits to Japanese

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Speaker 2: and South Korean energy storage makers, since there's some of

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Speaker 2: the few that produce batteries similar quantities to Chinese makers

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Speaker 2: and also have some you know, access production capacity relative

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Speaker 2: to domestic needs. Problem is, of course that as the

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Speaker 2: tariffs have been reshuffled, assuming that again that Trump follows

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Speaker 2: you on the fifty percent rate for Saturday, that advantage

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Speaker 2: will be eliminated. Ironically, China will be one of the

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Speaker 2: few major manufacturers to maintain an advantage in battery storage

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Speaker 2: because they're still getting about a five percentage point rate cut.

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Speaker 2: But that has the countervailing issue that US projects increasingly

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Speaker 2: have to divorce their supply chains from China in order

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Speaker 2: to qualify for tax credits at all, and are so

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Speaker 2: called prohibited foreign entity or foreign entity have concern rules.

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Speaker 2: You do see some Southeast Asian producers in the storage

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Speaker 2: game that see rate cuts of maybe three to four

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Speaker 2: percentage points, but that's a very small volume of imports

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Speaker 2: going to the US so far, so it's a bit

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Speaker 2: of a mixed bag for storage sector.

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Speaker 1: So Matt, similarly, for solar, if this fifteen percent tariff

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Speaker 1: comes into effect, what impact will that have on this

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Speaker 1: Turkish solar manufacturer's advantage you are just talking about.

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Speaker 3: Well, Sadly, for all those Turkish manufacturers out there, this

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Speaker 3: basically puts them exactly back to where they were before

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Speaker 3: the ruling on Friday, so facing the exact same tariff rate,

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Speaker 3: still having nothing that they can really use to erode

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Speaker 3: their higher pricing margin. I think it's also worth mentioning

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Speaker 3: because of some of the other available sources out there,

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Speaker 3: India having eighteen percent tariff before an additional eighteen percent

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Speaker 3: tariff from Ajipa. Now it has a fifteen percent tariff,

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Speaker 3: so it's only seeing a three percent tariff drop. That

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Speaker 3: means that there's really nothing there that India manufacturers can

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Speaker 3: use to send their goods to the US either.

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Speaker 1: So a big piece of this story is how quickly

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Speaker 1: things are changing if this fifteen percent tariff does come through,

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Speaker 1: Is that just in place forever now or is there

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Speaker 1: a limited window of time when that will be in place.

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Speaker 2: This particular terrorf authority, Section one twenty two can only

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Speaker 2: be imposed for one hundred and fifty days. After that,

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Speaker 2: it needs a congressional vote to reauthorize and extend it.

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Speaker 2: We've recently seen some defections in the Republican Party on

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Speaker 2: teriff votes away from Trump's position to a sort of

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Speaker 2: anti teriff position, at least in the House, and we

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Speaker 2: had previously seen them in the Senate. In short, it's

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Speaker 2: going to be kind of hard to imagine both houses

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Speaker 2: getting together and successfully making this vote happen, particularly with

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Speaker 2: the midterms looming and affordability and price increases being sort

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Speaker 2: of top of the political agenda on the top of

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Speaker 2: voter's minds. There have been calls to try and give

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Speaker 2: Trump some of his tariff authority taken away with the

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Speaker 2: Supreme Court back, but the legal pathways for that, and

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Speaker 2: again the vote counting for that, remain somewhat challenging. So

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Speaker 2: we're probably going to see the Trump administration in the

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Speaker 2: near term switch to other teriff authorities which don't have

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Speaker 2: those time limits nor those percentage limits, but do have

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Speaker 2: their own requirements, lengthy investigations, rationales showing that they're responding

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Speaker 2: to a national security threat or a discrimination US commerce,

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Speaker 2: and that intern limits with the Trump administration will be

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Speaker 2: able to do relative to what it could do before

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Speaker 2: the Supreme Court case.

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Speaker 1: So this fifteen percent potentially only lasts for one hundred

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Speaker 1: and fifty days. There are options out there for more

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Speaker 1: durable tariffs, but they couldn't be imposed as quickly as

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Speaker 1: the Liberation Day tariffs. Where is that what you're saying?

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Speaker 1: That would take a long time to sort of get

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Speaker 1: them rolled out and have them take effect.

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Speaker 2: Well, that depends on the particular country. The Trump administration

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Speaker 2: already has investigation in under section three to OHO one

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Speaker 2: ongoing into China and Brazil, and so it might be

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Speaker 2: possible to get a fairly legally firm set of tariffs

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Speaker 2: out through that process. If they're trying to do an

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Speaker 2: accelerated investigation through three OHO one for other trade partners,

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Speaker 2: that might fall a foul of what's called the Administrative

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Speaker 2: Procedure Act, which allows regulations to be sued and overturned

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Speaker 2: if their quote unquote arbitrary and capricious, and one indication

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Speaker 2: of that can be a sort of insufficiently detailed investigation.

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Speaker 2: There's also the question of whether the Trump administration tries

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Speaker 2: to use other authorities like Section three thirty eight from

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Speaker 2: the Tariff Act of nineteen thirty which don't have as

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Speaker 2: many clear limited but are also fairly legally untested and

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Speaker 2: so could end up, like IIBA, being subject to some

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Speaker 2: legal pushback.

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Speaker 1: So essentially the takeaway from all of this is a

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Speaker 1: lot of uncertainty on the trade front, a lot of

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Speaker 1: uncertainty on the terraff front. But does this also create

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Speaker 1: broader uncertainty and the energy transition in the US written large.

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Speaker 3: Project developers have already had to deal with tax guidance

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Speaker 3: coming out about how to access US federal tax credits,

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Speaker 3: which are complicated and require supply chain sourcing to shift around.

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Speaker 3: They've now got these tariff rate changes, and I think

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Speaker 3: what's really key is that this uncertainty is going to

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Speaker 3: continue going forwards as well. So all the trade agreements

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Speaker 3: that were struck last year, those are now much more

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Speaker 3: up in the air. Whether they'll be changed, altered, or

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Speaker 3: whether countries just simply won't use them anymore. Is all

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Speaker 3: things that project developers have to be thinking about as

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Speaker 3: the year goes on, and I think it's really worth

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Speaker 3: mentioning as well that this is a situation that's quite

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Speaker 3: unique to the US. What we saw last year is

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Speaker 3: that most other countries have resisted putting high tariffs on

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Speaker 3: clean energy equipment, whether that solo, that's batteries, where that's

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Speaker 3: electric vehicles. US is really alone in pursuing this so actively.

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Speaker 1: That is a fantastic point to end on. Thank you

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Speaker 1: so much, Matt, Thank you so much, Derek. It was

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Speaker 1: a pleasure to read your react and it's a pleasure

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Speaker 1: to talk with you here in the studio today.

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Speaker 3: Thank you, Thank you.

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Speaker 4: Today's episode of Switched On was produced by Cam Gray

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Speaker 4: with production assistance from Kamala Shelling. Bloomberg NIF is a

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Speaker 4: investment a vice, investment recommendations, or a recommendation as to

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Speaker 4: an investment or other strategy. Bloomberg AENNIF should not be

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Speaker 2: M