Rising trade barriers and tariff disputes are forcing energy companies to redirect billions of dollars in investment away from traditional markets, with Chinese manufacturers leading a global shift towards alternative production bases, according to the International Energy Agency (IEA).
The Paris-based organisation warned that mounting protectionism could disrupt the pace of the global energy transition, as companies adopt a “wait and see” approach to significant new investments dependent on international supply chains.
Sharp increases in China-US tariffs during 2025, coupled with Chinese export controls on critical minerals, have already begun to reshape investment flows. In the first quarter of this year, some $9 billion of new clean manufacturing investments in the US were announced, but almost $7 billion were cancelled, rising to $9 billion when early-stage cancellations are included.
The casualties were primarily battery projects that rely on imports of critical minerals, highlighting the vulnerability of globally integrated supply chains.
“Prolonged uncertainty with rapidly evolving trade policy and retaliatory measures could result in companies adopting a ‘wait and see’ approach to major new investments,” the IEA said in its latest analysis.
Source: IEA
Chinese automotive manufacturers have been at the forefront of this strategic realignment, announcing approximately $80 billion in electric vehicle-related foreign direct investment over the past five years to secure market access. Nearly half of this investment has flowed into Europe, though China’s focus has recently shifted towards Asia and Latin America.
EV-focused carmaker BYD has established production facilities across Thailand, Uzbekistan and Indonesia, with plans for Brazil and Turkey. Meanwhile, SAIC Motor has invested heavily in Southeast Asia and is developing a $1 billion electric vehicle plant in Mexico intended to serve the broader Latin American market.
The automotive sector’s global supply chains, where vehicle design, component manufacturing and final assembly often occur in different countries, make the industry particularly vulnerable to tariff increases. The IEA warned that such measures may disrupt manufacturers and trigger broader ripple effects on global GDP and inflation rates.
Trade barriers have emerged as governments seek to protect domestic manufacturers from what they perceive as unfair competition. Imports of Chinese energy technologies have been the primary target of recent tariffs in the US, India and the European Union, citing alleged unfair levels of state support.
The escalating tensions come as global transport investment is set to hit a record $330 billion in 2025, with electrification leading the charge at around $175 billion. However, the IEA noted that effective tariff rates, which had been at their lowest in decades for major markets until 2025, have since risen due to US policy announcements.
Export credit agencies (ECAs) are playing an increasingly important role in this shifting landscape, with clean energy financing now surpassing fossil fuels in their portfolios. These agencies provided nearly $18 billion annually in commitments for fuel supply and power generation between 2014 and 2023.
Despite the challenges, some $2.2 trillion is expected to flow into renewable energy, nuclear, batteries, power grids and energy efficiency globally this year, compared with $1.1 trillion for fossil fuels; the energy transition continues to gather momentum even amid trade tensions.
