Trump tariffs are the latest nail in the coffin of the Global Energy era.
Since 2022, we are witnessing the transition of energy from globalization to a world where the energy map has to match with the political map.
If you missed it, I strongly advise to read our article on the topic “2025 the year of all energy transition” here
Back to the Trump tariffs, it is still not clear when and how much are those tariffs going to hit the manufacturers but it quite clear it will have an impact on all companies exporting goods for US projects.
From 45% to 10% tariff on Europe in the span of few days, to the escalation Chinese Tariff up to 145%, nobody knows how long and how high those tariff will last. The main takeaway for the time being, is that it creates uncertainties.
How do tariffs work?
Beginning of April, US president Trump decided to imposed tariffs on almost every industrial country around the planet ranging from 10% to 145%.
Those tariffs are taxes collected by the US governement on goods coming from other countries.
Tariffs are calculated as a percentage of the value of those goods.
Let’s take the example of a project trying to buy a valve for a US plant; 3 cases will appear depending on the origin of the valve :
-US produced valve costing $10,000 USD, will be acquired for $10,000
-Italian produced valve costing $9,000 USD, will be acquired for $9,900 USD (10% tariff at April 24th)
-Chinese produced valve costing $5,000 USD, will be acquired for $12,250 USD (145% tariff)
Interestingly enough, while goods are going to be targeted by tariff, it seems solutions and services are off the table.
Another aspect of those tariffs is their applications to Canadian energy as well as imported steel and aluminium.
What are tariffs goal?
Trump goals with US tariffs is to make US goods price competitive with imported goods.
Thus, on the short term encouraging US consummers and US companies to buy more US made products, benefiting form a better competitive price compared to others.
On the short term, it also mean prices will increase in US because it will raise the prices of every product imported.
The chart below from Forbes (article here) shows how much US economy is depending on importation for $1.6 trillion USD yearly.
In the long term, Trump goal is to rebalance US trade deficit with other industrial countries, as well as boost the “Made in USA” by giving favorable condition to US factories and plants.
While the reduction of trade deficit seems achievable, the boost to the implantation in US of new plants/factories seems far fetch.
It usually take more than 4 years for a plant ot be up and running from in US, but Trump will not be in office at that time, thus leaving a big question mark about the tariff application at that time.
With Trump uncertainty from one week to another, it becomes almost impossible to predict market conditions in 4 year time to justify long term investments such as plant construction.
How will impact US projects?
At this point, US energy projects appear as the first victim of these tariffs, as their procurement will increase quite substantly.
In our estimation, we believe US projects imports at least 40% of their equiment from other countries.
A global tariff of 10% will at minimum raise project prices by 5 to 10% just by the replication of equipment prices into the procurement competition, integration, insurance and interest costs.
A side effect of those tariff comes from the uncertainty about the level which is for sure postponing Final Investment Decision (FID) of all projects during the 90 days period. Assuming tariffs will be published and fixed in Q3 2025, all projects will have to recalculate their budget and revaluate the financial profitability.
For LNG projects and Blue Ammonia/Hydrogen, it will most likely be a revision of cost structure but won’t impact the viability of the projects that will pursue their developments.
For other projects like energy transition, it will for sure postpone or cancel a majority of them. With profitability already questionable on many of those applciations, operators won’t take the risk to expose themselves on this additonal bargain. Only projects of decarbonation or recylcing may still be able to move forward.
Reagrding the procurement, it is quite sure it will severly impact Chinese and other Low Cost suppliers by whiping their unique competitive adavantage of cost. While others like suppliers like European may benefit from this forced exit of Low Cost competitor to become more interesting to US projects.
With our project databse Project Smart Explorer, we already tarce the first slowdown of projects in USA following tarifs announcement.
How will it impact projects outside of US?
For projects outside of USA, the impact will be quite limited as they will be no applciation of tariff. The only case is Canada as their supply of Oil &Gas to the US may be sanctionned, thus motivating midstream projects to be build in order for the Canadian Upstream not to be only depending on US customers.
Most likely, Trump tariff will have no impact on energy projects in South America, Middle East, Europe of even Asia. The only indrect impact may be more fierce competition of asian manufacturers which will losse access to the US market and will thus chase others more agressively.
In conclusion, the impact of Trump tariffs do not seems quite benificial for US projects, to say the least, but the end point of this tarde war is more to benefit the US manufacturers than the US operators.
But these tariffs reflect once more the brutality of the political impact on energy projects which have since the beginning of covid been through a succession of crisis.
If you want to know more about projects subscribe to our newsletter or contact us at Ask a demo
