How The Current Tariff Tug-Of-War Is Impacting Climate Adaptation

Recently, Jefferies, a big investment bank, invited me to give a webinar on tariffs and rising trade protectionism to their clients working on sustainability. What became clear from that webinar is that there is a real curiosity about how regulatory measures such as tariffs shape our ability to adapt to a warming world. The curiosity is timely as the recent months of international trade have been unlike anything the world has seen before. To the extent that Richard Baldwin, a famous trade economist who has been studying and publishing on international trade for several decades, in a recent LinkedIn post questioned why Trump is negotiating tariffs with himself—in public. This line may seem funny initially, but one cannot ignore the point: the US introduced tariffs with several countries and then brought them down or put them on hold a few weeks after they were announced.

One thing that is being impacted by this tariff drama, however, is our efforts to adapt to a warming world. Climate adaptation is a term scientists use to reduce climate risk and vulnerability, mainly by adjusting existing systems. A related term is climate-resilient development, which integrates adaptation measures and enabling conditions, such as governance, finance, capacity building, and decision-making processes. Adaptation and climate-resilient development are the foundations of our coping strategies for a warming world.

Tariffs adversely impact climate adaptation by creating higher challenges. Estimates from the Intergovernmental Panel on Climate Change show that scenarios of an increase in protectionism lead to emissions that are at least three times higher than in a sustainability-focused scenario. Emissions are higher because such protectionism slows the pace of the transformations needed to address a future climate crisis. Let’s examine what these transformations involve and how they can be impacted.

Tariffs Impact The Flow Of Adaptation Finance

Adaptation finance is already underfunded, with estimates showing a gap of $215 to $387 billion by 2030. The estimates are from the UN Adaptation Gap Report calculated based on submissions made by countries in their national adaptation plans and modeled adaptation costs. The highest financial needs are in agriculture, water, and infrastructure. In terms of regions, many low-income countries are particularly vulnerable, but developing countries overall have a larger adaptation finance gap. The gap for the former, i.e., low-income countries, is narrowing as public finance is beginning to prioritize them, according to the report.

With the increase in tariffs, and as many developed countries prioritize their national interests by retaliating against US tariffs, the indirect effects could further limit available funding for adaptation—both national and international funds—to vulnerable sectors and regions under public finance.

Private finance is also not at the level required. Only 1 in 3 companies have disclosed plans to adjust to the physical impacts of climate change. According to a recent S& P analysis of 1,200 most prominent companies, projected cumulative costs from climate exposure through 2050 could be as much as 74% of their total revenue—or 31% of the total market capitalization of these companies in 2024. These costs are driven by physical climate risks such as extreme heat, water stress, and drought. Among the sectors that have made slower progress are healthcare companies and communication services. This slow progress is concerning as the adaptation needs of these sectors are essential. For instance, hospitals in coastal areas may need to adapt to rising sea levels, and communication services that rely on physical infrastructure may need to adapt to rising temperatures.

Investments in climate adaptation must increase to cope with the rising costs of worsening climate hazards. However, with increase in retaliatory tariffs as companies go into survival mode to maintain stable margins amid the tariff tug-of-war, everything else can expect to take a back seat. Experts are already expressing this uncertainty, as highlighted in a recent report by Quantum Commodity Intelligence.

Tariffs Are Causing Attention To Moves Away From Critical Vulnerabilities

Increasing tariffs can divert attention from inherent vulnerabilities in our systems. One area where this becomes evident is in the soy markets. Some news outlets have already reported that one of the first supply chains to feel the impact of rising tariffs was the soybean supply chain between China, the United States, and Brazil.

Due to uncertainty in trade with the US, Brazil’s share of soybeans supplied to China has increased over the years. To understand that better, it is helpful to look into some numbers. China’s soybean imports account for about 62% of global soybean imports. The US is among the key suppliers to the Chinese soy market. However, with the uncertainty around retaliatory tariffs, this status is changing. In 2000, Brazil’s share of the Chinese soybean market was 20% compared to the US at about 50%. Today, Brazil accounts for 71% of China’s soy imports, while the US has dropped to 21%. The numbers speak volumes on how tariffs are rerouting soft commodity supply chains.

These trade shifts are causing environmental degradation. Data indicates that deforestation in Brazil’s Pampas biome increased following the 2018 US-China trade war, one reason for that was China’s growing demand for soy.

Traceability in the soy imported from Brazil is already challenging, so there are limited means to know whether or not the soy is coming from deforested regions. According to the Coller FAIRR Protein Producer Index of the FAIRR Initiative, an investor network that raises awareness of the material risks and opportunities in the global food sector, disclosures on deforestation by some of the biggest Chinese companies are already low 75 % of the Chinese companies in the above Index—lack a deforestation-free target for soy.

Deforestation not only releases the carbon stored in trees into the atmosphere but also creates challenges for adaptation by increasing the incidence of droughts, making it more difficult for local communities to cope with rising temperatures. For example, throughout the Amazon, 69% of municipalities have been recording drought rates even more intense than those of 2023—a 56% increase over the same period last year. There were also reports that 209 pink and grey river dolphins were found dead in Lake Tefé, in Amazonas state, mainly due to the overheating of the waters.

Tariffs divert attention from the transformations needed to address climate and nature impacts. It’s vital that our decision-makers—in both private and public sectors—do not let the tariff drama come in the way of long-term progress needed for adapt to a warming planet