On November 5th, Donald Trump won a decisive electoral victory to secure a second term as president of the U.S. Not only that, he appears to be on track to secure a political trifecta: control of both chambers of Congress along with the presidency. This, combined with a conservative Supreme Court (with many of his own appointees from his first term), will give the incoming Trump administration close to free reign to set policy. But what will that policy be? We discussed the possibilities in our recent webinar, but our focus there was on what we considered to be the two likely outcomes: a Harris or Trump presidency without full control of Congress. It’s hard to know exactly what an empowered Trump presidency will look like, but the big picture implications are relatively clear.
Five key areas innovators need to look to:
- Funding: The Biden administration has pursued aggressive industrial policy in both semiconductors and cleantech through the CHIPS Act and the Inflation Reduction Act (IRA). Much of this policy hinges on government loans and tax credits, which have been successful and encouraging private sector investment. While the Biden administration has been working to commit funding and settle tax cut rules, investments have been planned but not fully committed. The incoming Trump administration is threatening to withdraw innovation funding and claw back IRA provisions, and some of his allies have called for eliminating crucial programs including the Department of Energy’s Loan Program Office. While making legislative changes to IRA and CHIPS might be challenging with a narrow majority, given that many provisions benefit Republican-leaning states, implementation of some provisions will be at risk, hurting private sector investment as well. Florida-style anti-ESG laws (which various departments within the first Trump administration adopted) are also a possibility, making investment in climate tech far more difficult to justify.
- Tariffs: Trump’s favorite policy is arguably tariffs, and he has threatened to dramatically ramp tariffs up on both China and the broader world. This will dramatically increase costs for both scaled-up energy transition technologies (like batteries) and also make it more expensive to develop supply chains for novel products, which rely on manufacturing equipment sourced from global supply chains. Beyond this, the negative macroeconomic effects of tariffs will make it harder to operate businesses across a wide range of different industries. While Trump is likely to expand tariffs further, particularly on goods from China, it’s unclear if he’ll implement the most disruptive policies he mentioned on the campaign trail or cut deals to moderate the impact.
- Immigration: Trump has promised to deport 20 million immigrants. While the likelihood of such mass expulsions is difficult to predict, there will be (as there was in his first administration) a strong chilling effect on any current or prospective immigrants, whose skilled labor is crucial in leading startups and manufacturing products. Long term, academic research is likely to suffer as foreign-born researchers will have a far-less secure path to permanent residence in America and will opt for studies in Europe or elsewhere.
- Regulation: Trump took an extremely deregulatory stance in his first presidency and will continue that stance in his second term. While the specifics are hard to know in advance, some of his supporters call for a gutting of agencies like the U.S. EPA, with direct calls to roll back key sustainability rules like automotive emissions regulations. Beyond that, there’s likely to be substantial targeted regulations promoting use of fossil fuels over renewables in terms of permissions to operate and available incentives and a focus on grid stability over decarbonization.
- Global leadership: Trump withdrew the U.S. from the Paris Accords in his first term and will do so again in a second term, after Biden brought the U.S. back in. This seesaw, combined with Trump’s often-combative stance toward institutions like the UN, will foster the sense that the U.S. cannot be trusted to follow through on international commitments.
Despite the impacts of the IRA and other industrial policies under Biden, a second Trump term will blunt momentum and potentially cede to China to a position of global leadership in sustainable and other advanced technologies. China is already the leading manufacturer and technologist in many key areas, including electric vehicles and solar panels, and is set to continue this pattern with scale-up of technologies like electrolyzers. The strong pressure from the top levels of the Chinese government to lead on climate tech will likely only intensify as China seeks sustainable economic growth. The Biden administration’s industrial policy was an effort to counter this dominance and reorient global supply chains toward the U.S., but without critical support for scale-up, these efforts will fall short of aspirations. Supply chains aside, China’s effort to be a global leader through diplomatic and financial programs like the Belt and Road Initiative will find less resistance and could even come to be seen as a more credible partner for Europe in its quest to achieve a more sustainable economy (despite tension over China’s alignment with Russia).
Lux Take:
Climate tech development occurred under the first Trump presidency and will undeniably continue during the second presidency, but critical time will be lost in the U.S. sustainable transition. How sharply it’s impacted will depend on the balance of power between various factions within Trump’s camp — a balance that could shift rapidly and unpredictably.
The incoming Trump administration has three factions with markedly different ideas about the future direction of government policy. A strongly conservative populist faction, led by the think-tank Heritage Foundation, favors dramatic cuts to government spending and regulatory powers, aggressive antagonism with China, and boosting of fossil fuels. The Silicon Valley billionaires (most notably Elon Musk, who has become a key advisor to Trump) are far more open to government spending, green technologies, and even relationships with China, even as they favor deregulation, particularly for their favored sectors, like crypto and AI. Lastly, there remains some group of more traditional Republicans that favor more orthodox conservative policies, like free trade along with lower taxes.
The unpredictability about which view will gain the upper hand leads to greater uncertaintity, which in itself will slow the development of U.S. climate tech and semiconductor innovation and deployment. Still, the secular drivers for these areas remain strong, policy supports won’t be fully canceled, and U.S. industry leaders are motivated not to be left behind — so progress in most respects will be slowed rather than reversed. Innovators will face a more tumultuous path, with less support and greater headwinds, but the U.S.’ large domestic market and underlying innovation strengths will mean opportunities are still available, as long as leaders approach them with caution.