What's Happening?
The U.S. administration has implemented a new tariff regime, imposing a minimum 10% tariff on all imports, along with reciprocal and sector-specific tariffs. This policy has affected over 80 countries, leading to higher tariffs based on their own rates
against U.S. exports. The sector-specific tariffs are expected to impact China significantly, as it dominates the exportation process of earth materials, crucial for renewable energy industries. The inconsistency in global trade agreements is increasing economic uncertainty, potentially leading to economic and claims inflation, recession, and exacerbated supply chain issues. Additionally, the practice of 'origin washing' is becoming prevalent, where goods from countries with no trade agreement or higher tariffs are rerouted through countries with lower tariffs to benefit from reduced tariffs.
Why It's Important?
The tariff policy is crucial as it affects U.S. importers, leading to increased costs and extended project timelines due to delays in parts availability. This could result in price hikes for equipment replacement and repairs, impacting profitability and potentially causing companies to scale back production. The renewable energy sector, heavily reliant on earth materials processed by China, faces challenges due to these tariffs. The policy also raises concerns for insureds regarding the proximate cause of delays, whether due to insured damage or tariffs, affecting insurance coverage. The energy market is increasingly shaped by legislation, regulation, and geopolitical pressures, necessitating strategic planning and risk management.
What's Next?
The U.S. and China are not expected to conclude a trade agreement until November at the earliest, which could further impact the renewable energy sector and global trade dynamics. Insurers may need to explore shorter indemnity periods and tariff endorsements to address potential gaps in coverage arising from increased rebuilding costs and volatility. The energy market will continue to evolve, requiring adaptability from industry leaders and experts.
