A buoyant trade balance, and a broken climate balance

At a time when the world is struggling hard to limit warming to around 1.5°C, setbacks in climate finance, energy commitments and punitive trade policies are charting a way backwards.

When major emitters, the countries responsible for the largest shares of global greenhouse gas emissions, take steps such as withdrawing from international agreements or halting promised climate finance, it creates significant setbacks for global climate action.

Global climate action requires an estimated $1.3 trillion each year, yet cuts in funding from major contributors hit the Global South hardest. Small island developing states, for example, lose vital support for coastal protection, while farmers in African countries face reduced access to drought-resistant seeds and delays in irrigation projects. As a result, many nations are forced to shift from aid to Official Development Assistance or low-interest loans to continue these initiatives.

South Asian countries are already struggling with floods and heatwaves, forcing governments to shift their budgets towards disaster response instead of prevention. Without the support of funds, the adaptation gaps widen, leaving millions exposed to extreme events. But finance is one side of the problem. Even with adaptation funds running low, energy commitments are also slowly rolling back, deepening the global crisis.

The introduction of new policy measures, such as the Big Beautiful Bill, has eliminated tax credits for renewable energy, electric vehicles, and clean manufacturing. It is estimated to add 7 billion tonnes of emissions by 2030—roughly 4 per cent of current global emissions. As a result, emissions are projected to fall by only 20 per cent by 2030, far short of the 50–52 per cent reduction promised under the country’s Paris Agreement pledge. Moreover, policies such as the Methane Emission Reduction program, which allowed the federal government to charge large emitters for waste exceeding the emissions levels, now stand stalled.

Analysts estimate this backslide would result in a global climate damage of over $1.6 trillion by 2030 approximately equivalent to the GDP of Mexico. Beyond finance and emissions, newer trade policies are further compounding the damage.

The imposition of punitive tariffs by the US on countries such as India which now faces a 50 per cent tariff on goods, is estimated to impact $48.2 billion worth of goods from clothing, jewellery to agricultural products. The Kanpur leather industry and Dharavi leather industry now stand at the brink of losing thousands of jobs and over tens of millions of dollars due to the high tariffs, while textile units in some parts of India, are gripped with the fear of tariffs. Countries like Pakistan and Bangladesh having less than $10 billion of trade with the US are tariffed at 20 per cent making it easier for them to export cheaper goods to the US.

These tariffs not only impact the factories and the workers, but also millions of farmers who are primary suppliers to them. Already grappling with erratic monsoon and heat stress, farmers lose markets to sell to factories, while factories lose out on export business. This weakens rural incomes, erodes factory jobs and shrinks public revenues, squeezing the needed funds for climate adaptation by forcing governments to divert funds towards defensive aid packages, something similar already being planned in Brazil to support small businesses and those dealing in perishable foods in the form of tax breaks and affordable loans.

Tariffs don’t cut demand; they reroute it to countries who can supply similar goods at cheaper costs, such as China, Vietnam, Thailand, and Bangladesh. These countries would try to revamp their production systems to attract more business, leading to continued reliance on coal-based production systems and weaker standards on emissions. To meet the demand, meaning the same goods are being produced in countries with a higher carbon footprint. These additional carbon emissions don't remain abstract figures; they fall out as heatwaves, floods or any other extreme events, causing close to 10 million people to be internally displaced since 2022.

While these push-and-pull strategies might produce a few short-term winners, the setbacks in finance, energy and trade reveal a common sign: Short-term actions undermine long-term climate security. The supporters of newer strategies have contended that these measures will correct trade imbalances and protect or create newer jobs locally by bringing in production systems back to the country. Yet, these transitions of production systems back would be a long-term process, which is unlikely to provide immediate job gains as expected.

The fallout of these strategies is threefold:

• First, poorer countries lose vital safety nets as climate finance dries leaving the Global South more exposed to climate vulnerabilities which not only causes economic losses but also amplifies environmental degradation causing loss to natural resources and biodiversity.
• Secondly, rolling back clean energy incentives would push higher emissions, undermining the agreed Paris Agreement pledge of limiting global warming to 1.5°C above pre-industrial levels.
• And thirdly, countries with punitive tariffs risk losing global markets, which can impact livelihoods from factory workers to farm laborers. This can also constrain climate finance and encourage shifts in supply chains toward carbon-intensive economies, potentially increasing global emissions in sectors with the highest carbon footprint.

The world is approaching critical climate thresholds, and such policies risk slowing progress on climate action. The real cost will not be measured in trade balances or quarterly GDP figures, but in lives affected through destabilisation of climate leading to extreme events in the form of wildfires, floods, droughts etc. By undermining climate finance, rolling back clean energy and destabilising trade, the risks of turning short-term measures into long-term planetary emergencies would lead to countries finding it difficult to escape.

The author is an economics researcher at the WOTR Centre for Resilience Studies (W-CReS)