A Global Analysis of Trade Tension, Energy Security and Sustainable Transition

I. Introduction

This study investigates the effects of trade tensions on energy security and the transition to renewable energy across a panel of 36 countries. Rising energy prices, driven by shifting trade relationships and geopolitical risks, have heightened the significance of trade tensions for energy security (Zhao et al., 2025). The pursuit of energy security is closely tied to renewable energy transitions, as nations invest to mitigate climate shocks and enhance energy availability, affordability, and accessibility. Notably, the recent U.S.–China tariffs on solar panels and related components, such as batteries and transition metals, directly link trade tensions to renewable energy investments. At the same time, research indicates that trade disruptions can stimulate domestic development by encouraging innovation and solutions that may offset trade deficits in the long term (Freund, 2023; Stepanov et al., 2024). Therefore, we hypothesize that trade tensions yield long-term benefits for energy security and emissions reduction, while they may reduce energy security and emissions reduction in the short term.

Theoretical perspectives suggest that trade tensions can disrupt energy supply chains in the short run, undermining energy security and emission reduction goals. However, these disruptions can also drive innovation, diversification, and investment in greener energy systems, leading to improved energy security and emissions reduction over the long term (Dunford & Han, 2025; Romer, 1990). Using annual data from 1995 to 2024 for 36 countries, the study finds that U.S. trade policy uncertainty influences energy security and sustainability. For robustness, the analysis is also conducted using the U.S.–China trade tension index. Six distinct subsamples, namely Asia-Pacific (includes China, India, Japan, South Korea, Indonesia, Singapore, Australia, and New Zealand), America (includes United States, Canada, Brazil, Mexico, Argentina, and Chile), Europe (includes United Kingdom, France, Germany, Italy, Ukraine, Austria, Belgium, Portugal, Spain, Hungary, Switzerland, Finland, Denmark, Turkey, Norway, Poland, and Iceland), Africa (South Africa, Egypt, and Morocco), advanced economies (includes G7 countries), and emerging economies (non-G7 countries) are included in the analysis. Prior studies by Gao et al. (2024) and Zuo & Majeed (2024) have focused on trade uncertainty and renewable energy consumption in the U.S. and China. This study addresses a gap in the literature by offering a global perspective on the relationship between trade tensions, energy security, and sustainability. It utilizes diverse measures of trade tensions and accounts for heterogeneity across multiple subsamples.

The rest of the paper is organized as follows. Section II describes the methodology used in this study followed by main findings presented in Section III. Final section concludes the study.

II. Methodology

The study employs a sample of 36 countries that account for more than 85% of the world’s gross domestic product. Following the specified theoretical background, the econometric formulation of a bivariate model linking trade tensions to energy transition and sustainable development is defined as follows:

$$S_{it} = \alpha + \beta K_{i,t - 1} + \mu_{i} + \varepsilon_{it}$$

$$i = 1,2,3,\ldots,N;\ t\ = 1,2,\ldots,T\tag{1}$$

$S_{it}$ is defined as the percentage change in total energy supply per capita or combustion from CO₂ emissions, which is specific to each country; $K_{it}$ is the percentage change in either the U.S. trade policy uncertainty index or the U.S.-China trade index, which is general for all sampled nations; $\mu_{i}$ stands for country-specific effects, while $\varepsilon_{it}$ is the stochastic error term.

We use the panel ARDL model proposed by Pesaran & Smith (1995) and Pesaran et al. (1999), with extensive procedural and empirical illustrations provided by Salisu & Ndako (2018). The model addresses the issue of dynamic heterogeneity that is often associated with panels with large N and large T. In line with the objectives of the study, Equation (1) is re-specified in a linear Panel ARDL ($p,q$) form as follows:

$$\begin{aligned} \Delta S_{it} &= \vartheta_{i}(S_{i,t - 1} - \psi_{0i} - \psi_{1i}K_{i,t - 1})\\ & \quad + \sum_{j = 1}^{p}{\lambda_{ij}\Delta S_{i,t - j}} + \sum_{j = 0}^{q}{\gamma_{ij}\Delta K_{i,t - j}} + \nu_{it} \end{aligned}$$

$$i\ = 1,\ 2,3,\ldots,N;\ t\ = 1,2,\ldots,T \tag{2}$$

where $\Delta$ is the first difference operator; $\gamma_{ij}$ measures the short-run relationship between the two variables, while $\vartheta_{i}$ captures the long-run equilibrium in the model and represents the speed at which deviations of short-run dynamics adjust to the long-run equilibrium. The study refers to Salisu & Ndako (2018) for additional derivations on the mean group^[1] (MG) and pooled mean group^[2] (PMG) estimators.

Annual data on total energy supply per capita and CO₂ emissions from combustion are obtained from The Energy Institute (https://www.energyinst.org/statistical-review/resources-and-data-downloads). Monthly data on the U.S. trade policy uncertainty and the U.S.-China Trade index are sourced from https://www.policyuncertainty.com/trade_cimpr.html, credited to Baker et al. (2016) and Rogers et al. (2024). Aggregation to annual data was performed by averaging all monthly observations.

Our sole focus on energy supply as an index of energy security is justified by its centrality to various perspectives of energy security, such as availability, affordability (i.e., prices), and stability (Kim et al., 2025). Thus, the energy security index adopted in this study captures the behavior of energy-vulnerable economies in the face of supply disruption. In addition, the intensity of CO₂ emissions has been shown to significantly decrease as countries adopt more renewable and efficient energy systems (Lau et al., 2023; Pakrooh et al., 2025).

The current study acknowledges the limitations of the empirical inquiry in addressing other dimensions of energy security, such as import dependency and energy diversification. Additionally, transforming monthly indices into annual averages may obscure the effects of volatility in energy supply and trade tensions.

III. Results

The section begins with the presentation of results with a preliminary analysis of trade tensions, energy security, and sustainable transition. Table 1 shows that advanced (196.21), Asia-Pacific (177.13), and European (172.65) economies record a greater supply of energy per capita than other blocs and regions, highlighting higher levels of energy security. The Asia-Pacific (1447.67), advanced (1295.27), and American (1151.48 ± 133.91) economies had higher CO₂ emissions from combustion than other regions (mean = 640.28 ± 1497.92).

The main results of the empirical analysis conducted in this study are presented in Tables 2–3 and Tables A and B in the appendix. The following outcomes are deduced: (i) In the short run, the total energy supply per capita for the full sample, Asia-Pacific, America, and advanced economies was significantly and positively disrupted by the U.S. trade tensions (see Table 2). However, this positive disruption is accompanied by higher carbon emissions (see Table 3), indicating that impacted nations retreat from their renewable energy commitments in response to trade tensions to offset the effects. (ii) In the long run, the total energy supply per capita for the full sample, Asia-Pacific, America, and advanced economies is significantly and negatively impacted by the U.S. trade tensions (see Table 2), showing that sustained trade tensions adversely affect energy supply. This negative disruption is accompanied by lower carbon emissions (see Table 3), highlighting that impacted nations develop more energy-smart and efficient technologies over a prolonged exposure to trade tensions. As noted by Lau et al. (2023), such renewable energy infrastructures lead to a substitution effect between fossil and green energy, where countries reduce their per capita energy consumption or ecological footprint through green and energy-efficient technologies. However, renewable energy infrastructures also require significant initial capital investments, a highly skilled workforce, and novel technology (referred to as the technology base effort), which may disrupt long-run energy supply and security. (iii) Interestingly, compared to the U.S.-China trade tensions (see Tables provided in the appendix), the U.S. trade tensions (see Tables 2–3) have a more pronounced and significant impact on all economies and blocs, underscoring the notion that the U.S. trade tensions target a wider range of economies and blocs and have a greater effect than the latter, particularly regarding energy security and sustainability.

IV. Conclusion

This study contributes to the literature on trade tension, energy security, and renewable energy transition by analyzing the effects of the U.S. trade tensions and the U.S.-China trade tensions on energy security and sustainable transition. On a global scale, the results emphasize that these trade tensions are accompanied by higher short-run energy security and increased carbon emissions, indicating that in response to trade tensions, countries tend to retreat from their renewable energy commitments to offset the shocks. Conversely, in the long run, the opposite holds true, highlighting the broader trade-offs between short-run energy security and long-run sustainability. The study draws policymakers’ attention to the importance of energy technology, diversification, energy supply chain decoupling strategies, and the Carbon Border Adjustment Mechanism (CBAM), among other measures, in building resilience to trade tensions and ensuring long-term benefits. The highlighted limitations (refer to section II) may serve as motivation for future studies.