How Will Tariffs Affect Energy Costs For My Business?

The announcement of new US tariffs in April 2025 sparked immediate questions for business owners across the country: How will this impact my bottom line? While discussions often focus on the cost of imported goods, a crucial secondary question arises: What about energy costs? Even though energy products themselves were mostly exempted from the direct tariffs, the ripple effects of new trade policies and international responses can be complex. This post breaks down how the recent tariffs indirectly affect energy costs for your business, especially in deregulated markets, and what you should be watching out for.

1. Understanding the New US Tariff Regime

A significant shift in US trade policy occurred on April 2nd, 2025, when President Trump announced a new tariff regime, declaring a national emergency to boost the nation's competitiveness and protect economic security. This new framework started with a baseline tariff of 10% on imports from nearly all countries, effective April 5th, 2025. Following this, higher "reciprocal" tariffs were announced, targeting countries with which the United States has the largest trade deficits, taking effect April 9th, 2025.

This two-step approach suggests first implementing a broad import tax, then applying stronger pressure on specific trading partners. The initial 10% tariff affected imports globally, while the reciprocal tariffs aimed focused economic leverage on nations with major trade surpluses relative to the US.

Several countries faced these new tariffs. China saw the initial 10% baseline tariff replaced by a 34% reciprocal tariff (note: pre-existing tariffs could mean a higher total). Canada and Mexico largely benefited from exemptions for goods compliant with the USMCA trade agreement, although non-compliant goods, including some energy products from Canada, still faced tariffs. The European Union (EU) was targeted with a 20% reciprocal tariff. Other nations facing high reciprocal tariffs included Vietnam (46%), India (26%), Japan (24%), South Korea (25%), and Taiwan (32%), among others listed.

In contrast, countries like Australia and the UK faced the baseline 10% tariff.

Despite the broad scope, some goods were exempt. USMCA-compliant goods from Canada and Mexico remained exempt. Crucially for this discussion, according to the Executive Order details, "energy and energy products" were explicitly exempted from the new reciprocal tariffs. This suggests an intent to shield the US energy market from direct price shocks. However, non-USMCA-compliant energy from Canada was still subject to a 10% tariff. Other exempt categories included critical minerals, pharmaceuticals, and products already under Section 232 tariffs (like steel and aluminum) (details). While the energy exemption is significant, potential retaliatory actions and impacts on related sectors require a closer look at how tariffs affect energy costs indirectly.

2. International Response: Retaliation by Trading Partners

New tariffs often trigger responses, and the April 2025 measures were no different. Several countries announced retaliatory actions that could indirectly affect US energy markets.

China had already responded to earlier 2025 US tariffs by taxing US goods, including coal, natural gas, and crude oil, and imposing a 15% tariff on US liquefied natural gas (LNG). Following the April announcement, China declared its intent to impose a 34% tariff on all US imports starting April 10th, 2025. Reduced US LNG exports to China could create a domestic oversupply, potentially lowering US natural gas prices in the short term. However, it could also impact producer profitability and future supply. Furthermore, China's export controls on critical minerals (though exempt from new US tariffs) could disrupt supply chains for energy technologies like batteries and renewable components.

Canada had previously announced tariffs on $105 billion of US goods in response to earlier US actions. The EU had also imposed retaliatory tariffs on US products due to earlier steel and aluminum tariffs and could potentially react further to the new 20% reciprocal tariff. Mexico, while previously promising retaliation, appeared more cautious in April 2025. Other nations like Taiwan, Australia, and South Korea expressed strong disapproval, hinting at potential countermeasures.

Even if other countries don't directly tax US energy products, widespread retaliatory tariffs on other US exports could increase business costs, potentially slowing economic activity and indirectly affecting US energy demand and prices. Businesses facing higher export costs might reduce production (lowering energy use), while some domestic sectors could see increased demand (raising energy use) if imports become more expensive.

3. Impact on the US Energy Supply Chain

Despite the energy exemption in the US tariffs, the energy sector relies on global supply chains for equipment and materials, making it vulnerable to indirect impacts.

While the US exports more total energy than it imports overall, it still imports significant amounts of specific resources like crude oil (primarily from Canada and Mexico) (EIA data) and critical equipment. Imports make up about 80% of the US market for large power transformers, with key suppliers including Mexico, Canada, China, and the EU. China supplies over half of the imported low-voltage transformers, Mexico supplies 39% of the high-voltage transformers, and Canada supplies utility poles and high-voltage switchgear.

The US also imports critical minerals needed for clean energy tech like batteries and wind turbines. Although these minerals are exempt from the new tariffs, prior tariffs or foreign export controls could still affect supply. The US solar industry heavily depends on components from Southeast Asian countries (often subsidiaries of Chinese firms), including Vietnam, Malaysia, and Thailand – nations facing high reciprocal tariffs, according to industry reports.

Tariffs on imported grid equipment (transformers, switchgear) from suppliers like Mexico, Canada, and China could raise costs for US utilities. These higher infrastructure costs might eventually be passed on to businesses through the regulated delivery portions of energy bills. Retaliatory tariffs on US exports could also harm US energy companies' finances, potentially reducing infrastructure investment. Existing tariffs on steel and aluminum continue to increase costs for pipelines and power plants. High tariffs on Asian solar components could make solar projects more expensive, potentially impacting solar competitiveness. Even without direct tariffs on energy commodities, these supply chain ripple effects could indirectly increase business energy costs.

4. Supply and Demand Shifts in US Energy Markets

The tariffs and trade responses could shift supply and demand within US energy markets.

Higher energy costs could reduce overall energy demand as businesses cut expenses or pass costs to customers, possibly decreasing production. Energy-intensive industries might be especially affected. Broader negative economic impacts from the tariffs could also slow growth, lowering commercial energy demand. However, some domestic industries might see increased demand if tariffs make competing imports pricier, potentially boosting their energy use.

On the supply side, retaliatory tariffs or export controls on goods used by the US energy sector (even non-energy goods) could disrupt supply chains. For example, China's export controls on critical minerals needed for batteries and renewables could hinder their deployment in the US despite the minerals' tariff exemption. Supply disruptions could delay projects and raise costs for renewable energy and storage. While direct energy imports might be stable, these related supply chain issues could impact the overall cost-effectiveness of the US energy market in the long term.

5. Forecasted Price Increases for Commercial Energy

Economic forecasts generally agree that the April 2025 tariffs affect energy costs indirectly through overall price levels and inflation in the US. Estimates varied, suggesting potential increases in the Personal Consumption Expenditures (PCE) price level from 1.3% to over 2%, with some projecting inflation near 5% or PCE inflation 1 percentage point higher. The Yale Budget Lab estimated a 1.3% price level rise from the April 2nd tariffs alone, and 2.3% considering all 2025 tariffs. This expected inflation implies that energy costs are likely to rise as well.

Even without direct energy tariffs, the general inflationary environment will likely push energy prices up. Increased materials, transport, and labor costs impact energy production and delivery. Some analyses suggested energy price spikes due to tariffs on oil imports (though exemptions apply). Higher costs for imported power equipment will likely mean higher operational costs for energy companies, potentially reflected in business rates. Retaliatory tariffs on US LNG exports could also indirectly influence domestic gas prices. Increased grid equipment costs could also lead to higher regulated delivery charges on bills.

It's also important to remember existing market pressures. For instance, PJM Interconnection (serving 13 states) announced huge capacity charge increases (833%) for 2025-2026, expected to raise commercial bills by 29% or more starting June 2025. While driven by regional factors, cost pressures from tariffs could potentially worsen such situations.

6. What This Means for Your Business's Energy Bills

It's helpful to consider what percentage increases mean in real dollars. Even a modest rate increase adds up. A 5% increase on a $10,000 monthly energy bill means an extra $500 per month or $6,000 annually—a significant hit to profitability.

While exact cost increase models specifically due to the April 2025 tariffs are still emerging, the expected rise in inflation and potential cost increases across the energy supply chain suggest businesses should prepare for higher electricity and natural gas expenses. Increased costs for components could ripple through the economy, impacting various sectors' energy use and prices.

7. Which Parts of Your Energy Bill Might Be Affected?

In deregulated markets, your energy bill typically includes several parts:

• Generation/Supply: The energy cost (most competitive part).

• Transmission: Moving electricity over high-voltage lines.

• Distribution: Delivering energy via local utility infrastructure.

• Capacity: Ensuring enough power is available for peak demand.

• Fees/Surcharges: Various regulatory charges.

While supply costs are market-driven, tariffs can hit other areas. Tariffs on grid equipment could raise transmission and distribution charges. Retaliatory tariffs on US fuel exports might influence wholesale costs, affecting supply charges. General inflation impacts operational costs for providers. Potential capacity charge increases, like in PJM, could also be influenced by tariff-related economic shifts. So, even with the energy commodity exemption, various parts of your bill could see upward pressure.

8. Protect Your Bottom Line: Proactive Steps Amidst Tariff Impacts

While the April 2025 US tariffs largely exempted direct energy products, the indirect effects – potential retaliatory tariffs, supply chain disruptions for essential equipment, and overall inflation – suggest that businesses like yours will likely feel an impact on energy costs. Higher natural gas and electricity expenses can squeeze profits and impact competitiveness, especially for companies reliant on global supply chains. Understanding how tariffs affect energy costs, even indirectly, makes proactive planning essential.

So, what strategic steps can your business consider now?

• Secure Future Energy Rates: This might be a critical window to review your energy contracts. Locking in a competitive fixed rate for electricity and natural gas supply now could protect your budget from potential volatility and inflation driven by tariff impacts for years to come. Securing a rate today means paying that predictable price even if broader market costs increase later. Acting proactively gives you control over a significant operating expense.

• Evaluate Long-Term Renewable Options: Similarly, exploring options like on-site solar or long-term renewable energy agreements could offer a hedge against future price fluctuations. While tariff impacts might affect renewable component costs, investing now could secure predictable, stable energy generation costs for the long term, insulating your business from fossil fuel market swings and potential grid cost increases.

• Boost Energy Efficiency: Reducing how much energy you use remains a powerful strategy, regardless of market conditions. Implementing efficiency measures directly lowers your bills and offsets potential price increases (learn practical tips). (Look for our other posts on efficiency!)

Navigating this uncertainty requires a forward-looking approach. Proactively managing your energy strategy is key to protecting your bottom line. Consulting with an energy advisor now can provide expert insights into current market conditions and help evaluate if locking in rates or pursuing renewables makes sense for your specific situation before potential price changes fully materialize. We can help tailor a procurement and efficiency plan to minimize the impact of these new dynamics.

Concerned about how tariffs might affect your future energy costs? Contact us today for a consultation to discuss strategies tailored to protect your business.