From Courtroom to Capital Markets: Why US Tariff Instability Matters

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The Supreme Court’s decision limiting presidential tariff authority should have reduced uncertainty. Instead, it introduced a new layer of it. The Court narrowed the use of one statute for imposing broad tariffs. The response from the administration was immediate. Tariffs would continue under other authorities, and tariffs already collected would not be refunded. For capital markets, that sequence does not resolve risk. It shifts it. Clean technology deployment sits directly in the path of that shift because it is capital intensive, supply chain dependent, and margin sensitive.

Clean energy infrastructure is not software. It is steel, copper, silicon, lithium, transformers, substations, inverters, and long lead time components. A 200 MW solar plus storage project can cost $300 million to $500 million. A gigafactory can cost $2 billion to $5 billion. A large power transformer can cost several million dollars and take often 2–3+ years for large/high-voltage units, around a year (or more) for many distribution units. These are financed assets with 10 to 30 year lifetimes. Their economics depend more on cost of capital than on short term commodity fluctuations. When volatility enters trade policy, it enters the weighted average cost of capital.

The Court decision changes one thing clearly. It limits tariff authority under a specific emergency statute, assuming the current administration even accepts that limitation. What it does not change is Trump’s stated intent to impose tariffs through alternative statutes. That creates substitution risk. Markets now price not only the current tariff schedule but the probability that new schedules appear under different legal frameworks. This is not a theoretical concern. It affects procurement contracts, lender covenants, and equity hurdle rates.

Trump’s stated refusal to refund tariffs already collected and wrap lawsuits up in legal battles introduces retroactivity risk. Investors and importers assume that if a court invalidates a tariff, refunds will follow. If that expectation weakens, tariffs become potential sunk costs even if later ruled unlawful. That changes pricing behavior immediately. Developers add contingency. Importers widen margins. Lenders tighten terms. Equity investors require incremental return to compensate for legal uncertainty.

The transmission pathway from tariff volatility to slower clean deployment is mechanical. Tariff volatility increases uncertainty in input costs. That uncertainty increases procurement friction. Procurement friction raises contingency budgets and reduces bid confidence. Reduced bid confidence raises required return. Higher required return increases weighted average cost of capital. Higher WACC increases levelized cost of energy. Higher LCOE removes marginal projects from the stack. Each step is small in isolation. In aggregate, it becomes a headwind.

Consider a simple example. A 200 MW solar project costing $300 million financed at 60% debt and 40% equity with a 6% blended WACC might produce electricity at $40 per MWh. If volatility increases WACC by 75 basis points to 6.75%, LCOE rises by roughly $2 to $4 per MWh depending on capacity factor and financing structure. In competitive procurement markets where winning bids can be separated by $1 per MWh, that shift is decisive. It does not stop all projects. It stops the marginal ones.

Battery storage is more sensitive. Four hour lithium ion systems can cost $300 to $400 per kWh installed in the United States. A 100 MW 400 MWh system at $350 per kWh costs $140 million. If tariff volatility increases battery pack cost by 10%, that adds $14 million in capex. If WACC rises by 100 basis points on top of that, project internal rate of return (IRR) can fall by 150 to 200 basis points. For merchant storage with shorter contract duration, that can move projects below investment committee thresholds.

Transformers and grid equipment are already constrained. Reuters reporting in 2025 cited potential 30% shortages in power transformers and 10% shortages in distribution transformers relative to demand. Lead times were already stretching past 18 months. Tariffs on steel, copper, and specialty components increase quoted prices and compress validity windows. Utilities respond by pre ordering. Pre ordering worsens perceived scarcity. Scarcity increases price escalation clauses. This is not a collapse scenario. It is friction layered on bottlenecks that were already binding.

Solar and wind developers operate on thin margins. Turbine towers and solar racking are metal intensive. If steel prices increase by 10% because of tariff layering and volatility in North American supply, and steel represents 10% to 15% of turbine cost, overall turbine capex can increase 1% to 2%. On a $150 million wind project, that is $1.5 million to $3 million. Add uncertainty to delivery timing and financing spreads widen. These are small numbers relative to the entire project. They matter at the margin.

Manufacturing reshoring is often presented as the counterbalance to tariffs. The assumption is that tariffs protect domestic industry and stimulate local investment. That only holds in a stable policy environment. Domestic cleantech manufacturing is not self contained. A battery plant depends on imported lithium salts, cathode precursors, graphite, separator films, and production equipment. A transformer plant depends on grain oriented electrical steel and specialized components. If tariffs increase input costs and create classification uncertainty, domestic capex rises.

Take a hypothetical $3 billion gigafactory. If tariff volatility increases construction and equipment costs by 5%, that adds $150 million. If WACC rises from 8% to 9% because investors price legal and trade instability, net present value can fall by hundreds of millions over a 20 year horizon. Internal rate of return might fall from 12% to 10.5%. For some firms, that remains viable. For others, it falls below hurdle rates. The first plant might proceed with subsidies. The third and fourth expansion may stall.

Foreign direct investment is sensitive to rule of law perception. If investors perceive that tariffs can be imposed, struck down, re imposed under different authorities, and not refunded, they price sovereign risk. The United States still enjoys deep capital markets and institutional strength. Even so, a small shift in perceived durability matters when trillions in infrastructure capital are required over the next decade. A 50 to 100 basis point increase in required return across hundreds of billions in clean energy investment translates into tens of billions in additional financing cost.

The cost of capital effect is not uniform. Utility-scale solar and wind backed by long term power purchase agreements might see WACC increases of 25 to 75 basis points under persistent volatility. Merchant storage and clean manufacturing could see 75 to 150 basis points depending on exposure to imported inputs. These ranges are modest compared to historical interest rate swings. They are meaningful in sectors where IRRs are often in the high single digits.

The macro picture is not one of collapse. The tattered remains of the Inflation Reduction Act, state mandates, and corporate procurement continue to drive deployment. However, headwinds matter at the margin. If annual solar deployment is 30 GW and volatility reduces that by 5% because marginal projects do not pencil, that is 1.5 GW per year. Over five years, that is 7.5 GW. Similar arithmetic applies to storage and grid expansion. Clean transitions are cumulative processes. Small annual drags compound.

The paradox is clear. Tariffs aimed at strengthening domestic industry can, under volatile legal conditions, increase the cost of domestic industry. Stable industrial policy can support reshoring. Unstable tariff substitution risk increases financing cost, increases contingency budgets, and delays scaling. Clean technology deployment, just as with all technology deployment, depends on predictability more than on rhetoric.

The Supreme Court ruling was a legal event. The market response depends on institutional follow-through. If trade policy stabilizes under clearly bounded authorities with refund clarity and multi year visibility, capital will adapt and proceed. If substitution risk and retroactivity remain features of the landscape, cost of capital will incorporate that reality. Clean energy will continue to grow. It will do so with more friction and higher financing cost. In a sector where math governs outcomes, even modest increases in WACC translate into measurable headwinds for technologies that are necessary for the next phase of the energy transition. And for every other technology.