The World Trade Organization Rules Against Biden’s Clean Energy Law: Will It Even Matter?

On Friday, a panel at the Geneva-based World Trade Organization (WTO) sided with China’s challenge of the Biden administration’s Inflation Reduction Act (IRA)—the biggest climate law in US (and perhaps global) history. In pre-Trump times, this would be front-page news. Instead, even specialist outlets like Politico’s trade newsletter mentioned the ruling in passing, as a linked 12th item out of 13 stories and links. In part, this is a reflection of the Trump administration’s “flood the zone” strategy on, well, everything, and on trade in particular. But it’s also a sign of a longer-running (self-)marginalization of the global trading order that dates back to when Trump was still best known for The Apprentice. What was in this ruling, and what does it tell us about the persistent debate over how to integrate climate and trade concerns?

What the WTO Ruled

The panel—composed of a former attorney general of Botswana, a retired Canadian civil servant, and a Somali-Kenyan ex-official—determined that the IRA’s domestic content bonus violated the WTO’s rules on nondiscrimination in trade, investment, and subsidy schemes.

This part of the ruling was no surprise. The WTO’s subsidy agreement, for instance, is clear that “subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods” are strictly prohibited. The domestic content bonus, on its face, violates this stricture—upping the value of the investment and production tax credits 10 percent for projects that use 100 percent US-made iron and steel and 40–55 percent other domestically manufactured parts. The Trump administration did not even contest this part of China’s complaint, and precedents going back to at least 2013 showed local content requirements to be losers in trade law.

That said, it is worth pausing to reflect on the deep irony that China—the global and historic champion of using industrial policy tools, whose failure to comply with the letter and spirit of WTO norms was a major contributor to declining US confidence in the organization—sued and beat the US over its relatively fledgling efforts to catch up.

Back to the decision. The majority of the ruling focused on the WTO’s defense provisions, which allow countries to get away with a violation if the challenged policy advances environmental, national security, or other public objectives. The problem: These defenses are stacked with so many hurdles that they have almost never been successfully invoked in over 30 years of jurisprudence. Friday’s ruling was no exception, with the trade panel giving almost no quarter to the United States’ arguments.

Did Trump Engineer an Own Goal?

Here, Team Trump did themselves no favors. They could have argued that the IRA was key to conserving exhaustible natural resources; protecting human, animal, and plant life; or reshoring goods that are domestically in short supply. With the climate crisis projected to inflict over a quadrillion dollars in harm, and with China monopolizing up to 90 percent of critical supply chains needed for decarbonization, such arguments would be plausible as a matter of law and facts. (Of course, some jujitsu would be needed to explain why reshoring domestic supply chains has a “predominant motive” of building a sustainable social, political, and economic basis for a national decarbonization strategy—something Heatmap reporting and I have discussed elsewhere.)

Instead, Trump’s trade representatives argued that China’s “attainment and weaponization of global dominance in … renewable energy” was offensive to US public morality. There were several problems with this approach. First, it is quite hard to convince a WTO panel that anything rises to the level of a public moral. The US could not convince the panel that—despite the existence of numerous anti-monopoly laws like the Sherman Act—fair competition and anti-coercion were bedrock organizing values for US society. The panel was skeptical that economic policy of any kind could be predominantly about morality, especially when the mechanism to align clean energy developers’ behavior with those morals was economic incentives to switch to more domestic inputs, rather than outright prohibitions on foreign ones. Second, the US was able to convince the panel that, if China’s energy dominance was based on forced labor and theft, that would violate well-established American morals. But the domestic content bonus requirement did not discriminate only against imports stolen or made with forced labor, but against any Chinese or other country imports whatsoever. Third, there was zero paper trail that could have established that the key senators and executive branch officials that designed the domestic content bonus saw it in moral—as opposed to economic development or climate—terms. This gave the lawyers in Geneva nothing to work with.

In short, it seems like the Trump administration preferred to play a predictably losing hand rather than risk robustly defending the Biden climate policies it has spent the last year and change trying to destroy. And the WTO returned to its habit of presenting governments with unworkable choices: discriminate at all and you violate the primary WTO rules, or don’t discriminate completely and you can’t use the defense clauses.

Bullet Dodged?

The good news, such as it is, is that it could have been worse. When foreign countries started griping about the IRA in 2022, they were targeting almost all of the major climate provisions—not just the domestic content bonus. And China’s initial 2024 complaint also targeted the consumer subsidy for electric vehicles, which it dropped when congressional Republicans killed these as part of the One Big Beautiful Bill Act. So, instead of a world where the WTO instructs the US to get rid of all the remaining investment and production tax credits, we have a ruling that merely tells the US to get rid of the domestic content bonus by October 2026.

That gets us to the next point: The WTO cannot force the US to do anything. Even before Stephen Miller recklessly dismissed US treaty obligations as mere “niceties,” the truth is that WTO does not have an army, and its appellate function has been on the decline since the Obama administration began weakening it in 2011. As a result, all countries can do is unilaterally retaliate outside the WTO. If you haven’t noticed, a lot of trade tit-for-tat retaliation is happening around the globe, without any green light or even seat at the table for the WTO.

At the heart of this standoff is a long-standing gripe of the US: that countries learned how to litigate against one another in the WTO after 1995, and forgot how to negotiate. Despite efforts by Bill Clinton, George W. Bush, and Barack Obama, there was never another successful WTO negotiating round—a far cry from the rounds finalized every few years in the decades after World War II. Whatever else one can say about Trump II’s trade orientation, countries are furiously negotiating again. And despite the Biden administration’s attempt and failure to get Europe to agree to a climate-forward “Global Arrangement on Sustainable Steel and Aluminum” (misnamed because it was a solely US-EU negotiation), the Trump administration has achieved effectively the same outcome by unilaterally raising tariffs on (relatively dirty) metals imports in favor of (relatively clean) domestic metals, and then getting a critical mass of other trading partners to follow suit (see here , here, here, and here).

The missed opportunity in all of this is that we still need international cooperation to fix the climate, and there was some indication a few years back that the WTO was attempting to address its legitimacy crisis by taking on more climate enforcement functions. Instead, what we got this week was a Trump administration failing to advance the best defenses of US laws (ones that could actually begin to align the rest of the world with its goals of energy dominance) and the WTO returning to interpretive habits that stack the deck against bold climate policy. The latter is an indication that the international neoliberal rulebook remains intact, while the former reveals a US unwilling to advance a vision on how to rewrite that book (even as it breaks its norms). We are still waiting on leaders and social movements to emerge that can make trade sustainable and equitable again (or, perhaps, for the first time).