The outbreak of a full-scale trade war between the US and China may force Chinese hydrogen players to rethink any potential pivot away from their subdued domestic market to large-scale exports of e-fuels and electrolysers—particularly as target markets such as Europe will be on guard against a new flood of Chinese products.

The trade conflict between the world’s two largest economies escalated dramatically on 11 April as China said it would hike levies on US imports from 84% to 125% and reiterated a previous vow to fight “to the end”.

“Even if the US continues to impose higher tariffs, it will no longer make economic sense and will become a joke in the history of the world economy” Chinese finance ministry

“Even if the US continues to impose higher tariffs, it will no longer make economic sense and will become a joke in the history of the world economy,” the Chinese finance ministry said in a statement. “At the current tariff level, there is no market acceptance for US goods exported to China. If the US continues to play the tariff numbers game, China will ignore it.”

The move came as retaliation for Trump’s decision to hike duties on Chinese goods to a record 125%, which the White House later clarified left the overall tariff imposed on China’s exports to the US at 145%.

Domestic reality check

The geopolitical punch and counterpunch pose an additional headwind for the global hydrogen industry, which faced something of a reality check last year as demand uncertainties combined with regulatory delays, unproven technology and an immature supply chain slowed market development.

China was no exception as rising protectionism abroad and stricter rules at home tightened the screw. While the country is poised to build the greenest production capacity and own the most electrolyser manufacturing capacity, significant uncertainties remain for both the upstream and the downstream along the domestic value chain.

The rocky past year for Chinese players was reflected by a number of large central state-owned enterprises—which have been the main developers of domestic hydrogen energy projects—slowing and pausing developments as they adopted a wait-and-see approach. Rules were also tightened, with energy industry regulators reportedly cracking down on electrolysers that were built to meet technology diversity criteria in renewable energy auctions, with no intention to ever use them.

The uncertainty led to the postponement of project tender and downsizing of planned projects. While China’s hydrogen industry has some 15mt/yr of clean production capacity planned, only 600,000–700,000 t/yr of this has taken FID or is under construction. Some 2.2mt/yr of planned capacity also had regulatory approvals withdrawn by local governments after developers missed deadlines to start construction.

Electrolysers and green molecules

The isolation of China as the main target of Trump’s trade offensive will raise questions over the viability of Chinese hydrogen exports. The industry has already notched up early export wins by selling the world’s cheapest electrolysers around the world—including to the US, Canada, Australia, India and parts of Europe and Africa.

But Trump’s combative trade policy and restrictions on Chinese electrolysers in Europe have put pressure on China’s electrolyser manufacturers to find buyers elsewhere and could hasten the inevitable consolidation of the country’s electrolyser industry.

To compensate for the headwinds, there were growing expectations at the start of this year that some Chinese companies would start to develop projects producing hydrogen-based green molecules such as ammonia, methanol and kerosene with the intention to export. This would make sense given electrolysis projects in China are some 75% cheaper than in the West and levelised costs of renewable energy in China are among the world’s lowest.

15mt/yr – China’s planned clean hydrogen capacity

Chinese projects have explored demand for various hydrogen derivatives in recent years. More than 90% of green hydrogen projects announced in 2021 intended to produce hydrogen only, but this has shrunk to c.40% in each of the past three years as developers have embraced output of methanol or ammonia, or both.

As one of the few markets with strong demand incentives, Europe is likely to be a primary target for Chinese exports of green hydrogen molecules. The main challenge for any projects planning to export to Europe would be to get certified as compliant with the EU’s rules on Renewable Fuels of Non-Biological Origin (RFNBO). Those that are able to receive certification will win market share.

Standing in the way is a potential rise in European trade protectionism. In September 2024, the EU barred projects that used Chinese-made electrolysers for more than one-quarter of their production capacity from receiving funds from the European Hydrogen Bank. Given this restriction, it is not inconceivable that Europe could place limits on imports of Chinese green molecules too.

Brussels is also likely to be wary of fallout from the US-China trade war too, such as the potential for Chinese exports to be diverted from the US and other countries to the European market. Any redirection could exacerbate the economic pain for domestic manufacturers and the wider European hydrogen industry.

World leaders

Even as Chinese hydrogen players considers their next immediate steps, the long-term outlook for the country’s hydrogen economy remains promising. The levelised cost of hydrogen for projects in China that take FID this year will stand at $3.21/kg under a best-case scenario, the lowest in the world and 16% cheaper than the next-lowest producer of Saudi Arabia on $3.84/kg, BloombergNEF hydrogen research specialist Kathy Gao said at a recent conference in Beijing. By comparison, the cost in the UK will be $7.29/kg and $10.23/kg in Japan.

The cost advantages helped China lead Asia-Pacific investment in the green hydrogen economy last year, while the rest of the world trailed. Global investments in the clean hydrogen economy almost halved, to $24.3b, in 2024, as demand from hard-to-abate sectors dipped and costs remained high.

The exception was in Asia-Pacific, where spending, driven mainly by China and India, more than doubled from $4.7b in 2023 to $9.9b last year—equivalent to 41% of total funds invested and leading other regional markets in hydrogen investment for the first time since 2021. The Americas saw investment slump by 63%, to $4.9b, while Europe, the Middle East and Africa recorded a 68% drop to $9.5b.

Asia-Pacific’s strong performance came from electrolysers. Together with the co-located solar and wind power projects that feed them, they accounted for 57% of the total. China accounted for c.82% of the investment.

But India claimed the largest project in the region to secure financing last year, after green ammonia producer AM Green took FID on a 1mt/yr megaproject in August. The $1.5b brownfield development in the eastern port city of Kakinada is expected to start production in the second half of next year, with most of its RFNBO-compliant output eyed for export to Europe.

Meanwhile, the largest share of investment in the Americas was gas-based ‘blue’ hydrogen coupled with CCS, as opposed to green hydrogen from electrolysers. Almost half of last year’s clean hydrogen economy investment in the Americas is attributable to a $2b facility that industrial gas company Linde will build in Alberta, Canada.

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Author: Shi Weijun