Trade, Tariffs and Clean Energy: The New Equation for ASEAN Growth

A new study of seven Southeast Asian economies suggests that the economic payoff from the energy transition depends not only on how much renewable energy countries deploy, but also on how deeply, and effectively, they are connected to global trade.

Published in the journal Energies, the study, "Does Trade-Oriented Policy Moderate Energy Transition for Economic Prosperity in ASEAN-7 Countries: Insight from a US-Centric Focus," is authored by Mustapha Mukhtar, Idris Abdullahi Abdulqadir, Luo Gexin, Yao Cuihong, Feng Qiongying, Lawan Yusuf Saleh and Aisha Aliyu Yakubu. It examines Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam over 1995–2021.

Trade openness changes the way renewable energy, energy consumption and other transition indicators are associated with economic prosperity. The research does not show that more trade is always better, or that increasing renewable energy automatically produces stronger growth. Instead, it identifies thresholds and nonlinear relationships that make both assumptions far more complicated.

Trade Is Not a Side Issue in the Energy Transition

ASEAN's energy transition is unfolding inside one of the world's most trade-integrated economic regions, making trade policy more than an external backdrop to climate and energy decisions. It can affect investment flows, technology access, manufacturing demand, supply-chain location and the cost of clean-energy equipment.

Using World Bank Development Indicators, the researchers analyze seven ASEAN economies across 1995–2021. GDP per capita in constant 2015 US dollars serves as the measure of economic prosperity. Energy-transition indicators include renewable energy consumption, energy use per capita, electricity access and carbon dioxide emissions, while foreign direct investment and urbanization are included as controls. Trade as a share of GDP acts as the study's threshold variable.

The empirical approach combines fixed-effects panel analysis, interaction terms, nonlinear specifications and panel threshold regression. The main models contain 189 observations across the seven countries.

One of the clearest findings is the positive interaction between trade openness and renewable energy. The trade-renewable interaction coefficient is 0.396 and statistically significant at the 1% level. An interaction between trade and energy use is also positive, although weaker and significant at the 10% level.

Openness appears capable of changing the economic returns associated with energy choices. For policymakers, that places technology transfer, investment, supply chains and productive capacity at the heart of what is often treated primarily as an energy-policy debate. This is particularly significant for Southeast Asia as clean-technology supply chains become increasingly entangled with tariffs, industrial policy and US-China economic competition.

Renewables Can Support Prosperity, but the Relationship Is Not Linear

The most striking finding is an estimated inverted U-shaped relationship between renewable energy consumption and economic prosperity. The authors calculate a turning point when renewable energy reaches around 34.7% of total final energy consumption. Below that level, the estimated marginal effect on prosperity rises; beyond the turning point, it declines.

The figure should not be interpreted as a universal ceiling on renewable energy. It is a statistical turning point generated from this specific ASEAN-7 sample, not evidence that countries become worse off once renewables exceed 34.7%. It asserts that renewable deployment alone may be insufficient to sustain economic gains. As renewable penetration increases, complementary systems become increasingly important: grids, transmission, storage, digital management, financing, workforce skills and industrial capabilities.

A country that rapidly installs clean generation but lacks grid flexibility or domestic productive capacity may experience very different economic effects from one that combines renewable expansion with technology upgrading and industrial development.

The study finds the opposite pattern for energy use per capita. Here, the relationship with prosperity is U-shaped, with a reported minimum at around 50.9 kilograms of oil equivalent per capita. The authors interpret this as evidence of changing development phases: energy use can initially fall while economic structures become more efficient, before rising alongside greater industrial activity and prosperity.

For governments, the broader lesson is that simply reducing energy consumption cannot be the objective. The more meaningful development goal is to generate more economic and social value from energy while progressively lowering the carbon intensity of that energy.

The 221% Trade Threshold Shows Why One-Size-Fits-All Policy Falls Short

The study also identifies a statistically significant trade threshold at a log value of 5.40, corresponding to trade equal to approximately 221.41% of GDP. The threshold test uses 5,000 bootstrap replications and rejects the hypothesis that no threshold exists. That is an exceptionally high level of openness. It is far more relevant to deeply interconnected economies such as Singapore than to countries with much larger domestic markets, such as Indonesia.

The number should not become a policy target for ASEAN governments. Its real value is analytical: the model suggests that the relationship between energy transition and prosperity changes depending on the intensity of trade integration.

Below the estimated threshold, renewable energy carries a significant negative coefficient in the threshold model, while energy use has a positive coefficient with weaker statistical significance. Above it, renewable energy is no longer statistically significant, while the coefficient for energy use becomes significantly negative.

These shifts reinforce a broader development argument. Trade does not affect every economy in the same way. An economy exporting sophisticated services and high-value manufactured products experiences openness differently from one dependent on commodities or low-margin assembly.

For ASEAN governments, that means energy and trade policy can no longer operate in separate silos. Trade agreements, clean-energy investment, digital infrastructure, industrial upgrading, logistics and FDI policy increasingly belong to the same competitiveness strategy.

The finding also resonates beyond Southeast Asia. Across the Global South, governments hope renewable-energy investment will accelerate industrialization and create jobs. However, if clean-energy expansion remains overwhelmingly dependent on imported equipment without building domestic skills, firms and supply chains, its wider development dividend may remain limited.

The Bigger Policy Test Is Building Capacity, Not Simply Opening Markets

The findings are treated not as numerical prescriptions but as evidence that trade-led growth and energy transition depend on complementary domestic capabilities. The authors highlight ICT-driven trade strategies, energy-efficient technologies and digital supply chains as ways of managing the energy demands associated with greater trade integration.

Their policy discussion also points to the opportunities and risks created as tariffs reshape Asian supply chains. ASEAN economies could benefit when investment and production shift toward Southeast Asia, but capturing those gains requires stronger integration into value chains, predictable institutions and appropriate FDI policies. At the same time, sectors such as labor-intensive manufacturing and electronics remain exposed to trade disruption and geopolitical pressure.

There are, however, important reasons for caution. The empirical dataset ends in 2021, even though much of the study's policy framing concerns tariff and financing developments in 2025 and 2026. The research thus provides a historical framework for understanding those developments rather than direct evidence of their effects.

Causal interpretation is another weakness. Although the researchers use instrumental-variable methods to address endogeneity, the model fails the Sargan overidentification test. The paper acknowledges that the selected instruments may violate the necessary exclusion restrictions and that the resulting estimates should be viewed as indicative rather than definitive evidence of causation.

To sum up, the energy transition is not simply an engineering exercise in replacing fossil fuels with renewables. For trade-oriented developing economies, it is simultaneously an industrial, investment, technology and governance challenge. For ASEAN, the larger opportunity is therefore to turn clean-energy deployment into productive transformation, building stronger grids, domestic capabilities, higher-value industries, digital systems and resilient supply chains.