India and China in particular have criticized the European Union’s proposed Carbon Border Adjustment Mechanism (CBAM), denouncing it as trade protectionism. This new mechanism is set to come into force on January 1, 2026. Both nations, despite their ongoing tensions, have found common ground in their critique of this carbon tariff, particularly concerning its potential impact on their significant steel sectors, which are heavily reliant on coal.
The CBAM aims to impose tariffs on imported goods from countries with high carbon emissions to encourage a reduction in carbon footprints globally. This mechanism specifically targets industries that are carbon-intensive, including the steel sector, which forms a cornerstone of both India’s and China’s economies. Consequently, all three of the Asian giants are beginning to vent. They have been vocal about their industries being unduly affected by CBAM’s application and in their effect on EU trade relations.
At the recent United Nations climate talks in Sharm el Sheik, India and China intensified their efforts to block the EU’s carbon tariff. Delegates from each country stressed the importance of the adjustment mechanism in acting as a trade barrier. This, they cautioned, would undermine the global steel trade. The Prime Ministers of India and China are understandably concerned that adopting CBAM will unnecessarily increase costs to their steel exporters. These producers are most at risk from the challenges posed by international market dynamics, threatening their ability to compete.
India and China have joined forces as one of the most vocal opponents of the CBAM. This unusual alliance underscores the massive economic stakes for each country. Renewables and the aforementioned coal-powered industries, like equipment for reclamation, both have important infrastructure roles to further expand our economic capacity. They say that the EU’s approach risks decimating their own steel industries. This has the potential to increase tensions in US-China trade relations.
The European Union has also made the case for the CBAM as a producer-friendly step in the right direction. The EU will levy tariffs on goods imported from countries that do not adhere to defined environmental policies. This approach advances more sustainable production practices and encourages innovative solutions to support circular economies. Critics argue that this mechanism may disproportionately affect developing nations, which rely heavily on carbon-intensive industries for economic development.
With more than a year to go until the implementation date, India and China will intensify their diplomatic push. First, they seek to undermine the effectiveness and fairness of the CBAM. These negotiations have the potential to shift the landscape of trade around the world. In terms of winners and losers, the steel sector will be one of the most impacted and a major beneficiary of the new tariff regime.