How CBAM Is Reshaping International Trade

Rising concerns about climate change and the push for decarbonization have led the European Union to adopt stringent measures to align imports with its environmental commitments. Among these, the CBAM (Carbon Border Adjustment Mechanism) stands out as a landmark policy that directly impacts emerging economies and global industrial sectors, including steel, aluminum, and cement.

But how does this initiative affect international trade, particularly industries dependent on exports to the European market?

What Is CBAM?

CBAM imposes a carbon cost on specific goods imported into the EU. Currently in a pilot phase requiring only reports on the emissions embedded in products, the mechanism will expand in 2026. Importers will then need to purchase credits to offset the difference between local carbon costs and those within the European Union.

The current carbon price in the European market is approximately €62 per ton of CO? equivalent, a significant burden for producers in countries where carbon costs are lower or heavily subsidized.

Impacts on International Trade

1. Challenges for Emerging Economies: Countries like Mozambique, which export energy-intensive goods, face a dual challenge: competing in a sustainability-driven market while dealing with the additional costs imposed by CBAM. In the case of aluminum, most of Mozambique’s exports go to the EU, jeopardizing a vital industry for the nation.
2. Redistribution of Trade Flows: The aggregate impact of CBAM on Africa’s GDP is estimated to be small (0.91%), but in countries where exports to the EU dominate, the scenario is more severe. For Zimbabwe, for instance, 90% of iron and steel exports are destined for the European bloc.
3. Resistance from Major Exporting Economies: India, Russia, and Ukraine are among the most exposed countries due to the carbon intensity of their products and their heavy reliance on the European market. While some are seeking internal adjustments, others are considering challenging CBAM at the World Trade Organization (WTO) as an unfair trade barrier.
4. Global Repercussions: Countries such as Turkey and China are implementing similar carbon pricing systems to mitigate the impact. China recently included steel, cement, and aluminum in its carbon market. Meanwhile, India is exploring a tax on high-carbon exports to retain revenue that would otherwise be captured by CBAM.

Opportunities for Adaptation and Innovation

Despite its challenges, CBAM also creates opportunities:

• Transition to Sustainable Practices: Countries and industries that quickly adopt low-carbon technologies can position themselves as leaders in more regulated markets.
• New Markets and Trade Partners: Products affected by CBAM may find alternative markets in regions with less stringent emissions requirements.
• Support for Compliance: The EU is already discussing possible financial assistance to help countries like Mozambique adapt their industries and remain competitive.

The Importance of Preparation

For companies importing steel and manufacturing molds dependent on international markets, adapting to CBAM’s new regulations is not just desirable—it is essential. Evaluating the carbon footprint of your supply chain, investing in cleaner technologies, and seeking expert guidance on compliance will be crucial competitive differentiators in the years ahead.

Staying informed about regulatory changes like CBAM is vital to protect your competitiveness in the global market. At Asia Link Trade, we understand how regulatory changes impact international trade. We maintain proactive communication with our business partners, connecting them to a reliable network of suppliers to navigate these challenges effectively.

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Source: The Economist