Insights

How CBAM links with other trade barriers and creates an option to stay competitive in EU

An insight into the current scenario by Climactio

Beginning of Beggar – Thy – Neighbour policy

The U.S. has announced a sweeping tariff package that will take effect in the first fortnight of April 2025. It introduces import duties on nearly all goods (with a few exempted categories like pharma, semiconductor, lumber, copper) with tariff rates largely based on the trade imbalances with each country with a baseline tariff of 10% (applicable only to a handful of countries) and supplemented by individualised much higher tariffs for other countries.

China will be subject to cumulative tariffs of up to 54% (in addition to 34% already announced). Further, many emerging and developing countries are also severely affected: Vietnam, for instance, faces 46%, Bangladesh 37%, Cambodia 49% Thailand – 36%.

Looking back in history, he has imposed tariffs exceeding even the levels of 1910. He surpassed the 1930 Smoot-Hawley tariffs that triggered the Great Depression, clearly underscoring his anti-global and protectionist policy activating a meltdown in stock markets worldwide.

This new system of RFs is far from a finely tuned model, but rather on a blunt principle: "What you do to us, we'll do back—at half the rate (Being kind!)." While this approach may appeal domestically, in practice it marks a de facto end to multilateral tariff rules based on WTO principles.

Is EU CBAM a trade barrier/akin to tariffs to US and other countries?

Even though Trump hasn't explicitly addressed CBAM yet, the mechanism is often lumped into the same category. Like tariffs, it involves charges on imports but with a climate mitigation objective thus creating a non-tariff trade barrier but with various ways to control and reduce the impact over a period of time.

Like tariffs, it centres around a powerful regulatory actor—the EU. But the similarities end there. CBAM is not a traditional tariff. It's often compared to VAT, which the EU applies universally—regardless of whether goods are imported or domestically produced.

The Business Challenge

For internationally operating companies, the new U.S. tariff policy represents a significant additional cost burden—especially since many of these new tariffs come on top of existing sanctions and trade defense measures. Meanwhile, CBAM is also increasing import costs in Europe for emissions-intensive goods like upstream categories of goods within steel, aluminum, cement, and fertilizers.

CBAM as a Framework for Future Levies

At the same time, it's becoming clear that in a world where trade tools are increasingly used for geopolitical aims, mechanisms like CBAM are essential. They offer a credible, legally compliant, and climate-based controllable alternatives to arbitrary punitive tariffs largely driven by geo political factors.

Time to effectively navigate through trade barriers using multiple options

The effective and smart way to navigate through multiple trade barriers is by having multiple possible options and focus on those that are somewhat controllable for example CBAM. Its controllable through decarbonisation efforts and adjustments through local carbon pricing (India is expected to have its own by mid-2026).

Next steps

For companies, the time is now to have multiple options not just to respond to rising costs, but to fundamentally rethink their international strategies and collaborations. Companies who prepare now—regulatory, climate-wise, and geopolitically—can reduce risks and seize opportunities.

Climactio is ready to help create such options and navigate through them to maximise benefits!!! We are just a call away!!