China’s dominance in processing raw materials exposes a limitation in the European Union’s Carbon Border Adjustment Mechanism (CBAM). The mechanism covers selected industrial goods, while many strategically important minerals remain outside its current scope. This uneven coverage reflects the challenge Europe faces in cutting emissions while securing materials essential to its industrial base.
Chinese aluminium exports, covered steel products and certain ferroalloys face CBAM requirements when they enter the EU market. Magnesium, gallium, natural graphite, rare-earth products and ferro-tungsten are among the critical materials not currently covered. As a result, the carbon-border framework addresses only part of Europe’s dependence on Chinese processing capacity.
Eurostat data for 2025 show China supplied 92% of EU magnesium imports by value, as well as 77% of gallium imports, 68% of ferro-tungsten imports and 43% of natural graphite imports. China was also the EU’s leading supplier of rare-earth products.
These materials serve a broad range of industries. Aerospace and defence manufacturers rely on specialised metals and rare earths, while graphite is important for battery production. Magnesium, ferro-tungsten and other processed materials also support steelmaking, electronics and renewable energy technologies, meaning supply-chain disruptions could affect several sectors at once.
CBAM Requirements Differ Across Chinese Producers
The current CBAM framework imposes different requirements on Chinese producers depending on the goods they ship to the EU. An aluminium smelter supplying the European market must account for the emissions associated with its covered products. Producers of magnesium metal, rare-earth oxides or natural graphite generally face no equivalent direct carbon-border requirement under the current framework.
This distinction creates different incentives to cut emissions. For manufacturers exporting covered goods, reliable emissions reporting and lower carbon intensity can become important to maintaining competitiveness in Europe. Producers of materials outside CBAM’s scope face different market pressures, even when their products are equally important to European industrial supply chains.
Europe’s dependence on China extends beyond raw mineral extraction. Chinese suppliers hold a strong position in markets where alternative sources may be limited, supported by processing capacity, refining expertise and established industrial networks. CBAM can influence the carbon performance of covered imports, but does not automatically encourage equivalent changes across every part of the critical-minerals supply chain.
Raw-Material Security Requires Measures Beyond CBAM
For the EU, carbon pricing cannot replace raw-material diversification. Expanding CBAM to more products could change trade incentives, but it would not immediately create new mines or processing plants, or make substitute technologies commercially viable. Building alternative supply chains also requires investment, infrastructure, skilled labour, access to energy and long-term demand commitments.
These requirements are particularly demanding for specialised minerals and processing operations, where establishing competitive capacity can take considerable time. The Critical Raw Materials Act (CRMA) and related industrial policies remain important parts of Europe’s strategy. International partnerships can help diversify sourcing, while recycling can reduce reliance on newly extracted materials.
Strategic stockpiles and procurement arrangements can also strengthen resilience to supply disruptions. These measures address a different challenge from CBAM: the carbon-border mechanism targets emissions and carbon-leakage risks associated with covered imports, while raw-material policy aims to give European manufacturers access to essential inputs from a broader range of suppliers. The two approaches can complement one another, but neither can fully replace the other.
Proposed Downstream Extension Could Affect Industrial Trade
Europe’s evolving carbon-border framework could affect Chinese manufacturers beyond the goods already covered. A proposed extension to certain downstream goods from 2028 could bring additional industrial equipment and fabricated products within CBAM’s scope.
If implemented, the change could make the carbon intensity of steel and aluminium used in goods destined for the EU more significant. Suppliers with reliable emissions data and demonstrably lower-carbon inputs could be better placed to meet requirements than competitors relying on default emissions values.
The potential effect would depend on the final scope and implementation of the proposed extension. It would not, by itself, resolve Europe’s reliance on Chinese supplies of critical materials that remain outside CBAM. The direction of EU policy nevertheless gives Chinese producers an incentive to strengthen emissions monitoring and documentation where their products, or their downstream customers, are exposed to the mechanism.
Competition Turns on Processing Capacity and Supply Security
The broader strategic contest between China and Europe is increasingly shaped by the interaction of carbon policy, processing capacity and supply-chain security. China’s advantage partly reflects the depth of its processing industry and its position in supplying materials used in advanced manufacturing. Europe is seeking to combine carbon pricing with efforts to develop alternative sources and strengthen its domestic industrial base.
CBAM changes competitive conditions for selected imports, particularly covered steel and aluminium products. Its influence remains limited, however, in areas where European dependence on Chinese suppliers is especially pronounced. Europe’s policy challenge includes aligning climate measures with investment, recycling, strategic procurement and diversified sourcing.
Without that broader industrial framework, reducing emissions associated with covered imports will not necessarily reduce vulnerability to concentrated supplies of critical minerals.