Tariffs and taxes: Are we headed for a global metals trade war?

This week, President Trump announced a 25% tariff on US steel and aluminum imports. Combined with international regulations like the EU’s Carbon Border Adjustment Mechanism (CBAM), how will these moves affect the metals industry — and should metals players be concerned?

A Moneycontrol analysis claims that as much as 10% of global trade may now be at risk thanks to new regulations, import duties, and the beginning of US-driven tariff wars. Many of these regulations and tariffs are aimed directly at the metals industry. Let’s take a look at some key recent developments and how they may affect metals traders.

President Trump’s steel and aluminum tariffs

Although many are surprised by the President’s recent tariff announcements, the U.S. has a long and complex history of taxing imports — and Trump is also no stranger to tariffs. During his first administration, Trump invoked the Kennedy-era national security measure known as Section 232, which allowed tariffs in the name of preserving national security.

In 2018, Trump imposed a 25% tariff on imported steel and 10% on aluminum for all countries, for which Canada and Mexico were later exempt and EU, UK, Korea, Japan, and Argentina were given RTQs. These tariffs were intended to protect domestic steel and aluminum producers. The EU retaliated in an unsubtle fashion, sanctioning US exports of motorcycles, blue jeans, and bourbon—sanctions from which those industries have yet to fully recover. Clearly, the EU is not opposed to retaliation.

The Biden administration brought EU-US relations to a truce by lifting the tariffs. However, the US retained import quotas on EU steel and aluminium exports and also attempted to design a deal that would restrict imports produced in non-market economies. This deal never made it to fruition, as the US wanted its steel companies to be made exempt from the EU’s CBAM and also wanted China barred from the EU market—against WTO rules.

The current US-EU status quo is set to expire on March 31, which is when Trump’s tariffs are expected to come into force.

After several years of essentially free trade between the EU and US, metals traders may now face a tough but navigable reality: unavoidable tariffs if shipping into the USA and avoidable CBAM fines if shipping into Europe. But work needs to be done on the decarbonisation front if importers wish to avoid CBAM fines.

CBAM tariffs: new costs for high-carbon goods entering the EU

The European Union is poised to make its Carbon Border Adjustment Mechanism (CBAM) fully active next year, which will effectively apply import tariffs on steel and aluminium.

Initially, CBAM required importers to disclose emissions data on their products. Importers won’t be required to pay for CBAM certificates (effectively a carbon tax) until 2026, but producers and importers of goods subject to CBAM are already feeling its administrative burden.

We believe CBAM could influence the international metals trade in three key ways:

#1 — CBAM leads to business as usual

It’s entirely possible that the introduction of CBAM creates few ripple effects in the trading world. It’s possible that importers will continue trading with the EU as they have been, without altering production processes or prices. In this scenario, the costs of CBAM certificates would be absorbed by importers, who would not transfer the cost onto their clients. This outcome is unlikely, but it is possible — and it would essentially mean that the CBAM as a regulatory mechanism fails to achieve its intended result. 

#2 — CBAM changes trade patterns (but not production patterns)

A more likely scenario is that CBAM will affect how high-carbon goods are traded, but not how they’re produced. Specifically, it’s possible we will see ‘cleaner’ (lower-carbon) products imported into the EU at a price premium while other, more carbon-intensive goods are shipped off to other destinations that don’t charge carbon taxes on product imports.

This practice is called resource shuffling. It aims to reduce a producer’s CBAM burden without cutting production or entirely decarbonising product patterns (an expensive, long-term investment).

While on the surface, the EU’s imported carbon emissions would go down in this scenario, it would ultimately represent a failure for CBAM’s global impact, as the carbon emissions will have simply been redirected elsewhere.

#3 — CBAM changes production patterns, driving clean investment

Ultimately, the CBAM is designed to drive decarbonisation in high-carbon industries — and it’s possible that it may achieve this goal. The CBAM may drive producers to invest in low-carbon production to reduce the carbon intensity of their goods, keeping EU export options open. A decarbonized production process would not entirely exempt producers from CBAM — they would still have to report carbon data on CBAM-subject goods — a reduced carbon footprint would mean lower CBAM fees.

Yet these potential scenarios focus on CBAM in a vacuum. What they don’t account for is how other contributing factors — like Trump’s tariff extravaganza — might also affect the way CBAM plays out on the global stage.

How will metals traders deal with Trump’s tariffs and CBAM duties?

Let’s look at some potential CBAM outcomes with the added context of Trump’s tariffs.

#1 — Highly unlikely to see business as usual

Business as usual may have been a plausible scenario if CBAM were coming into effect in isolation. However, with 25% tariffs also in play, it is highly unlikely that producers will be able to absorb CBAM costs and global tariffs. This means one of the other scenarios (changing trade patterns, changing production patterns) will be far more likely. At the macro level, we’re likely to see changes to trade flows, the cost of goods, and green investment plans.

#2 — High-carbon products struggle to find an untaxed home

Many predict that high-carbon products will simply be redirected away from the EU and into other markets. With the US no longer a viable option for steel and aluminium exports, this leaves other individual countries, but many of these countries are considering introducing domestic carbon pricing systems. For example, Türkiye and Brazil are contemplating carbon pricing to reduce the CBAM exposure of their businesses and retain carbon pricing revenues ‘at home’ rather than seeing these fees flow to the EU.

If importers can’t avoid high trade costs by redistributing high-emitting products to the US, then individual countries may be even more likely to add domestic carbon pricing systems to capitalise on the imports that may be much more likely to come their way over the next few years.

The reality for importers is that high-carbon metals will likely face import fees wherever they land — whether due to their carbon intensity or an aggressively nationalist agenda.

At the same time, this opens doors for importers of low-carbon goods. If North American producers can’t import into the US, they may find European buyers willing to pay a low-carbon premium.

#3 — CBAM becomes a tool for economic retaliation

As evidenced by Brussels’ response to Trump’s 2018 tariffs, the EU is no stranger to retaliation. In 2026, the CBAM may become the EU’s tool of choice for economic retaliation. Given that CBAM is designed to impose carbon costs on imports, the EU could easily leverage the regulation to penalise US exports if tensions escalate.

Most studies suggest the EU should refrain, as retaliating in this manner would require putting an unrealistically high carbon price on the embodied emissions of US imports, which could weaken the acceptability of the border carbon tax for EU’s friendly trade partners. Currently, these partners see CBAM as acceptable, as it is equivalent to local fees and taxes and does not purport to be a trade tariff.

Conclusion: A perfect storm for the metals industry?

With Trump’s tariffs and the EU’s CBAM hitting at the same time, metals traders are facing a perfect storm of trade restrictions and climate-driven costs. While businesses might have been able to work around each policy individually, their combined impact will shake up supply chains, drive up costs, and force tough decisions on sourcing and production.

For high-carbon producers, the risks are clear: fewer market options, tighter margins, and growing pressure to cut emissions. But for those willing to adapt, there’s an opportunity to get ahead—by shifting trade routes, investing in cleaner production, and securing early positions in low-carbon supply chains.

Ultimately, the metals industry is entering a period of volatility. Traders and producers who stay ahead of these changes—by understanding the rules, using data smartly, and making strategic moves—will have the best shot at turning these challenges into an advantage.

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