China’s dominance in processed raw materials highlights a structural limitation in the European Union’s Carbon Border Adjustment Mechanism (CBAM): the policy covers selected industrial goods but leaves many strategically important minerals outside its current scope. This uneven coverage reflects the broader challenge facing Europe as it seeks to reduce carbon emissions while securing supplies of materials essential to its industrial base.
Chinese aluminium, covered steel products and certain ferroalloys face CBAM requirements when entering the EU market. Numerous critical materials, including magnesium, gallium, graphite, rare-earth products and ferro-tungsten, remain outside the mechanism. The result is a carbon-border framework that addresses only part of Europe’s dependence on Chinese processing capacity.
Eurostat data for 2025 illustrate the scale of that dependence. China accounted for 92% of EU magnesium imports, measured by value, alongside 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 are essential to a wide range of industries. Aerospace and defence manufacturers depend 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. Disruptions in these supply chains could therefore affect multiple sectors simultaneously.
CBAM Creates Uneven Incentives for Chinese Processors
The current structure of CBAM places different requirements on Chinese producers depending on the products they export. An aluminium smelter supplying the European market must account for the carbon emissions associated with its covered products. Producers of magnesium metal, rare-earth oxides or natural graphite generally do not face the same direct carbon-border mechanism under the current framework.
This distinction creates an uneven incentive to reduce emissions. For manufacturers exporting covered goods, reliable emissions reporting and lower carbon intensity can become important factors in maintaining competitiveness in Europe. Producers of materials outside CBAM’s scope face a different set of market pressures, even when their products are equally important to European industrial supply chains.
The difference is particularly significant because Europe’s dependence on China extends beyond raw mineral extraction. Processing capacity, refining expertise and established industrial networks give Chinese suppliers a strong position in markets where alternative sources may be limited. CBAM can influence the carbon performance of covered imports, but it does not automatically encourage equivalent changes across every segment of the critical-minerals supply chain.
Europe Needs More Than Carbon Border Protection
For the EU, the central challenge is that carbon pricing cannot replace raw-material diversification. Expanding CBAM to additional products could alter trade incentives, but it would not immediately create new mines, processing plants or commercially viable substitute technologies.
Building alternative supply chains 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 therefore remain important elements of Europe’s strategy. International partnerships can help diversify sourcing, while recycling can reduce dependence on newly extracted materials. Strategic stockpiles and procurement arrangements can also strengthen resilience against supply disruptions. These measures address a different problem from CBAM. Whereas the carbon-border mechanism is designed to address emissions and carbon-leakage risks associated with covered imports, raw-material policy must help ensure that European manufacturers can obtain essential inputs from a broader range of suppliers. The two approaches can complement each other, but neither can fully replace the other.
Downstream CBAM Expansion Could Change Industrial Trade
Europe’s evolving carbon-border framework remains relevant to Chinese manufacturers beyond the products already covered. A proposed extension to certain downstream goods from 2028 could bring additional industrial equipment and fabricated products within the mechanism’s scope.
If implemented, the change could increase the importance of the carbon intensity of steel and aluminium used in manufacturing goods destined for the EU. Suppliers with reliable emissions data and demonstrably lower-carbon inputs could be better positioned 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. For Chinese producers, the direction of EU policy nevertheless creates an incentive to strengthen emissions monitoring and documentation where their products or downstream customers are exposed to the mechanism.
The Competition Is Shifting Towards Industrial Capacity
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 rests partly on the depth of its processing industry and its position in the supply of materials that support advanced manufacturing. Europe, meanwhile, is attempting to combine carbon pricing with efforts to develop alternative supply sources and strengthen its domestic industrial base. CBAM changes the competitive conditions for selected imports, particularly covered steel and aluminium products. Yet its influence remains limited in areas where European dependence on Chinese suppliers is especially pronounced.
For Europe, the policy challenge is therefore not simply whether to expand the carbon border, but how to align climate measures with investment, recycling, strategic procurement and diversified sourcing. Without that broader industrial framework, reducing the emissions associated with covered imports will not necessarily reduce vulnerability to concentrated supplies of critical minerals.
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