EU CBAM Carbon Border Tax 2026 explained: US Trade War Risks & EU Over-Regulation

How could the EU CBAM Carbon Border Tax 2026  reshape global trade, sparking US trade war risks and highlighting EU over-regulation? Essential listening for importers, exporters, and supply chain pros navigating emerging trends in green policy and international relations.

• Why CBAM Matters Now: Two major events this December 2025 could change how you import goods into Europe—discover the hidden bureaucracy behind "green" taxes.
• US NSS Critique: The 2025 US National Security Strategy slams EU regulatory suffocation—could it signal retaliatory tariffs and fractured alliances?
• CBAM Breakdown: From cement to hydrogen, learn how the world's first carbon border tax hits high-carbon imports starting January 1, 2026—what's the real cost?
• Carbon Leakage Trap: EU claims CBAM prevents offshoring emissions, but is it protectionism in disguise that disadvantages non-EU producers?
• Administrative Nightmare: Importers must declare embedded emissions or face sky-high defaults—could this expand to everyday items like washing machines?
• Trade War Sparks: Echoes of Canada's failed attempt—how might US criticisms of WTO violations lead to reciprocal actions and global supply chain chaos?
• Broader Impacts: Unpack how EU over-regulation stifles innovation and fuels tensions with China, India, and the US—your business at risk?
• Related Regulations: Ties to EU Batteries Regulation and more red tape—why this isn't just about carbon, but the future of free trade.

Including:

• Game-changing events for EU imports
• US NSS roasts EU bureaucracy
• What is CBAM really?
• Products hit hardest
• End of just declarations, start of taxes
• Emissions math decoded
• Green policy or trade war trigger?
• Bureaucracy's hidden costs
• EU red tape expands
• Outlook for global trade

and:

• Could CBAM ignite a US-EU trade clash?
• Why importers can't ignore emissions defaults
• CBAM's potential to upend your supply chain

Call to Action:

• Please share if CBAM affects your trade—rate/review on Apple Podcasts to boost visibility for global trade insights. 

#EUCbam #CarbonBorderTax2026 #USTradeWar #EUOverRegulation #GlobalTrade #ImportingToEurope #WTO

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Chapters

• 0:00 Two Shocks For EU Trade
• 0:46 The 2025 US Security Strategy
• 2:03 Is Europe Over Regulated
• 2:51 Introducing The EU CBAM Tax
• 4:35 What CBAM Covers And Expansion Risks
• 5:20 Why CBAM Exists And The Transition
• 6:20 How The Tax Is Calculated
• 8:07 Data Demands And Default Penalties
• 9:18 Admin Burden And Small Importers
• 10:33 WTO Tensions And Retaliation
• 11:26 Allowances, Fairness, And Comms War
• 12:38 Complexity Costs And Innovation Drag
• 13:38 The Batteries Passport As A Parallel
• 15:05 Trade As National Security
• 16:12 US No Filter Stance On Green Taxes
• 17:39 Reciprocal Tariffs And CBAM Risks
• 18:29 Europe’s Bureaucracy Versus Entrepreneurship

Transcript

Justin Hayden Miller: 0:00

Two things have happened this week that will change how you move goods into Europe. This episode not only concerns anyone selling or importing goods into Europe, it talks about trade bureaucracy generally and how trade wars hide as green policy or are caused by it. So if you're moving goods anywhere, stay listening. Welcome to Global Trade Deciphered. I'm your host, Justin Hayden Miller. Decoding the policies shaping global trade and emerging trends. There are two subjects I want to discuss with you today concerning December 2025. The first is the 2025 US National Security Strategy, the NSS, which was released on 4 December and which is causing quite a stir. It notably sets out US foreign policy and is pretty critical, slating the European Union. And the second matter I'd like to analyse, the European Carbon Border Adjustment Mechanism, the EU carbon border tax, which is properly effective from 1 January 2026. And in case you think that neither concern you, I want to suggest in this episode that in fact they already do. So stay listening to find out why. The US National Security Strategy, the NSS, was released in early December. It's a document setting out essentially US foreign policy. It refers to the European Union and Europe as a declining partner that risks undermining its own reliability as a US ally. So the US national security strategy is essentially a political document, but I'm essentially only interested in the trade aspects for this episode. The document notably criticizes Europe on the basis of too much regulation. The NSS document states that Europe must abandon its failed focus on regulatory suffocation to regain its civilization self-confidence. And this implies that there's too much bureaucratic overreach by the European Union, including its rules on trade, and that it's choking its economic activity. The document is essentially saying this represents an existential threat, because indirectly the document argues that Europe economically disfavours the US, even if this is only stated indirectly. So I thought for this episode, let's put this to the test. Do major decisions currently taken by the European Union reflect or even amplify this view? And what better timing? Because being in December, anyone importing goods into the European Union should be prepared or preparing themselves for the EU carbon border adjustment mechanism, the CBAM tax, which is essentially a tax on certain importations of certain products. Question we'll be posing today is whether this represents over regulation, whether in some way this proves what the US is saying, because it's the world's first comprehensive carbon border tax. And I see CBAM as a potential turning point and a potential source of conflict with other economies, including the US. So, you know, it it's the carbon border adjustment mechanism, CBAM C B A M. But right from the outset, when I saw that, I thought you couldn't make it up. You know, it's it's C BAM. And I think it could actually be a big BAM, not only to many companies importing carbon-rich products because they're going to be taxed on them. It's going to be a bam to anyone selling these products down the line. It could be a bam for relations between the European Union and the United States. And it could be a bam by ultimately shaking up world trade. It's a carbon BAM. C BAM. Let's not forget that Canada recently attempted to put in place a border and carpet adjustment tax, a very similar one that was abandoned because of a backlash internally just before the recent Canadian elections, and as well because the idea was hammered by the US Trump administration. The CBAM tax will apply to essentially high carbon and rich products, including cement, iron and steel, aluminium, fertilizers, electricity, hydrogen. But if you're not concerned by the sales of these products, nevertheless beware, because even before its proper implementation on 1 January 2026, the European Union is already contemplating extending its application. And I read this week that it could even apply to importations of washing machines. So this is something that could very well be expanded on a large scale and directly affect importers and entities selling into the EU of a wide, wide range of products. EU companies already producing high-enriched carbon goods in the European Union already have a carbon tax, which is called the EU ETS. But it doesn't apply to imported products. And the idea of the European Union was that this put people producing these goods, manufacturing these goods as the European Union disadvantage. And therefore, in order to level the playing field, they would apply this tax on importations. So essentially there wouldn't be a difference, and it argued that this prevents carbon leakage. And carbon leakage is the idea that EU companies will simply set up elsewhere in order to avoid paying the tax. There was a transitional period, up until the end of this month, where companies caught by this regime have to declare the importations of these goods, even though they're not going to pay any tax. Administration, almost just for administrative purposes. But the idea was to get these companies used to actually filling out these forms. Well, that transitional period is ending at the end of this month. And on 1 January 2026, the definitive regime is in place. So companies not only have to fill in the forms when they import these goods, they also actually have to pay the tax. And this is done by buying and surrendering CBAM carbon certificates based on a number of elements. Looks okay on paper, perhaps. But the declarant who's got to declare the importation of these goods has to request from the non-EU country producers the identification of the installation, the direct emissions from the production process itself, indirect emissions, such as electricity, and emissions embedded, such as hot metal used to make steel, which is called a precursor, and also certain transformation processes, as well as any carbon price paid in the country of the origin. And if the producer refuses, what the importer of the Dicklum refuses or cannot provide the data, then it must use commission default values, which are generally much higher, i.e., it needs to get all this information, which can be pretty complicated to get. And if it doesn't, it's going to pay even higher taxes. And when I read the documents, I've read the relevant notices on the on the tax or whatever, I just imagine a scene, a sketch where the person who's devised this calculation says, boss, okay, it might be a bit complicated for everyone, but I've nailed how to get everyone to report and calculate every single carbon molecule coming into the European Union. And the Commission boss replying, this is fantastic. This is mathematical perfection. But this isn't exactly an academic exercise because there are practical consequences and administrative hurdles. And the first is just the complexity of the reporting and the data required in order to properly fill out the forms. Because if the data is not obtained, you're paying even more. And there are issues relating to the platform, access issues, technical glitches, corrections require consolidated reports, the tracking requires quite a bit of admin, even experts working on it. It's quite intricate. And all this admin, there's a there's a de minimis, which means that if you import less than 50 tons annually, well then you're exempt. And that's going to apparently touch around about 90% of small companies importers. But nevertheless, there's a sizable proportion of small companies that are nevertheless going to be corporated. Even though the European Union has said this has been put into place in order to level the playing field. If it's overly burdensome on small companies, it's not leveling the playing field for them. And secondly, if companies cannot get the data, then they're going to be paying higher taxes, not leveling the playing field for them either. It's another example where the European Union is being criticized for red tape. But it's also creating WTO World Trade Organization trade tensions where critics argue that the CBAM risks violating WTO rules, such as discrimination. And there's been talk about even retaliatory tariffs from China, India, or the US potentially escalating global trade wars. And this is why the US has criticized CBAM since 2021 as a potential green protectionist tax, which favors EU firms. And the argument by the US is that until 2035, the EU provides companies free allowances for the tax. So they essentially have a rebate, which is decreasing until 2035 in order to get used to this tax. And the US has argued this is unfair. I mean, you're providing allowances to EU companies for this tax, but US companies aren't going to get these allowances. And that's true, but it's also not quite the full picture. Because a US company bringing such a good into the European Union, the price of the tax that it's going to pay itself, the US company, is calculated on the European tax carbon price. So the reduction that the European companies are getting is itself built into the tax calculation, which means that if European companies get a tax allowance, the amount of the tax due by a US company bringing a similar good in is the same. He doesn't get an allowance, he just gets a reduced amount of tax to pay, which is equal. My view is that this illustrates how well the United States handles its com on these issues. They are they are really, and Trump especially is an expert on com. I mean, how how did the European Union communicate this? They didn't call it a tax, they called it an environmental policy instrument. That's a phrase talking to technocrats. Whereas the US says they get allowances, we don't. The European Union has something to learn from that. But it is true that the tax is pretty complicated. I've been working in this domain for 25, 30 years, and had to read the document a couple of times just to be sure while, you know, what the situation was. And here we have a tax that's going to be applied and potentially ultimately paid in FINA by foreign companies. And of course they can get experts to look at it. They can get lawyers, accountants, administrative staff, but there's a cost to that. And this is a common theme consistently raised by the United States and other continents and other countries. It's possible, but it's complicated and expensive. And that is reducing companies' margins, etc. Such administration does not necessarily only obviously doesn't rest on foreign companies, it also rests on European companies. And time and money spent on administration is time and money not spent on innovation. To give you another example, uh, in a couple of months there's going to be the new EU Batteries Regulation, 2013, stroke 1542, where many batteries in the European Union must have a battery passport, a mandatory digital machine readable electronic document, which is, quote, a birth certificate and health record for electric vehicle, industrial, e-bike, and e-scooter batteries. It's hailed as the most ambitious product tracking system the EU has ever created. And, you know, I'm not against it per se, but it is seen as overly bureaucratic and centralized. With a lot of people posing the question that this will give rise to costs. The US is saying this is going to give rise to US companies at additional costs and additional bureaucracy within the European Union. Coming to my conclusion on this, if you haven't already guessed it, trade is an element that touches on national security concerns. And that is why it was raised in the policy document by the US on foreign policy issues in December. In international diplomatic and trade meetings, I've always properly realized that there can be a difference between, you know, the elements stated in private in a meeting between the delegates, diplomats, and trade representatives, with the door closed, and the position stated at the press conference that might follow it. It is clear that the US is not uh adopting this approach. For me, the filter's come off. There's an there's a no-filter. They're stating it as it is. And I sometimes imagine that what is being stated in a policy document was previously reserved in a private meeting. Now everything is becoming ever more transparent and hotter as well. Trump's criticized green taxes in countries like France and the EU as job-killing measures that disadvantage US exporters. And he ties them to the Paris Agreement, which of course he withdrew from in 2017 and again in 2025, arguing that imposes costs on the US. Full stop. In a previous episode, I mentioned the US blocking essentially global green taxes by the International Maritime Organization, the carbon levy. Trump sees these as scam taxes that disadvantage the US and also the relevant countries concerned at attempting to impose them. Agree with him, disagree with him, it's the reality of the situation. And here we have CBAM, which Trump has criticized. But I do not forget the reciprocal tariffs and what Trump said on the reciprocal tariffs. He said, I've got it in front of me. On trade, I have decided for purposes of furnace that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America, we will charge them no more, no less. And I wonder whether the apparent agreement between the US and the European Union decided in Scotland a few months ago will be sufficient in order for the US not to apply that philosophy to the CBAM tax. Jamie Diamond Lee, the head of JP Morgan, he was interviewed at a round table at the Ronald Reagan Presidential Foundation earlier this month. There are a few things that he says that I disagree with. Skipping points and sentences that he made, he said, I think Europe has a real problem. I think they accomplished an unbelievable thing when they got the Euro together and the EC and they said, you know, let's live in peace and not war. He said, they have some wonderful things, but they've gone from 90% GDP of America to 65. That's not because America did anything bad to them. It's because it's their own bureaucracy, their own cost. They do some wonderful things, the safety nets, but they've driven business out. They've driven investment out, they've driven innovation out. And there is an argument that the United Kingdom left the European Union because of over-bureaucracy. The United States itself has certain barriers to entry onto the market. I haven't discussed in this particular episode, and I'll surely reserve for another. So it's certainly not an all and nothing situation. But CBAM will be definitively implemented on 1 January. The winners here will be consultants, lawyers, advisers, IT experts putting in place IT systems that can handle all this, and also government treasuries. Being fully aware that taxes of the level borne by individuals and companies will not be the means for the European Union to escape its current rut, increase growth, which will provide it its proper independence and place at world trade tables. Because I know full well that bureaucracy is a French European word. Bureau office. Bureaucracy. But I also know that there's another word in the French European dictionary which has even more importance. And that is entrepreneurship. If you're listening to this, then thank you for having listened to the podcast from beginning to end. The content of this podcast is intended only to provide an information resource of interest and does not constitute legal, tax, business, or financial advice of any kind. Should you require advice, then you should engage an appropriately qualified person to provide you specific advisory services in the field. The views, thoughts, and opinions expressed in this podcast are my own and do not necessarily represent the views, thoughts, or opinions of any law firm nor that of any third party, other person, company, or organization. Stay tuned for the next episode.