China’s dominant position in processed raw materials highlights a gap in the European Union’s Carbon Border Adjustment Mechanism (CBAM): the policy applies to selected industrial goods but excludes many strategically important minerals. The uneven coverage reflects the challenge Europe faces in cutting emissions while securing materials essential to its industrial base. CBAM addresses only part of the EU’s dependence on Chinese processing capacity.
Chinese aluminium, covered steel products and certain ferroalloys face CBAM requirements when imported into the EU. Magnesium, gallium, natural graphite, rare-earth products and ferro-tungsten are among the critical materials that remain outside the mechanism.
Eurostat data for 2025 show that 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.
The materials serve industries including aerospace, defence, steelmaking, electronics and renewable energy. Aerospace and defence manufacturers rely on specialised metals and rare earths, while graphite is important for battery production. Disruptions to these supply chains could affect several sectors at once.
CBAM Requirements Differ Across Mineral Supply Chains
The current CBAM framework sets different requirements for Chinese producers depending on the goods they sell into the EU. An aluminium smelter supplying the European market must account for 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 reduce emissions. For manufacturers exporting covered goods, reliable emissions reporting and lower carbon intensity can matter to their competitiveness in Europe. Producers of materials outside CBAM’s scope face different market pressures, even when their goods are equally important to European industrial supply chains.
Europe’s dependence on China extends beyond mineral extraction. Chinese suppliers have a strong position in markets where alternatives may be limited, supported by processing capacity, refining expertise and established industrial networks. CBAM can influence the carbon performance of covered imports, but it does not automatically encourage equivalent changes across every part of the critical-minerals supply chain.
Raw-Material Diversification Requires Measures Beyond CBAM
For the EU, carbon pricing cannot replace raw-material diversification. Extending CBAM to more products could change trade incentives, but would not immediately create new mines or processing plants, or make substitute technologies commercially viable.
Alternative supply chains require investment, infrastructure, skilled labour, access to energy and long-term demand commitments. These conditions are particularly demanding for specialised minerals and processing operations, where building 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 improve resilience to supply disruptions.
These measures address a different challenge from CBAM. The carbon-border mechanism is designed to address emissions and carbon-leakage risks associated with covered imports, while raw-material policy must help ensure European manufacturers can obtain essential inputs from a broader range of suppliers. The approaches can complement each other, but neither can fully replace the other.
Proposed Downstream Extension Could Broaden CBAM’s Reach
Europe’s changing carbon-border framework could affect 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 CBAM’s scope.
If implemented, the change could make the carbon intensity of steel and aluminium used in goods made for the EU market more important. 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 impact would depend on the extension’s final scope and implementation. It would not, by itself, resolve Europe’s reliance on Chinese supplies of critical materials outside CBAM. The direction of EU policy nevertheless gives Chinese producers an incentive to strengthen emissions monitoring and documentation where their goods or downstream customers are exposed to the mechanism.
Industrial Capacity and Supply Security Shape Competition
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 of supply and strengthen its domestic industrial base. CBAM changes competitive conditions for selected imports, particularly covered steel and aluminium products. Its influence remains limited where European dependence on Chinese suppliers is especially pronounced.
The policy challenge for Europe is not only 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 emissions associated with covered imports will not necessarily reduce vulnerability to concentrated supplies of critical minerals.