CBAM and Its Economic Impact on India and China: A Comparative Study

The European Union's Carbon Border Adjustment Mechanism (CBAM) marks a fundamental shift in global trade governance by integrating climate objectives directly into market access rules. Unlike traditional tariffs, CBAM introduces carbon-based cost adjustments and mandatory emissions reporting for selected imported goods. This paper presents a comparative analysis of CBAM's economic impact on India and China, two major developing economies with significant carbon-intensive exports to the European Union. Using secondary data, peer-reviewed literature, and sectoral exposure analysis, the study evaluates direct cost impacts, compliance burdens, competitiveness effects, and policy response capacities in both countries. The findings indicate that while China faces larger absolute exposure due to export scale and deeper integration into EU value chains, it possesses stronger institutional and financial capacity to adapt. India, though less exposed at the macroeconomic level, experiences sharper sector-specific pressures, particularly in steel and aluminium, with constraints related to emissions measurement, financing, and technological readiness. The paper concludes that CBAM functions less as a short-term tariff and more as a long-term structural filter that rewards credible low-carbon production, reshaping global trade patterns and accelerating industrial decarbonization.