As Europe Retreats on Carbon Pricing, German Business May be a Bigger Factor Than Trump Tariffs
Industrial Policy Program Manager Audrey Stienon writes that Europe’s landmark Green Deal is being weakened under pressure from Trump’s tariff threats and rising far-right influence, jeopardizing the EU’s climate ambitions and democratic sovereignty.
With the new year, the European Union is poised to implement its Carbon Border Adjustment Mechanism (CBAM). A cornerstone policy of Europe’s Green Deal, the policy introduces a price on the carbon content of certain imports, thereby pushing companies from around the world to reduce their emissions.
Beyond its importance to the global fight against climate change, many Europeans have embraced CBAM and the other Green Deal policies as a strategic foil to the Trump administration’s zero-sum, climate-denialist vision for the global economy — a big carrot to his stick. However, following Trump’s tariff threats and other U.S. attacks on the foundations of European democratic governance, European Commission leaders have recently appeared poised to dramatically cut back elements of the Green Deal and of their broader defense of a rules-based international order.
The European Green Deal consists of numerous policy mechanisms designed to make the EU carbon neutral by 2050. Beyond reducing the climate impact of activities taking place inside European borders, many of these policies make increased sustainability a precondition for companies that want to trade with European consumers.
The Corporate Sustainability Due Diligence Directive (CSDDD), for example, requires large companies operating in or exporting to the EU to disclose the environmental impacts of their global supply chains, and to adopt a climate change mitigation strategy. CBAM, meanwhile, extends the EU’s domestic cap-and-trade mechanism to foreign producers by taxing carbon-intensive products like steel when they cross the EU border.
Although EU leaders argue the Green Deal consists of climate rather than trade policies, mechanisms like CSDDD and CBAM represent innovative means of wielding the EUs economic power to influence global industrial practices. First, by requiring that foreign producers meet the same climate standards and frameworks as firms operating in Europe, these policies remove industries’ economic incentives to offshore production to countries with lower environmental standards. Second, these policies directly incentivize companies and countries to raise their sustainability standards to facilitate their access to the European market. Several countries are adopting their own carbon trading systems in response to CBAM, effectively extending the impact of this policy to products that will never enter the European market.
Nevertheless, precisely because of their international impact, Europe’s climate policies have also caused disputes with its trade partners — especially the U.S., which lacks climate policy equivalents to those enacted in Europe. Even during the Biden administration, negotiations to support Euro-American production of low-carbon steel and aluminum foundered in large part over disagreements on whether or not domestic U.S. producers should, like EU producers, face higher sustainability standards.
Now, the Green Deal has run headlong into the Trump administration’s “America First” vision for the global economy. Not only does Trump oppose the basic objective of climate change mitigation, he more broadly sees other countries’ regulation of U.S. companies as “unfair” attempts to restrict their global market share.
Republican leaders argue that policies like CSDDD violate American sovereignty by forcing U.S. companies to meet higher European regulatory standards. They also warn that companies cannot comply with EU disclosure requirements without violating state anti-ESG laws that restrict companies’ right to consider climate in their business decision-making.
The resulting U.S. trade policy is just as globally ambitious as Europe’s, but aims in the opposite direction. Whereas EU policies create positive incentives for others governments to raise regulatory standards, Trump has used the threat of exorbitant tariffs and other retaliations to force governments to remove or reform domestic regulations, as well to dismantle multilateral agreements, to fit with present U.S. goals.
So far, in the fight between these two global visions, Trump’s strategies have appeared more powerful, at least on the surface. This summer, EU negotiators exited negotiations with the Trump administration having agreed, among other concessions, to “reduce the administrative burden” of policies like CBAM and CSDDD.
The idea that Europe is simply caving to Trump is not entirely accurate, however. Trump’s demands for climate policy has many supporters in Europe. Indeed, European business lobbyists, especially from sectors like agriculture, have been among the loudest voices calling for a rollback of EU climate policies.
If anything, the real danger to European sovereignty and democracy may come from EC President Ursula von der Leyen’s willingness to depict the policy rollback as a gift to Trump. The seeming capitulation risks emboldening the U.S. administration to continue to use tariffs as a blunt tool to get its way in other policy areas, like tech.
Perhaps even more dangerous, von der Leyen had to ally herself with far-right parties in the European Parliament to win enough votes to weaken the climate regime. Not only did the move violate decades-old pro-democracy norms against centrist parties voting with the far right on any issue, it reinforced the alliance between the Trump administration and Europe’s far right movements.
This article originally appeared in The Corner Newsletter: December 2nd, 2025