Green Trade Wars: How Climate Policies Are Reshaping Global Markets

Bahar Kaya, 15 August 2025

Recently global markets have entered a new battleground - environmental challenges. Governments are now introducing new economic policies that don't just shape domestic industries they ripple through international trade, supply chains and investments. The result is what economists call "Green Trade Wars". Traditional trade wars use tariffs to protect local industries from foreign competition. But now, environmental policies are becoming a new kind of trade barrier. The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a prime example. Starting in 2026, exporters of carbon-intensive goods to the EU - like steel, cement, and aluminum - will need to pay for the emissions embedded in their products . The big question is whether these policies truly cut global emissions or simply relocate them. If high-emission industries move from the EU to less regulated countries and keep producing for non-EU markets, the global climate benefit may be minimal (Böhringer et al., 2022). Worse, it could deepen economic divides between the Global North and Global South. As more countries introduce carbon pricing and green trade rules, competition could intensify. If coordination fails, the next decade might see a patchwork of overlapping, sometimes conflicting, climate policies , with markets caught in the middle.

Bibliography

Böhringer, C., Carbone, J. C., & Rutherford, T. F. (2018). Embodied carbon tariffs. The Scandinavian Journal of Economics, 120(1), 183-210.