US Plans Carbon Import Tariff: What the New Foreign Pollution Fee Act Means for Europe

A new proposal with familiar goals

In the United States, the Foreign Pollution Fee Act is making another appearance. Republican Senators Bill Cassidy and Lindsey Graham have introduced the 2025 draft, aiming to impose a carbon-based import tariff on foreign manufacturers, particularly those from China. The goal is to offset the supposed unfair advantages arising from weaker environmental standards abroad. The measure targets imports of energy-intensive goods such as steel, aluminum, cement, fertilizers, glass, hydrogen, and components for solar and battery technologies. The new version differs from the 2024 draft in several respects. Most notably, the flat minimum rate of 15 percent on all covered goods has been removed. Instead, a differentiated, country-specific structure is proposed, with tariffs of up to 200 percent depending on the product category and country of origin. The rates are based on assumed carbon intensity levels in the respective production countries.

A political response to global competition

The sponsors justify the bill with the need to protect American industrial jobs and to restore fair competition. China is cited as the primary example of a trade policy built on environmental and social dumping. The Foreign Pollution Fee Act is also geopolitically charged, as evident in the rhetoric used: calls for the “revival of American manufacturing” and the need to protect the US from “hostile trade practices” define the narrative. However, the draft does not include a domestic carbon pricing mechanism. In fact, it explicitly rules out any interpretation that would introduce a carbon price for US manufacturers. The fee is aimed solely at foreign producers, regardless of whether they already pay for carbon emissions in their home countries. This marks a significant departure from the EU’s CBAM approach.

CBAM vs. Foreign Pollution Fee: Same direction, different implementation

At first glance, the European CBAM and the American Foreign Pollution Fee seem to share the same goal: taxing carbon-intensive imports to promote climate protection. However, CBAM operates within a broader carbon pricing system that ensures a level playing field across sectors, supported by verified emissions data and a certificate trading mechanism. In contrast, the Foreign Pollution Fee Act relies on fixed tariff rates, reminiscent of traditional customs duties. For example, aluminum imports from China would face a flat 143 percent fee, and many products from Vietnam would be taxed at a full 200 percent rate. This approach resembles punitive tariffs more than a climate policy tool. Moreover, the act lacks key features of a border adjustment mechanism. There is no underlying domestic carbon tax and no provision for export rebates. This could ultimately weaken the competitiveness of American manufacturers in third-country markets.

What this means for European businesses

For European companies, the situation is becoming increasingly complex. Firms importing energy-intensive goods into the EU will soon face carbon-related costs under CBAM. At the same time, those exporting to the US must prepare for new trade barriers, particularly if their production is located outside the US. The Foreign Pollution Fee Act is not yet law. It must pass both the Senate and House of Representatives and be signed by the President. In a political climate shaped by Trump’s aggressive trade policies, it remains unclear whether this proposal will pass in its current form. However, given its alignment with the recent “Liberation Day” tariff announcement, it could become part of a broader industrial policy strategy.

Global competition is being redefined

The simultaneous implementation and discussion of carbon-based border taxes in Europe, the UK, and now the US signals a fundamental shift: carbon is becoming a global trade currency. Efficient producers will benefit. Those who neglect emissions reductions risk increasing penalties on their products. At the same time, a new era of global trade tensions may be emerging. Despite the climate rationale, many of these proposals carry a clear protectionist undertone. Whether these strategies will ultimately lead to more climate protection or merely trigger new trade disputes remains to be seen.

Historical parallels and potential side effects

As early as 1978, Ronald Reagan warned in a speech addressing the trade conflict with Japan about the long-term risks of protectionist measures. In the short term, it may appear that domestic companies benefit from new tariffs. But in the medium to long term, a dangerous dynamic threatens to unfold: companies lose their innovative edge due to a lack of international competition, while rising prices suppress consumer demand. This development could have a devastating impact on the domestic market - with declining competitiveness, increasing insolvencies, and rising unemployment.

Conclusion

The Foreign Pollution Fee Act is part of a broader political and economic realignment. It highlights America’s departure from multilateral trade frameworks and positions carbon as a strategic lever. For European companies with global supply chains, this is a wake-up call: carbon regulation in trade is accelerating-at different speeds and in very different ways. Those who prepare early will be better positioned to navigate risks and protect their flexibility.

Support with strategic alignment

If you would like to understand how the Foreign Pollution Fee Act could impact your exports, or how to strategically adapt your supply chains in light of new carbon-based trade mechanisms, feel free to reach out to us directly at helge@kolum.earth.