The implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM) is expected to have far-reaching implications for the global economy. This study develops a global dynamic Computable General Equilibrium (CGE) model to primarily simulate the impacts of imposing carbon tariffs exclusively on China’s steel sector. The results show that a high carbon tariff scenario would exert considerable negative pressure on China’s economy, leading to an additional GDP loss of 72.02 billion USD by 2050, a reduction of 127.06 thousand jobs in the steel sector by 2060, and a loss of 32.63 billion USD in sectoral value added, alongside a notable decline in steel exports. While CBAM reduces the international competitiveness of China’s energy-intensive exports, it also induces export substitution effects in other countries. We also find that green technological advancement in China’s steel sector can substantially offset the adverse effects of carbon tariffs. Under a high-carbon-tariff and high-technology scenario, China could achieve an additional GDP gain of 281.56 billion USD by 2060, a 2.91% increase in steel sector employment (833.60 thousand jobs), and a 232.53 billion USD rise in value added. This study also warns of the potential rebound effect in carbon emissions, as technological progress may lead to electricity demand expansion in the steel sector, thereby offsetting some of the climate benefits. These findings suggest that countries must actively prepare for CBAM by reducing the carbon intensity of their exports and investing in long-term low-carbon technological transitions to maintain competitiveness in a carbon-constrained global economy.