Last week, the European Commission presented new measures to protect the EU steel sector from global overcapacity.
The Commission’s proposal — which include a 50% tariff for all imports of steel above a certain quota — will bring relief to European steel producers. But it is no silver bullet.
EU steel production declines amid global overcapacity
Steel is foundational to the EU economy and provides vital inputs to the green transition (wind turbines, grid infrastructure, etc.) and security (military infrastructure, naval vessels, etc.).
In the last decade, the EU has witnessed a steady decline in steel production, from around 16% of global production in 2004 to 7-8% today. During the same period, China increased its share dramatically, from 25.8 to over 50%.
This imbalance is largely driven by surplus production resulting from excess capacity, defined as the maximum amount of crude steel that a facility can produce. Most of the excess capacity comes from China, a country pursuing an export-led manufacturing strategy with little domestic consumption.
More recently, Donald Trump’s doubling tariffs (from 25% to 50%) on steel and aluminium in June raised concerns in Europe that Chinese exports previously destined for the US market could be redirected to the EU, adding to the woes of European steel producers.
“We need protection or we are not going to survive as a steel industry”, an executive from Thyssenkrupp, the EU’s second largest steel producer, had told the FT last month.
“Only last year, 18,000 layoffs were announced with a record 12 million tonnes of capacity closures”, Eurofer wrote in its wrap-up of the Emergency Steel Social Summit that took place on October 1st in Brussels. In the last ten years, 100,000 jobs were lost in the steel sector across the EU.
Quotas down, tariffs up
Originally introduced during President Trump’s first term in office, the safeguards aim to protect EU steel producers from sudden surges of steel imports.
They do so through a tariff-rate quota, which limits the volume of steel imported into the EU and imposes a 25 percent tariff on any imports exceeding this quota.
If the Commission’s proposal is adopted, the quotas will be reduced by almost half, and the tariffs raised to 50 percent.
While the safeguards promise relief for European steel producers, they risk straining relations with non-EU partners, notably the UK. As the EU remains the largest export market for the British steel sector, the measures could be “terminal” for several UK companies. This could, in turn, severely hamper work on restoring EU-UK relations post-Brexit.
The EU’s protectionist tilt may also unsettle other trading partners, prompting doubts about the value of deepening commercial ties with a bloc that appears to be narrowing access to its single market.
High energy costs threaten industrial viability
Some economists argue that political leaders too easily assigns industrial problems to the issue of overcapacity, without addressing other sectoral or structural problems. For steel, this is no exception.
High energy prices, for one, need to be addressed with equal urgency. This challenge will only escalate, as decarbonisation pathways often require even greater amounts of electricity than traditional methods.
For instance, the production of green steel requires three to four times more electricity than traditional blast furnaces. Similarly, sustainable cement production necessitates at least double the electricity.
High energy costs thus pose serious challenges to European industry, threatening long-term viability and risking the relocation of existing industries and new investments.
In 2024, the EU’s electricity prices were 2.2 times more expensive than in the US and twice as expensive as in China.
This is driven, in part, by the EU’s dependence on imported fossil fuels, particularly natural gas; systemic inefficiencies and infrastructure deficits within the electricity grid; and substantial taxes and charges imposed on energy bills.
The Commission’s Clean Industrial Deal, published in February, attempts to bridge decarbonisation with competitiveness, including through the related Action Plan for Affordable Energy.
To fulfil its promise of turning decarbonisation into a growth driver for European industries, the Commission must ensure the continued integration of energy policy in industrial discussions.
Trade safeguards support investment, but capital access remains fragmented
Beyond high energy prices, industrial decarbonisation necessitates costly investment in clean technologies, further adding pressure to hard-to-abate sectors such as steel. Here, trade safeguards play a role: excess capacity pressures prices and erodes profit margins, which reduces the capital available for investment in new, clean technologies.
Any effort to combat overcapacity frees up capital that can be used to decarbonise.
However, access to capital for clean technologies is a much deeper problem, as the EU’s fragmented financial system limits its ability to finance the large-scale, high-risk industrial projects required for the transition.
While trade safeguards could help free up capital for clean investment, operational costs of greener technologies will likely be higher due to Europe’s high energy prices.
The path ahead requires holistic policy integration
The steel safeguards, which will need to be agreed in Parliament and Council, are a critical mechanism against global overcapacity, mitigating market flooding and helping free up capital needed for decarbonisation investments. If adopted, they will replace the current safeguards which expire in July 2026.
The EU’s true industrial challenge, however, lies in resolving the deep structural problemsthat threaten the long-term viability of essential sectors. The reliance on trade protection risks failure if the parallel crises of high energy costs and fragmented financial systems are not urgently addressed.
Future competitiveness hinges on drastically lowering energy costs and ensuring robust financing for the costly shift to green production. Without decisive action on energy and finance, the EU risks sacrificing industrial inputs vital for both the green transition and continental security.