EU Cuts Steel Imports to Protect Industry

The European Union has announced significant changes to its steel import policies, halving the amount of duty-free steel it will accept from abroad starting July 2026. The new measures aim to protect domestic industries amid concerns over global overcapacity and include doubling tariffs to 50% for all imports outside the reduced quotas.

The European Commission unveiled these quotas under a new system designed to limit duty-free steel imports into the EU, effective June 30. The annual tariff-free import quotas have been slashed by 47% to 18.3 million tonnes, with an out-of-quota duty of 50% introduced for 26 categories of steel products imported into the EU.

According to The Guardian, more than a dozen trading partners, including the UK, have been granted higher levels of steel imports with their quotas reduced by only one-third. This marks the biggest divergence in trade with the UK since Brexit and aligns with similar moves by the UK to reduce foreign imports and boost domestic industries.

The EU is also engaging in three months of talks with China to address a €360bn annual import/export imbalance. Maroš Šefčovič, the EU's trade chief, expressed hope that these dialogues would bring tangible results before the next meeting in Beijing in October. The talks aim to avoid a trade war over the bloc’s significant deficit with China.

In addition to steel imports, Europe has taken steps to curb what it calls unfair competition from online retailers such as Shein, Temu and AliExpress by imposing a €3 fee on low-value e-commerce imports from China that previously entered the bloc duty-free. This move is expected to increase consumer prices as platforms pass on at least some of the additional costs.

Duty exemptions on low-value imports have been in place for decades, with the current threshold of €150 introduced in 2008. However, the number of e-commerce parcels entering the European Union under the exemption has surged, reaching 5.8 billion in 2025 from 1.4 billion in 2022.

Steelmaker SSAB is spending €6 billion to upgrade its operations, switching from coal to low-carbon hydrogen in a bet that European Union policies would reward lower-emission production and help it outcompete more polluting rivals. However, the Swedish company is among a group of industrial companies concerned that an EU proposal to overhaul the emissions trading system (ETS), Europe's main policy for reducing CO2 emissions, will weaken the scheme, eroding the advantage for low-carbon early movers.

Companies like BASF, ArcelorMittal, and thyssenkrupp have called for 'immediate action to halt the escalation of ETS-related costs,' warning that Europe risks acting largely alone in raising carbon prices. The debate highlights a core dilemma in Europe's climate strategy: whether policymakers will hold the line on carbon pricing or yield to political pressure and help heavy polluters struggling with high energy bills and global competition.

The EU and China released a joint statement aimed at balancing trade between the two economies and addressing market access issues. Disputes over trade imbalances, export controls, and intellectual property must deliver 'tangible results' by October, according to European trade chief Maros Sefcovic. The two sides agreed to set up a bilateral working group to monitor trade flows, with reassurance from Beijing that existing export controls on rare earths and permanent magnets will not disrupt EU supply chains.

However, the timing of these talks is challenging as Europe faces an historic heat wave driving unprecedented demand for Chinese-made air conditioners. This surge in imports highlights the difficulty Brussels faces in addressing the trade imbalance with China. The bloc's goods deficit with China grew 15% to €360 billion last year, with all 27 member states experiencing a shortfall.

Air-conditioning ownership in Europe stands at around 20% of households, far below the nearly 90% penetration rate in the U.S. Chinese brands like Haier Group and Midea Group hold significant market shares in Europe, underscoring the industrial gap that EU leaders are trying to address.

According to Reuters, Goldman Sachs estimates that losing market share to China rather than a widening trade deficit is the bigger drag on European Union growth. The investment bank noted that Chinese manufacturers have increased competition for the EU in various international markets due to weak domestic demand and excess capacity. Overall, China's exports to the EU rose by about 16% in the first five months of this year, while the EU's exports to China increased by less than 10%.

The biggest impact has been on manufactured goods, particularly transport equipment and industrial machinery, where China's cost advantage is significant. Europe's share of exported capital goods has fallen from 54% in 2005 to 43%, while China's share has surged from 7% to 24%. Goldman expects the EU to adopt a more assertive but targeted trade policy response, focusing on sectors like steel, machinery, and basic chemicals where evidence of trade diversion is strongest.