How low-cost metal endangers Europe’s defence build-up | USAEMALL.com

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is a senior fellow at the Atlantic Council and advises the technology company Disruptive Industries.

European countries are ratcheting up their defence spending at extraordinary speed; they have no choice. As Washington hints that America may stop delivering weapons to its allies, European governments are taking pains to manufacture as many as they can on the continent. But to manufacture arms and all manner of other crucial goods, one needs a steel industry. If cheap steel keeps flooding Europe and displacing domestic companies, we risk disastrous dependency.

This March, US President Donald Trump imposed 25 per cent tariffs on steel from the EU, a repeat of the first Trump administration’s tariffs seven years ago. And that’s not the only trouble facing steelmaking on the European continent. “We’ve never had this many challenges at the same time,” said Adolfo Aiello, a deputy director-general at Eurofer, the European steel industry association. “It begins with global overcapacity of steel. Last year, it was 600mn tonnes globally. In Europe we produce 127mn tonnes of steel per year, so the overcapacity alone is four to five times larger.”

This steel is cheap because it’s so voluminous and because its production doesn’t have to conform to the EU’s strict greenhouse-gas emissions rules. In recent years, the EU has tried to rein in artificially cheap steel (which has traditionally come from China) by imposing anti-dumping duties on Chinese-made steel. But Chinese companies have responded by setting up production abroad. Today non-European steel is increasingly made in countries like Turkey, Indonesia, Algeria and Egypt, often by Chinese companies, which receive subsidies from Beijing. The Chinese steelmaker Hebei Xinfeng Steel, for example, plans to build a $1.65bn plant in Egypt and export 70 per cent of the steel produced there.

The flooding of the European market with that steel has already caused painful job losses: between 2008 and 2023, the EU lost a quarter of its steel-production jobs. For EU steelmakers, there’s further bad news. The Trump administration’s 25 per cent tariff on all foreign-made steel means that steel, too, will probably come to Europe. The OECD projects global overcapacity will continue to increase further, “putting enormous pressures on the viability of even highly competitive steelmakers”, the organisation noted in April.

But that’s globalisation, critics will argue, and the most competitive product wins. And if buyers are fine with dirty steel, perhaps clean steel was an idealistic goal in the first place.

Steel is not just any commodity. It is used in everything from cutlery to cars and bridges — and in defence equipment. The versatile alloy is a critical component in rifles, armoured vehicles tanks, fighter jets and naval ships. Only a small number of companies globally, including some in Europe, make steel of the quality required in military equipment — but due to the flooded markets, the European firms that make such top-flight steel are in a precarious position.

Sure, there’s some good steel from the Chinese sphere, the kind that would qualify for use in the Bundeswehr or the Swedish Navy. European defence companies could also sell products comprising such steel. But doing so would further undermine Europe’s already beleaguered steel industry. Companies, including those making high-quality steel, would go bust, and more jobs would be lost.

And then, once we’ve made ourselves dependent on steel from other countries, they could simply stop selling us that steel, just like Europeans worry that America could activate an F-35 “kill switch” or suspend software updates. Cutting off steel supplies would be the ultimate kill switch. “Safe supply chains and industrial independence are becoming more and more important,” noted Robert Limmergård, head of the Swedish Security and Defence Industry Association. Steeling ourselves for an uncertain future means having steel at our disposal.