What steel tariffs reveal about the cost of going it alone

Jun Du and Oleksandr Shepotylo argue that, with the UK and EU set to impose major new tariffs on steel imports, the UK would benefit from seeking to coordinate its trade defence policy with the EU. 

In March 2026, the UK government announced its new Steel Strategy. From July, tariff-free quotas for steel imports will be cut by 60% and a 50% tariff will apply to above-quota imports — matching US tariffs imposed last year. The US first raised steel tariffs to 25%, then doubled them to 50%. The UK was exempted from the doubling of the rate under the Economic Prosperity Deal.

The UK’s aim is to shield domestic producers from a global market awash with overcapacity, now estimated at 602m tonnes and forecast to reach 721m by 2027. But the policy matters well beyond the steel sector itself. It is being implemented at precisely the moment the UK–EU relationship is being renegotiated, and at the moment the European Commission is proposing to double its own out-of-quota steel tariff to 50% and cut tariff-free quotas by nearly half. Around 80% of UK steel exports are destined for European markets, so the EU decision is potentially more consequential for UK producers than the US one. How the UK should position itself within – or outside – that emerging European regime is a live question, and the evidence now exists to answer it.

In a new paper from the Centre for Business Prosperity at Aston University, we estimate the effects of the 2025 US steel and aluminium tariffs using large-scale product-level trade data and employ the Kiel Institute’s general equilibrium model for the policy impact evaluation.

US steel imports fell by around 20%, aluminium by around 10%, and the doubling of tariffs doubled the trade shock. But the costs did not remain at the border, with 70-80% of the tariff hit passed through to downstream buyers, including the firms that use steel as an input. US consumer prices for the covered products rose by approximately 27% for steel and 32% for aluminium.

The impact on UK exports was far from uniform across products. Aerospace components alone account for 43% of UK steel and aluminium exports to the US, and absorbed the shock almost entirely through volumes, with prices held firm by long-term contracts and certification requirements. Automotive inputs followed a similar pattern. Commoditised products, such as hot-rolled coil and steel plate, by contrast, adjusted by cutting their margins by 21-23%, with foreign exporters accepting lower profits to hold on to market share.

There is also evidence that the tariffs chilled new trade relationships without destroying established ones. The probability of a new bilateral, UK-US export relationship forming fell by 0.8 percentage points, while exit rates among existing exporters were essentially unchanged. The damage is done quietly, in the trade that never begins.

These findings matter for the UK because the government is about to impose a tariff of the same magnitude on its own border. The 300,000 workers in downstream steel-using industries (automotive, aerospace, construction, fabricated metals) outnumber the 30,000 in primary steelmaking by ten to one. It is the downstream industries who will absorb the cost, through higher input prices and, ultimately, through prices in the shops. This is a cost-of-living issue as much as an industrial one.

The government is three months from implementing a 50% above-quota tariff with no published impact assessment. The pass-through estimates, the scale of downstream exposure, and the chilling effect on new exporters ought to feature in any serious evaluation.

The more striking finding for the UK–EU debate comes from the general equilibrium modelling. Under current conditions (the UK on a 25% US tariff, most competitors on 50%), preferential access to the US market is worth approximately £482m a year. That is a real gain. But it is structurally fragile: it exists only while the differential holds, it is subject to US review, and it could be withdrawn at any point.

More importantly, the modelling shows what happens when the EU acts. When the EU imposes its own steel tariffs alongside the US, the UK’s gain edges down. Coordinated European trade policy provides a cushion the UK cannot replicate alone.

The UK-EU ‘reset’ has so far delivered limited economic results, and the Prime Minister and Chancellor have made clear that they want to pursue greater alignment with the single market at the next UK-EU summit, in the hope of delivering greater economic benefits.

Much of the discussion around alignment focuses on regulatory standards: SPS, product safety, emissions trading. Trade defence policy is at least as consequential, and inseparable from the regulatory alignment now being discussed for industrial goods such as cars and chemicals. The steel evidence suggests that, in a world of escalating tariff conflicts between major blocs, a key question for a medium-sized economy is whether it can afford to conduct trade defence policy alone, absorbing the costs without the benefit of collective action. The chilling effect on new trade relationships means the answer is being shaped now, invisibly, in the export links that never form.

The case for coordination, though, does not rest solely on cushioning against shared losses. The UK and the EU have complementary strengths in technology, scale and industrial capability that, combined, could build competitive advantage rather than merely defend against disruption. In a geoeconomic landscape where the US, China and the EU are all reshaping trade around strategic interests, the opportunity is to develop joint approaches to competitiveness. That means shared investment in low-carbon steel production and coordinated standards that create scale advantages, alongside trade instruments designed to build industries rather than simply protect them. This is a different proposition from alignment as damage limitation and is the conversation the reset ought to be having.

None of this is to dismiss the strategic case for domestic steel capacity — with production at its lowest since the 1930s, there is a legitimate argument for maintaining capability for defence, infrastructure and the energy transition. But our results price that choice: they show what downstream sectors and consumers will pay for tariff-based protection, so that the strategic decision can be made with its costs in view.

Steel is an unusually clean test case. What it reveals is that the costs of going it alone are quantifiable, and that the gains from coordination could extend well beyond loss reduction — if the ambition is there to pursue them.

By Jun Du, Professor of Economics at Aston Business School and Founding Director of the Centre for Business Prosperity, and Oleksandr Shepotylo, Associate Professor at Aston Business School. The paper, ‘Steel and aluminium tariffs: impact assessment for the US, UK, and broader markets’, is co-authored with Yujie Shi and Lisha He.