As trade policy is increasingly shaped by geoeconomic statecraft and regionalisation, corporate success no longer depends solely on efficiency or product quality. Firms in key industries are now more exposed to protectionist policies and the fragmentation of trade into competing blocs. The steel sector, a strategic industry for both developed and developing economies, has become one of the clearest examples of this shift.
Excess Capacity in a Distorted Steel Market
Historically, the industry benefited from open trade. High-quality and specialised steel products and machinery from Europe and the United States were exported, while Western markets imported cheap steel from Asia. That balance began to break down with the rise of still-cheap but increasingly competitive steel from China, and later India. Today, the world faces excess capacity equal to nearly 40% of global demand, or 721 million metric tons. Competition is heavily distorted, with Chinese subsidies – whether through direct grants or preferential tax treatment – far exceeding those available in OECD countries. For Western firms, the challenge is no longer just about price; it is also about defending market share.
The EU and the OECD have responded with anti-dumping investigations and other protective measures. Alongside the EESS and the FSR, the EU’s Carbon Border Adjustment Mechanism (CBAM) has become a key instrument in shielding the steel sector while pushing it toward decarbonisation, especially given that steel accounts for roughly 8% of global emissions.
Although around 60% of low-carbon steel projects are currently located in the EU, green steel produced by major Central European firms such as ArcelorMittal, Thyssenkrupp and Saarstahl-Dillinger has so far struggled to remain competitive on international markets. One major reason is higher energy costs following the EU’s move away from Russian gas.
As a result, the CBAM is presented to the WTO and other multilateral actors as a tool to prevent imports from crowding out domestic decarbonisation efforts. More broadly, it illustrates the shift toward regionalised trade, while also creating a deep structural dependence for European steel producers on the continued existence of the FSR and the CBAM.
Integration over Isolation in ASEAN
ASEAN, by contrast, has adopted a soft geoeconomics approach toward China, positioning itself more as a collaborator than as a counterweight. Rather than cutting off Chinese imports, the region has deepened frameworks such as the RCEP and become a primary destination for Chinese steel-related FDI. China is now the dominant actor, with nearly half of global cross-border steel investment linked to Chinese ventures in ASEAN. In addition, around 60% of future excess capacity is expected to come from Asian economies, with Southeast Asia playing a central role. For firms in ASEAN, this strategy has proved highly effective. By embracing Chinese capital, investment and technology, they gain access to large volumes of steel while also benefiting from price advantages over what were previously more European-centred alternatives.
The shift in international trade – from a rules-based and relatively open era of commerce toward a more interest-driven form of competition – has left firms facing two distinct paths. In Europe, and especially in the EU, firms have lost international competitiveness when judged purely on price and are therefore increasingly focused on protection from external competition. The priority has become autonomy, even at the cost of higher prices. In Southeast Asia, by contrast, and especially in ASEAN, firms have deepened their integration into FDI-led growth models, accepting greater dependence in exchange for scale, investment and efficiency.
