The Steel Bond
Explaining the UK's omission from the US's 50% steel and aluminium tariffs
Yesterday, President Trump signed an order increasing U.S. tariffs on steel and aluminium goods from 25% to 50% for most countries, except for the United Kingdom. At least not before July 9th. Paragraph (7) of the June 3rd proclamation specifically mentions that aluminium and steel goods imported from the UK will still have 25% tariffs applied to them. (See Passage Below.)
Some UK journalists appear to be confused by this and claim that it is not a win for the UK. But it is. They had failed to read the fine print in the US-UK Economic Prosperity Deal signed on May 8th or understand its significance.
The last sentence of the passage above is extremely important. The US is not the chump that some UK politicians seem to think it is. The US-UK Economic Prosperity Deal (EPD) did not grant the UK the ability to bank the US largesse and then allow it to cosy up to the EU, China, or India. The potential to remove the US Section 232 tariffs on UK steel and aluminium exports to the US was conditional on the UK meeting the EPD’s requirements for secure supply chains, including the ownership of the production facilities. (see 1. (ii) from the US-UK General Terms of their Economic Prosperity Deal below)
UK Steel production
The reference to production facility ownership is because the Chinese company, Jingye Group, owns British Steel, although the UK government has recently taken control of its Scunthorpe plant to prevent its closure by Jingye. The Trump administration has been aware of British Steel's ownership since its first term in office. Steel goods exported by British Steel were mentioned in the US Harmonised Tariff Schedule after Trump’s first term tariffs on Chinese Steel. The US required the UK to provide an attestation that there was no evidence of market-distorting practices by Jingye at its UK production facilities before British steel products could be exported to the US. The Biden administration retained these tariffs.
The UK’s other steelworks are Port Talbot Steelworks, owned by the Indian Company Tata Steel, and Liberty Steel, owned by the GFG Alliance, neither of which produces primary steel. Port Talbot closed its blast furnaces in September 2024 and is currently only processing imported slab steel while transitioning to electric Arc furnaces. Liberty’s Rotherham plant has been idle since July 2024 due to financial difficulties and outdated equipment.
UK steel exports have been declining since 2014, from approximately 15 million tonnes to around 10 million tonnes in 2024. However, this figure includes scrap steel exported for recycling in countries with lower energy costs, such as Turkey, Egypt, and India. If we exclude scrap steel, UK exports have fallen from just under 8 million tonnes in 2014 to only 2.4 million tonnes in 2024. This will obviously fall further now that the Port Talbot blast furnaces have closed.
Approximately 75% of the UK’s HS72 basic steel exports in 2024, by tonnage, and 45% by value, are made up of scrap steel. Excluding scrap, about 8% of the UK’s HS72 non-scrap steel exports, by value, go to the US. While for HS73 articles of iron and steel, the export percentage is higher at 10%, but in this case, the US was the UK’s second-largest market in 2024. In total, UK exports of both iron and steel, as well as products made with iron and steel, were only $7 billion in 2024, of which approximately 15% was exported to the US.
The need for secure supply chains
The US’s supply chain security concerns are important. The US cannot reach a trade agreement with the UK that includes steel goods if a Chinese company ultimately controls the supply of those components. Currently, the UK imports the majority of its basic iron and steel from Germany, Spain, the Netherlands, France, and Belgium, which together provide about 40% of the UK's elemental iron and steel (HS72), while India, South Korea, Turkey, Vietnam, Brazil, and Taiwan account for 25%. China supplies approximately 4%, and the US contributes only 1.3%.
The UK’s steel supply from European allies is not a secure one, as most of these countries rely on imported iron ore, coking coal, or both. Germany imports both. In 2021, Russia supplied almost half of Germany’s coking coal, even though it was occupying Crimea and staging military exercises with Belarus involving 200,000 troops, 760 armoured vehicles and 80 aircraft. Admittedly, German coking coal imports from Russia have fallen dramatically since 2022, from 8.8 million tonnes to fewer than 100,000 tonnes in 2024. This stark reduction exemplifies the necessity for alternative and reliable supply chains. Relying on Russian coking coal for steel production, as well as Russian gas to power its industry, was neither a strategically nor militarily clever move by Germany.
Germany also imports iron ore supplies from Canada, South Africa, Brazil, Sweden, the US, and Ukraine. This highlights the need for diversified and reliable supply chains. Following Russia's invasion in 2022, German imports of Ukrainian iron ore decreased by two-thirds. Germany relied on the aggressor for coal supplies and the victim for iron ore supplies. Both sources are equally susceptible to invasion, as were the UK's supplies of finished steel imports from Germany.
UK Rearmament plans and secure supply chains
Like the US, the UK should also be concerned by supply chain security, as it has recently announced a major rearmament program that will also require large amounts of steel and aluminium. Relying on your potential adversary, China, for the steel or aluminium needed to replace any planes, drones, ships, or submarines is not a sensible strategy.
Like Germany, the UK needs to import both iron ore and coking coal for its remaining (Chinese-owned) blast furnaces. The UK’s largest suppliers of iron ore were Sweden, the US, Brazil, Canada and Norway in 2024, while the UK’s largest suppliers of coking coal were Colombia, South Africa, the US, Venezuela, Australia and Spain. The UK could supply its own coking coal, but the present government abandoned plans to open a new mine in order to help the UK reach its Net Zero commitments.
The UK has a significant trade deficit with China, amounting to $2.3 billion in HS73 Articles of iron and steel, and a smaller trade surplus with China of $194 million in HS72 Iron and Steel. Surely, it would be wise for the UK to rethink this arrangement. The UK has just over a month to resolve its supply chain security issues, or it will face tariffs of 50% on its steel and aluminium exports to the US. These were worth over $4 billion in 2024. A 50% tariff would result in these exports to the US falling to zero.
The most obvious solution would be for the UK to commit to importing elemental iron and steel from the US to manufacture goods that can be exported to the US tariff-free or at the US Most-Favoured-Nation (MFN) tariff rate.
Aluminium
UK Aluminium supply chains face a similar problem. The UK’s largest Aluminium smelter closed in 2012; the UK has only one remaining smelter, based in the Scottish Highlands, it uses hydroelectric power but only produces 43,000 tonnes of aluminium a year.
The UK imports aluminium plates, strips, structures, bars, and rods to manufacture into higher-value products, such as aircraft parts and jet engines, many of which will be exported to the US. The UK’s main aluminium supplying countries are again Germany, then China and then France. And just as with UK imported steel, Germany has no bauxite mines and must import bauxite from Guinea, China and Guyana to make aluminium. This is not a secure supply chain for the UK or Germany.
Unfortunately, the US aluminium supply chain is no more secure. It also imports its bauxite: mainly from Jamaica, Guinea, Turkey and Australia. Chinese firms are heavily invested in Guinea’s Bauxite industry, and China owns refineries in Jamaica. Even the US’s largest Aluminium supplier, Canada, relies on imported bauxite from Brazil, Guinea and Turkey.
As Aluminium is essential for the production of aircraft and drones, both the US and the UK will need to secure their supply chains, which may require reopening smelters and using fossil fuels for energy. Aluminium production is energy-intensive and produces 15 tonnes of CO2 for every tonne of new aluminium produced. That said, it is easily recycled, so this emission should be amortised over many product generations.
The US’s access to cheap industrial energy would make it a reliable supplier of aluminium for the UK. Unfortunately, the UK’s industrial electricity is already over three times more expensive than the average US industrial electricity, but over five times more expensive than the cheapest US states, Louisiana and Oklahoma. Without access to bauxite or cheap power, the UK will be reliant on importing base aluminium.
Critical minerals
Some readers may believe that supply chain security is not a real and present danger, but yesterday the German Auto Industry lobby, VDA, announced that the industry would face delays and possibly production outages due to China’s export restrictions on rare earth alloys, mixtures and magnets. China imposed new rules in April requiring exporters to obtain licences from Beijing.
There were similar shortages of semiconductors in 2022 due to China’s Zero-Covid policies, which closed many vehicle factories globally. Semiconductor shortages lowered car production in the UK, Germany and the US. Lower production led to lower exports, which many in the UK government attributed to Brexit rather than component shortages. The UK government and public service refused to acknowledge that unreliable supply chains for critical components were the real problem. Instead, they wanted to blame Brexit and hoped to use the lower export data as an excuse to rejoin the EU. Fortunately, the US government correctly diagnosed the issue and encouraged the onshoring of semiconductor fabs in 2020, during the first Trump administration. This has resulted in three major new fabs and expansions of three existing ones.
The best solution for the UK would be a comprehensive trade agreement with the US; however, in the short term, complying with the requirements of the US-UK Economic Prosperity Deal would be a good start.
Addressing Non-Tariff Barriers
However, there is another obstacle to this short-term solution. It is not obvious from the Fact Sheet of the US-UK EPD if this is an all-or-nothing agreement. In the Second section, "Addressing Non-Tariff Barriers," the EPD states that the UK and the US will commit to ‘work constructively’ to ‘enhance agricultural market access.’ (See passage below from the US UK EPD)
Improving market access for agricultural goods has been somewhat scuppered by the UK announcing in the incredibly poorly timed EU Reset that it will allow the EU to set the UK’s agricultural standards. The EU Reset has not been formally adopted, and the UK has only published a promotional document. However, the EU has published its Statement on EU-UK cooperation, and if this is the final proposal, it should be resisted at all cost.
According to the EU, the UK and the EU should work towards establishing a Common Sanitary and Phytosanitary (SPS) Area – this means that the UK must immediately implement the EU’s SPS rules regarding plant and animal health, food safety, consumer protection related to agri-food products, the regulation of live animals and pesticides, as well as the rules for organic products and marketing Standards. (see passage below from European Commission Statement)
If the UK were to agree to the EU’s proposed SPS Area, this would reduce the chances of achieving the US UK Economic Prosperity Deal. The UK cannot work with the US to improve market access for agricultural goods while simultaneously allowing the EU to determine the UK’s SPS, food safety, animal welfare and pesticide regulations.
Since leaving the EU, the UK has moved away from the EU’s precautionary principle and its unscientific attitude to new farming methods. But now the choice has a security and financial dimension. The UK is in a unique position of not being hit with 50% tariff on its aluminium, iron and steel exports to the US; the EU is not. Of the goods the EU exported to the US in 2024, approximately 16% of them would have been affected by today's 50% steel and aluminium tariffs; these exports were worth just under $100 billion in 2024. A 50% tariff will make almost all of them uncompetitive in the US market and reduce these exports to zero.
The UK can avoid this fate and gain greater security of supply chains. UK exports of Iron, Steel, and Aluminium goods to the US, affected by the new tariffs, were worth just over $4 billion. More than half of this amount, $2.3 billion, was aircraft parts. Despite the many claims of Re-joiner organisations, UK exports of fresh or raw agrifood goods to the EU, which require SPS checks, have remained strong without the UK adopting the EU’s SPS regulations. UK exports of agrifoods to the EU have increased by 6% since the end of the Transition period, while UK agrifood imports from the EU have increased by 26%. The UK has a much stronger hand in trade with the EU than it realises, and it should not tie itself to EU suppliers and thereby prevent a trade deal with the US.
Conclusion.
It is not unreasonable for the UK to have allowed the decline of primary steel and aluminium production; the UK must import its iron ore, metallurgical coal, and bauxite. These imported materials are just as vulnerable to supply disruptions as imported finished aluminium and steel. However, if the UK is to continue manufacturing high-value aircraft engines, aircraft components, and cars, it will still require a reliable supply of imported steel, aluminium, and semiconductors.
A US-UK trade deal could provide the UK with a dependable supply of components from the US, without relying on China for these materials, nor relying on the hope that Germany can maintain a secure supply of raw materials to produce steel and aluminium for export. A US-UK trade agreement would enable the UK to maintain its production and export of finished aircraft engines, parts, landing gear, cars, and other machinery back to the US at MFN or lower Section 232 tariffs, while opening the UK market to US agricultural goods would diversify and thus strengthen the UK’s food supply.