European equity markets advanced on Wednesday as investors digested the European Union’s proposed overhaul of steel import tariffs — a move that could reshape the balance between domestic protectionism and industrial competitiveness. The Stoxx 600 index climbed 0.6% by midafternoon in London, with materials leading gains while autos lagged sharply.

The bloc’s new proposal would cut tariff-free quotas on imported steel and raise tariffs from 25% to 50% on volumes exceeding the new limit. The policy aims to shield Europe’s steelmakers from what Brussels called “unsustainable levels of global overcapacity,” particularly from Asia. Yet the announcement immediately stirred tensions between European steel producers and the continent’s automakers, both of which depend on the commodity for very different reasons.

Steelmakers Surge as Protection Measures Lift Outlook

Shares of major European steel producers jumped following the EU announcement. Luxembourg-based ArcelorMittal surged 5.2%, Thyssenkrupp rose 4.6%, and Sweden’s SSAB added 4.2%, leading the Stoxx 600’s top performers. Investors interpreted the proposal as a step toward stabilizing an industry that has faced years of price volatility and profit margin erosion.

Analysts say the EU’s decision reflects an increasingly defensive stance toward critical manufacturing inputs, amid a backdrop of global trade realignment. “European policymakers are signaling they will prioritize industrial security over price competitiveness,” noted a London-based commodities strategist. “It’s a short-term relief for producers but raises long-term cost risks downstream.”

The bloc’s move also comes as global steel supply continues to expand, particularly from China, where slowing domestic demand has pushed excess output into export markets. European producers, already burdened by higher energy and environmental costs, have lobbied for tighter import controls to level the playing field.

Automakers Warn of Rising Costs and Competitive Pressure

While steelmakers celebrated, Europe’s car manufacturers expressed alarm. The European Automobile Manufacturers’ Association (ACEA) said the proposed measures “go too far in ring-fencing the European market,” arguing that higher input costs could undermine competitiveness just as automakers face slowing global demand.

Auto stocks reflected that anxiety. BMW tumbled 7% after cutting its margin forecast, citing weak China sales and rising input prices. Daimler Truck dropped 3.1%, and Mercedes-Benz lost 2.7%. Analysts warned that higher steel tariffs could tighten margins across the sector and potentially slow production if supply chains adjust unevenly.

The auto industry’s response underscores the delicate balance the EU faces: protecting domestic producers without stifling downstream industries that rely heavily on imported raw materials. Investors remain cautious about whether the European Commission can fine-tune the proposal to satisfy both sides.

Broader Market Mood: Resilient but Uneasy

Beyond the sectoral divide, European markets displayed resilience amid global uncertainty. The modest rise in the Stoxx 600 followed a mixed session in Asia and a muted rebound on Wall Street, where U.S. indexes struggled to extend recent gains. Political volatility in France added a layer of uncertainty, with President Emmanuel Macron granting Prime Minister Sébastien Lecornu a final 48 hours to secure parliamentary backing for a contentious budget.

SoftBank’s $5.4 billion acquisition of ABB’s robotics division also drew investor attention, signaling continued corporate interest in automation and industrial technology despite recent market volatility.

As the week progresses, investors will be watching whether the EU’s tariff proposal triggers further debate over industrial policy within the bloc — and how those decisions ripple across sectors tied to Europe’s manufacturing backbone. Rising protectionism may bolster near-term confidence in domestic producers but could sow the seeds of higher costs and lower competitiveness down the road.