It can only improve it. This was something I was working on for the Pocket Mod. As Martok has said if you're going to mod the game for balance it's a good idea to remove anything that the AI can't take advantage of, these include dismounts, mercenaries and to a lesser degree upgrades. While the AI can actually build upgrades, it never builds them in the right provinces. So you end up facing heavily armoured peasants or javelinmen with the best steel available. Also Iron is not widely enough available so only a few factions end up with the upgraded melee attack, this has an unbalancing effect and increases predictability.

You can also look at it from the historical/realistic viewpoint. Better armour would not have been worse in the desert, it would in fact have been lighter, more protective, better ventilated and allow for easier movement. Better quality swords/axes would not necessarily lead to a better attack. Better training/experience and morale would be a bigger factor. We have to assume that all weapons would be battle worthy in the first place, if perhaps more rustic than a weapon forged by a master craftsman. Also not all units would have been equipped with the best weapons and armour. Sending in units for "upgrading" just doesn't make any sense.

The Metalsmith line are dependant on the resource Iron, you can easily remove this dependency and instead add an Iron Mine dependant on this resource. The Metalsmith line can then be disabled or used as a prerequisite building if needed. The valour/weapon/armour/morale upgrades can also be removed from any building if needed.

So potentially the Metalsmith line could be renamed as Blacksmiths with the weapon upgrade effect removed and the line used as prerequisites for certain units such as cavalry, siege equipment, crossbows, axes etc. The valour bonuses for the Master level buildings can be retained with one added to the Blacksmith line if needed.

The provincial valour bonuses are another balancing issue. Due to how these force the AI to tech up to the valour bonus unit as a priority they can be very detrimental and it is probably best that they all be removed.