The crisis in the British steel industry is the result of four big trends in the economy over the past 40 years.
Issue number one has been the opening up of world markets in the process known as globalisation. In the decades immediately after the second world war, governments were able to protect their domestic steel industries through the use of high tariffs. Now they can’t.
Issue number two has been the rapid development of China as the world’s dominant manufacturing force. China has developed a massive steel industry and, until recently, the rapid growth of industry and the building of new infrastructure meant homegrown demand pretty much tallied with supply. But now it doesn’t because the Chinese economy has slowed and is becoming less biased towards manufacturing. China has excess capacity and is dumping its steel at below-market prices on the rest of the global economy.
Issue number three has been the European Union, which has been slow to respond to the threat posed by China and which has tough rules that make it hard (if not impossible) for countries to ride to the rescue of their steel industries. The view from Brussels is that there is little sense in propping up steel plants that are losing money when the world is awash with unwanted steel. Some countries, Italy for example, have found ways of getting round state aid rules by saying that financial support is designed to meet tougher EU environmental standards.
Issue number four has been UK government action, or rather the lack of it. Whitehall has not only saddled the UK steel industry with higher energy costs than those in Germany or France, it has been blocking proposals by some other EU countries to tackle Chinese dumping through higher tariffs.
These four issues have come together in a perfect storm that threatens to blow away what remains of the UK steel industry. This creates a big headache for the government, which will come under pressure from critics to do for the steel workers of Port Talbot what it did for the bankers of the City of London. With a referendum on EU membership coming up on 23 June, ministers will be wary of saying that they would like to do more but are being prevented by Brussels from doing so.
So what are the options? The government could start showing the steel sector the tender loving care so noticeable by its absence in the recent past. Every steel industry in the developed west has shrunk in the past 15 years: Britain’s decline has been particularly marked. Cutting energy costs and business rates would help, but it is probably too late for that.
If they wanted to step things up a notch, ministers could announce an action plan to help the steel industry while an anti-dumping action is taken against China at the World Trade Organisation, something that is likely to take at least a year. It would boost infrastructure spending and say, notwithstanding EU procurement rules, that it would bend over backwards to favour UK producers. In the current circumstances, with the referendum looking close, it might meet little opposition in Brussels.
Then there are the “big bang” options. The government could pay foreign owners to keep UK plants open, which in the case of Port Talbot would mean an open-ended taxpayer subsidy to Tata. Or it could decide to renationalise an industry that has been in private hands since Margaret Thatcher’s government sold it off in 1988. Make no mistake, though, whether in state or private hands, and whether Britain is inside the EU or not, the problems of the steel industry will not go away.
Source: The Guardian