Continued weak demand for steel worldwide since the last recession, has seen global steel prices fall sharply. Meanwhile, China’s economic slowdown has led its producers to look for export markets as their home demand stalls. As a result, UK imports of Chinese steel have increased dramatically. In 2014 the UK imported 687,000 tonnes of steel from China, up from 303,000 tonnes in 2013.
The UK’s steel imports from the rest of the EU are much higher than this, they were 4.7 million tonnes in 2014, but crucially China is selling its steel at much lower prices. Steel imports into the UK from the rest of the EU cost on average 897 euros a tonne in 2014, while Chinese steel imports were just 583 euros a tonne, says the EU’s statistics agency, Eurostat. This has led to accusations that China is selling at unfairly low prices.
EU rules also restrict how much support governments can give to particular industries. Member states may not use public funds to rescue failing steelmakers. However, EU countries are allowed to boost steel firms’ global competitiveness – for instance by funding research and development or helping with high energy bills.
Almost 18,000 people are employed in the steel sector, and some experts say that up to one in four of these jobs could be at risk over the next few years. Earlier this year Tata Steel confirmed a further 1,050 job losses on top of the 1,200 and and October of 2015, respectively. Also in October, the country’s second-largest steel producer, Thai firm SSI, said its Redcar works on Teesside, would go into liquidation with the loss of 2,200 jobs. At the same time, Caparo Industries went into partial administration, putting 1,700 jobs at potential risk.
It is certainly true that China’s dramatic economic growth since liberalisation started in 1979 has been one of the key drivers in the global steel market. It is now the world’s biggest steel producer, accounting for around 822 million tonnes a year. The UK, which produces almost 12 million tonnes a year, is a minor player in terms of absolute output, but has sought to specialise in high-quality, high-value steel products.
With China’s market slowing, their producers have been looking for export markets, such as the EU. This has led to accusations of unfair competition, that Chinese producers are “dumping” steel products on overseas markets – that is not just selling them cheaply, taking advantage of their lower production costs, but actually selling them at a loss. In 2015, the EU imposed anti-dumping duties for six months on some steel imports from China and Taiwan.
In the last few years, high levels of cheap imports have led to a number of closures of steel plants in the UK. To what extent would the use of protectionism to reduce imports of steel from overseas be justified? (100 marks)
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