More State Aid Won’t Save British Steel

No amount of support would allow steel manufacturers in the United Kingdom to compete with China’s.

View of the Port Talbot Steelworks in Wales, October 31, 2006
View of the Port Talbot Steelworks in Wales, October 31, 2006 (Jef Thomas)

Tata’s decision to put its British operations up for sale has predictably triggered calls for state aid.

Sajid Javid, the Conservative business secretary, has fortunately ruled out nationalizing the Port Talbot steelworks in Wales, but he is leaving the door open to some form of government assistance.

The “steel industry is absolutely vital for the country,” said Javid. “We will look at all viable options to keep steelmaking continuing in Port Talbot.”

He would be wrong on both counts.

Steel represents just .1 percent of Britain’s economic output and 1 percent of its manufacturing output. The Port Talbot site employs 5,500 people. Tata, the Indian company that owns it, has 15,000 workers across the United Kingdom. This is not a “vital” industry no matter how you look at it.

As for the suggestion that all Tata needs is a little more help from the British government — it’s had plenty of help already.

As Vince Cable, Javid’s Liberal Democrat predecessor, writes in the Financial Times, the last government introduced compensation payments to energy-intensive industries like steel. It was clearly not enough.

Cable laments the absence of a long-term commitment from the industry, but the same newspaper points out that Tata has invested £3 billion in its European operations since it acquired them in 2007 for £6.2 billion.

No, the real reason British steel is uncompetitive is not a lack of investment; it’s — and Cable hints at this — that steel is made cheaper elsewhere. Specifically in China.

Blame the Chinese

The BBC’s Kamal Ahmed reports that the country produces half the world’s steel. Its exports have risen more than tenfold in the last decade.

That hasn’t happened by accident. China subsidizes its own steel production and keeps foreign companies out.

It is unfair and the thousands of Tata workers in Britain may lose their jobs as a result. But the benefits for the United Kingdom as a whole in the form of cheaper steel and steel products should far outweigh those job losses.

And it’s not as though protectionism is doing well in China. The Financial Times notes that its subsidies have led to an overcapacity in the steel market, causing Chinese mills to close and thousands of workers to lose their jobs — with little or no compensation, unlike their counterparts in the West.

For Britain to follow the Chinese model would be folly. Better to let the steel industry die than pour more money, public and private, into it.

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