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    tata-steel-

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    Steel’s steep decline - the global supply glut has forced Tata to sell its

    UK operations

    The death knell of the British steel industry was sounded last night in Mumbai. Tata’s
    decision to close down in Port Talbot and indeed withdraw from steel making in the United
    Kingdom will be regarded as a body blow by thousands of workers. It reflects the striking
    imbalance in our national recovery. While the economy may be growing, manufacturing
    industries are struggling. Some, like steel, are in crisis. About 5,000 steel workers have lost
    their jobs in the past 12 months. Reports last night suggested that many tens of thousands of
    jobs across Britain could now be at risk.

    These are a heavy blow for South Wales and above all for the workers themselves. Yet there
    is little the government can do to mitigate it because the problems of the steel industry are not
    specifically British. They are global and they are structural. There is a strong case for
    government industrial policy but the cause of “Save our Steel” is doomed to failure. It is not
    open to Britain to preserve unilaterally a declining industry by diverting public funds from
    more productive uses or by imposing curbs on imported steel.

    Tata is Europe’s second-largest steel producer. The Indian group, which also owns Jaguar
    Land Rover, has pumped £1 billion into Port Talbot and is now believed to be losing £300
    million a year on steel. The board convening last night examined a turnaround plan but
    according to early reports opted to cut its losses.

    Port Talbot is Britain’s biggest steel plant, with a head count of about 4,000, and it is not
    alone in its plight. In the past few months Tata has had to cut more than 1,200 jobs in
    Scunthorpe and Lanarkshire. The proximate cause is a collapse in commodity prices
    generally and steel in particular. China has been the engine of global growth since the
    financial crisis but is now slowing sharply. It is no longer the huge consumer of commodities
    that it was but it is a vast producer; it accounts for more steel output than all other countries
    combined.

    European governments are concerned that cheap Chinese steel imports, sold at below the cost
    of production, have been driving out local producers. Last month the EU imposed anti-

    © Mark Johnson,
    InThinking www.thinkib.net/Economics 1
    dumping duties on some steel imports from China and Russia. British steelworkers and
    producers believe these curbs do not go far enough. That view is understandable but
    mistaken. There are always costs in a policy of trade protectionism, paid for by consumers
    with higher prices and by the wider economy. This is due to the diversion of scarce resources
    from more competitive industries.

    Questions

    1. Should the UK rescue Tata and keep steel manufacturing in the UK?

    2. Discuss the arguments for and against the EU / UK imposing anti dumping tariffs on
    Chinese steel?

    © Mark Johnson,
    InThinking www.thinkib.net/Economics 2

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