Brexit could make UK steel’s problems even worse

by Luke Lythgoe | 25.01.2016

UKIP thinks the way to help Britain’s struggling steelworks is to quit the European Union, impose anti-dumping tariffs on Chinese imports and subsidise the industry. At best the steel industry’s agony would continue, at worst Brexit could leave it more vulnerable. What’s more, UKIP’s policies could damage other, bigger industries.

The British steel industry’s main problem, which has led to thousands of job losses in the past year, is China’s economic downturn. Chinese steelmakers have turned to the export market to compensate for slackening domestic demand. In 2014 the UK imported 687,000 tonnes of steel from China compared to 303,000 tonnes the year before (point 34). The price is also much lower than European steel imports, leading to allegations of dumping (selling a product in another market at less than its normal value).

UKIP, which didn’t respond to InFacts’ questions on its policies, says EU membership means Britain “can’t act to prevent the dumping of cheap Chinese steel”. This is true: as a member of the single market, the UK cannot unilaterally impose anti-dumping tariffs; these are determined by the European Commission for the bloc as a whole.

But would Britain really stand alone against China if it quit the EU? George Osborne heralded “a golden decade for the UK-China relationship” in Shanghai last September. A month later, when China’s president visited the UK, the Chinese agreed to invest £6 billion in the new Hinkley Point nuclear power plant, with the two countries securing contracts worth a total of £40 billion.

The two countries also stepped up their cooperation to develop the City of London as a centre for trading renminbi, China’s currency. What’s more, the government wants the EU to recognise China as a market economy, against the wishes of other members such as Italy. If Britain quit the EU and unilaterally determined that China was a market economy, it would find it harder to argue under World Trade Organisation (WTO) rules that Beijing was dumping steel.

Even if the pro-Chinese Tories lost power in the post-Brexit chaos, would another government risk retaliation by unilaterally imposing anti-dumping duties on Chinese steel?

The fact that the EU takes up to 15 months to complete anti-dumping investigations, compared to a more rapid US process, has rightly been criticised. But it does have 23 ongoing anti-dumping investigations into Chinese products under way.

At present, if the EU takes any action, Beijing is unlikely to single out Britain for retaliation. But post Brexit, if we took unilateral action against Chinese steel, Beijing might well pick on the UK. Given that we would no longer have safety in numbers, our government might therefore be less keen to take action against Chinese imports than the EU is now. A trade war between the UK and China would also be more one-sided than one between the whole EU and China. Hence, Brexit might mean there was less chance of anti-dumping tariffs being imposed to protect our steel industry.

UKIP also criticises the EU’s ban on state aid on the grounds that it renders Britain “powerless to prop up industry in this country without permission from Brussels”. But if the government quit the EU and then subsidised the steel industry, that wouldn’t help much. Other trading blocs, including our former partners in the EU (to which 52% of our steel exports go), would then be able to impose anti-dumping tariffs on our industry.

What’s more, if a post-Brexit Britain did resort to state aid for steel, the EU would be more reluctant to give its other industries access to the single market. Services, accounting for 80 percent of our economy, are particularly vulnerable since they are barely covered by WTO rules.

Contrary to UKIP’s claims, leaving the EU wouldn’t help the steel industry. It might make its plight worse while harming other British industries.

Thi article was previously published on 21 Jan. 2016 on hugo-dixon.com

Edited by Hugo Dixon