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Case study on Tata Steel
Case study on British Steel
Read the following article from the UK Times newspaper on March 30, 2016 and answer the questions at the end of the passage.
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-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.
The original article can be accessed at: 
Tata steel article
Questions
1. Should the UK government rescue Tata and keep steel manufacturing in the UK?
This is a difficult decision for the UK government. The British steel industry has been in almost continual decline for a number of decades, dependant on government subsidies to survive. As a general rule the UK manufacturing has been in decline throughout the same period. The UK industry that has flourished has been those businesses that are very capital intensive and often those that sell luxury products. Realistically it seems unlikely that the UK steel industry can compete with products produced in low wage economies such as China. Should Britain really be diverting precious resources towards the production of goods, where they do not enjoy either an absolute or competitive advantage? In addition firms that are reliant on steel for their raw materials e.g. the car industry will always prefer to purchase cheaper Chinese steel than more expensive steel made in the UK.
On the other hand for the UK, a major industrial nation, to lose such an important industry would be a significant blow to its self esteem. It will also force many industries which use steel products to purchase their steel from overseas, increasing the nation's dependance on other nations. Countries which could simply cut off supply in the future or at least raise the price substantially. Importing steel products from overseas will also further increase the UK's trade deficit with the rest of the world.
2. Discuss the arguments for and against the EU / UK imposing anti dumping tariffs on Chinese steel?
The UK as WTO member must abide by the laws laid down by the organisation. The World trade organisation prohibits the imposition of trade barriers against other WTO members and China is a member of the organisation. However, there are a number of exceptions to this rule. For example the UK could justify imposing a tariff against Chinese steel imports on the grounds of health and safety, national security or if they could argue that Britain's steel industry qualified as an 'infant' industry. It is very unlikely that any of these would apply to the UK steel industry. This leaves the UK with only one opportunity to legitimately impose tariffs on Chinese steel products. This being if they can prove that the Chinese government were illegally dumping their steel on the UK market. This could be a valid argument as a number of other nations, in the WTO, have made similar accusations against China - that they are dumping their goods and services on world markets, at below the costs of production. This means allowing their domestic firms, in this case the Chinese steel industry, to export their products at below production cost, by providing domestic firms with government subsidies. Therefore, if the UK can make a convincing case against China then the WTO will allow Britain to impose an anti dumping tariff on Chinese steel products, equal in size to the level of subsidy that the exporting Chinese steel firm has enjoyed.
However Britain should think clearly before imposing an anti dumping tariff on Chinese steel products. Protectionist measures such as tariffs and quotas would be popular with the UK industry and many British voters but consumers will be faced with higher prices and fewer products to choose from. Such a policy would also risk retaliation from China, perhaps on British businesses such as the Scottish whisky industry or the Jaguar car industry. Both industries that export significant volumes to China.
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Article and questions
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