A cursory look at the UK media last week would show a debate on the decision of Tata (an Indian conglomerate) to sell off its steel works operations in that country. In the various news items, specific mention is made of their largest plant Port Talbot, which is in Wales.
The implications of such a sell-off and the possible closure can be quite dramatic for the UK, as half of the production of Tata is sold to thousands of UK-based smaller firms and the automotive industry. Thus this decision could disrupt their supply chain.
Tata has defended its decision on the basis of the fact that it is losing $1.4 million a day in Port Talbot alone and the strong competition from China. The British government has claimed that China has flooded the European markets with cheap vehicles because of its falling internal demand.
The loss of jobs in the steel sector in the UK is not new. Last October, Tata itself had announced job cuts in its plants in England and Scotland and other manufacturers have also had to close down their operations.
The trade war in the steel sector is very worrying. It could weaken the various developments that have been made in previous years to have more free trade among nations... Malta may stand to lose out
It would seem there is a steel war going on. I understand that all this looks remote to us in Malta as we do not produce steel. However, these developments may have an impact on things to come as the global economy is still struggling to set itself on a solid growth path.
That there is a steel war going on has been evident for some time. To get a flavour of what has been going on, one should take note of the decision of the US to tax corrosion-resistant steel imports by 256 per cent. Several countries have taken anti-dumping and protectionist measures against cheap imports.
However, matters have escalated considerably as China recently imposed punitive tariffs of 46 per cent on hi-tech steel produced in the EU. The Tata sell-off and the possible closures of plants has brought calls on the UK government to retaliate against the decision of China to impose such tariffs by adopting protectionist measures.
The impact of all this could be an all out trade war, given the importance of steel production for a number of economies. Countries could react to the steel war by imposing tariffs on other products and services.
Moreover, the situation is not expected to ease in a matter of months, given the adjustment process of the Chinese economy. In fact, with a slowdown in demand in China, the likelihood is that factories in that country are likely to sell their over-production cheaply where the markets exist, namely Europe and North America. It has been said that China is actually exporting deflation to the US and the EU with its very cheap exports.
Again the numbers say it all. China’s excess capacity is 400 million tonnes, double the size of the entire EU steel industry. China’s share of global steel output has risen from 10 per cent to 50 per cent in a matter of 12 years. China is able to do this thanks to export subsidies, cheap credit and other forms of state support.
Thus it is not inconceivable that the US and the EU would retaliate against such a situation, and that such a retaliation would involve other products and services.
China is doing this in order to safeguard its employment. However, the effect is that jobs will be lost in the US and the EU. With the US presidential elections this year, it may not be surprising that the candidates would promise tough action against China to win votes. Equally, the situation in the UK is likely to have an impact on the referendum on the country’s membership of the EU.
Thus the trade war in the steel sector is very worrying. It could weaken the various developments that have been made in previous years to have more free trade among nations. In such circumstances, Malta may stand to lose out.