Once more on trade and the EU


As Caparo Steel crumbles into the dust we've got the usual appearance of someone arguing for state aid. We don't, we're afraid, accept this argument:

Our steel industry today is in exactly the same position. China’s state-owned enterprises are not just selling steel below the cost of production in the UK. They are selling below the cost of production in China. This is not a fair fight to discover who is the most efficient producer of steel. It is a geo-political strategy for economic domination. As soon as Britain’s steel industry has disappeared, the price will go back up again and major steel consumers like the construction industry and car manufacturers will have no escape from higher international prices.

There's very little evidence that this has ever been a successful strategy for anyone. For no one can ever find a case where the newly victorious survivors of the price war have been able to raise prices enough to make up for their losses in the price war. Such attacks just don't work as an economic strategy: as the results of the Chinese rare earths war show. Once China thought it had an uncontestable monopoly, in 2010, it raised prices significantly. This called forth some 400 companies (at one count at one time) to contest that monopoly and now prices are, only 5 years later, well below what they were in 2010.

Further, even if it is true that prices will rise in the future, it makes absolutely no difference at all whether some of the surviving factories are in the UK. Because the basic problem is that there's more steel plants, making more steel, than anyone wants to use at profitable prices. Therefore some of those plants must close. Offering state aid to certain plants makes no difference at all to that calculus. When the requisite number of plants have closed, whether those closing be in China or the UK, then that steel price will rise again and all will be paying that international price. And all will be paying that international price whether some of the survivors are in the UK or not.

Thus, state aid makes no difference at all to the future price of steel to UK manufacturers. It's just a cost to us taxpayers: a cost that we shouldn't have to bear.

There's also this remarkable lack of knowledge about the situation at hand:

Second, the Government has failed to make full use of the powers granted by the World Trade Organisation (WTO) to prevent nations from undermining economic competition. Selling below the cost of production (called dumping in trade jargon) is against WTO rules. The EU accepts that Chinese steel is being dumped and restrictions have been accepted, but nowhere near enough. Perhaps our government thinks that pursuing claims under the WTO rules is abandoning free-market principles. Far from it; enforcing the rules is upholding free enterprise.

The UK doesn't get to talk to the WTO. Extra-EU trade is a sole competence of the EU.