by Ranjit Sidhu
It was just a couple of months ago, in February this year, that it was reported the UK government was central to sinking the European Union’s initiative to increase tariffs on dumping by Chinese companies, such as with steel.
Then, as now, Sajid Javid justified it’s stance with the familiar neo-liberal economic line that increasing tariffs would hit UK businesses by making the steel they purchase more expensive and that it would be wrong to put tariffs in the way of the cleansing winds of the free trade.
It is a familiar argument that has held sway over British politics ever since it was used to bludgeon the coal industry out of existence in the 1980s.
The stance on trade in the Conservative manifesto of “pushing for freer global trade” gave ethical backing for the policy driven by the chancellor George Osborne on China, nicknamed “The Osborne Doctrine”.
At core the policy was to push under the carpet human rights and other ethical differences, become China’s “best partner in the west” by, for example sinking any new European tariffs on Chinese companies, allow Chinese companies to invest in the UK’s critical infrastructure, then hope the Chinese reciprocate by allowing UK companies into the fiercely guarded internal market – everybody wins.
Except, Port Talbot shows they don’t.
Why this policy inevitably led to events like the potential closing down of Port Talbot is obvious when you look a bit deeper into the economics of steel production: the largest Chinese “companies” that produce steel are Baosteel and Hebei Iron and Steel, both are completely state owned and run organisations.
Their main focus is not market capacity or even profit or loss, but how their production is in keeping with the Chinese government latest Five Year Plan, of which we just started the thirteenth.
With 6 of the largest 10 steel companies being Chinese owned, 43% of the total world steel production is either directly or indirectly controlled by the Chinese government. The idea that the free market works in such a trading environment is the most wishful of wishful thinking.
But, it gets worse. It is one thing to try to believe in the ethic of the free market as world free trade and push it internationally, but to open up your own internal market to Chinese companies financially backed and controlled by a government and demand your own companies to compete as if it was a level playing field, is not just forcing those companies to fight with one hand behind their back, but dooming them to loose.
Tata’s decision to move some production from Port Talbot to the Netherlands speaks volumes as well.
From Pfizer’s decision to close down its research facility in the UK in 2011, to the recent threats from HSBC to move its headquarters away from the UK, we see that it is the incentives and support of a government that is often critical in deciding whether a business moves from a particular country.
The Netherlands government were instrumental in helping the Tata Netherlands Steel company, IJmuiden, update its steel production to become the one of the most efficient in the world.
The same desire was lacking in the UK. After, the constant kowtowing of our government to the needs of China, it is not surprising that Tata felt let down by the UK government and decided that the Netherlands was the more likely to support and defend its country’s steel industry.
By doing infrastructure deals that, the Chinese Ambassador himself recently said was “unthinkable” for other countries, the UK has allowed our critical infrastructure into the hands of a foreign government, disadvantaged our own companies and left the government powerless.
This was palpably shown at the weekend when the Prime Minister apparently confronted the Chinese president, Xi Jinping at the G20 summit on the steel issue.
The talk must have had an effect as the Chinese response was swift and telling, they imposed a 46% import duty on a type of high-tech steel made at Port Talbot, the very same imposition the UK government vetoed on China.
The reasons given were that they were to :“protect their domestic steel industry from damaging foreign.”
It’s hard to imagine a bigger slap in the face for the Osborne doctrine.
Just as Ian Duncan Smith was the fall guy for the budget fiasco, Sajid Javid is now fall guy for Port Talbot, but the buck should stop at 11 Downing Street and George Osborne’s failed gamble.
The bigger lesson is that we need an economic strategy that is not built on a myth that exists only in an idealised word of the economic textbook, but based on the reality of the world around us.
One where our governments needs to protect and nurture businesses that they hold essential to the economic wellbeing of the country.
Our current government policy from the same ideological heritage as that of the 1980s. And just like then, it will lead to another destruction of our uniquely unprotected and unloved manufacturing base.
Ranjit Sidhu is Director and Founder of SiD, Statistics into Decisions (www.sidspace.info) and blogs on tumblr here http://rssidhu.tumblr.com
Tags: China, George Osborne, Ranjit Sidhu, Sajid Javid, Tata Steel
Nice to see Labouruncut attacking the Tories instead of the Labour Party.
Keep it up.
Steve:
If you want to see this article as an attack on the Labour leadership, you can, since this is precisely the kind of analysis that the leadership should be pressing on the government, but somehow are not.
Is the strong criticism presented here: “The bigger lesson is that we need an economic strategy that is not built on a myth that exists only in an idealised word of the economic textbook, but based on the reality of the world around us”, concordant with current Labour leadership thinking?
actually steve, they are attacking Blairism just as much as the tories.
For example Tian Na Mien happened happened on Blair’s watch (and we did absolutely nithing in the way of sanctions etc) and it was Mandelson removing tariffs on Russian aluminium that destryoyed Anglesey Aluminium and 1,000 jobs.
Blahhhhhh Tiuan Na Mien happened during the wicked witchs reign (but Labour keot schtum). I meant Tibet.
But the real reaason is the steel needed for HS2 and the nuclear new builds and the chinese money needed for all the infrastructure orojects (such as the bio mass plant and eco park in To be built in Prot Talbot).
If Labour had any mettle at all they would be demanding that all the steel for HS2 comes from UK plants, all the steel needed for the nuclear new builds and all the steel \needed for the infrastructure projects that the chinese are financing.
They won’t of course, because it would make them all far to expensive to build and piss the Chinese off so they will withdrw funding.
This country has not produced much iron ore for decades. It does not produce much coal either. Governments for twenty years have been crowing about cutting CO2 production.
Steel is made by reacting coal with iron ore to produce steel and CO2.
Why would you expect this country to have much of a steel industry?
The people who most loudly demand we save the industry were also the people who mostly loudly demanded the green policies that are killing it.
@ Martin
Ah yes, let’s have policies “based on the reality of the world around us”.
Labour’s troubles stem from the drift into Blairite La-la Land:
Believing the market would fix the housing crisis.
Turning a blind eye to research that contradicted New Labour’s ideologically-driven belief in the benefits of a marketised NHS.
Insisting (after the collapse of the WMD hoax) that regime change implemented by military intervention would somehow produce a better world.
New Labour muddleheads and reality appear to have parted company many years ago.
Bob Marshall-Andrews memoir ‘Off Message’ contains an amusing account of a pre-’97 election Blair speech into which Blair inserted an unscripted self-appraisal – establishing a link between himself and Old Testament prophets.
The warning signs were there for all to see.
Steve – you forgot the PFI fiasco unfolding in Scotland, particularly schools in Edinburgh that have been discovered to be badly built and structurally so unsafe they have had to be closed until further notice. PFI contracts awarded and supervised by the then Labour administration in Holyrood with the blessing of the Blair government in London.