Daily archives: April 2, 2016

Why a 250% Steel Tariff is Fair

My recent post on Sajid Javid’s deliberate collapse of British Steel was shared on Facebook by over 1,300 people. Tweets far exceed that.

There might therefore be interest in a little more explanation on tariffs and subsidies, and particularly why the United States has slapped an anti-dumping tariff of 256% on Chinese steel.

As I reported, the Chinese state subsidises steel exports up to 72%. That means that steel that cost 100 yuan to make, is sold abroad for 28 yuan. If you apply a 256% tariff to 28 yuan, the resulting cost of that steel is 99 yuan.

Which proves both that the 72% figure my British diplomatic contact gave me is also about what the US authorities are working on, and that 256% is a fair tariff, massive though it may sound.

A 256% tariff is needed to counteract a 72% subsidy.

By contrast, the 13% tariff which is the maximum Sajid Javid instructed UK diplomats in Brussels to accept, would increase the price of 100 yuan worth of steel from 28 yuan to 31.6 yuan, still leaving a 68.4% effective subsidy.

Sajid Javid took the view, and stated it directly, that getting the cheap dumped steel from China was better for the economy than having a British steel industry. Javid told MPs:

“If duties get disproportionate it would have an impact in Britain and elsewhere on consumers of steel. Those businesses tell us it will cost jobs and exports if duties got out of control…

“To go further might in the short term look the right way to go to protect industry but you have to remember in Britain there are also companies that consume steel as part of the production process.”

In my view it is a ridiculously short term view to rely on dumped steel effectively to subsidise British steel consumers. But Javid was at least honestly setting out his Thatcherite doctrine.

What is the rankest hypocrisy is for Javid now to pretend to care about the British steel industry when he has been ordering officials for a year to pursue a policy on tariffs he knew would lead its closure.

There are two strands of immediate action which the British government should now take. The first is to bring Tata Steel immediately into public ownership. The second is to consult urgently with the EU Commission and other states on a realistic tariff against dumped Chinese steel. As the UK had been the main opponents to this move, early progress should be possible. The better answer would be to secure a reduction in subsidy by the Chinese government, but an emergency tariff might be needed as an initial move.

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