Why a 250% Steel Tariff is Fair 70


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.


70 thoughts on “Why a 250% Steel Tariff is Fair

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  • Gillian Williams

    Of course once UK have no steel and are reliant on importing from abroad. They can charge what they like which am sure will happen.

    • Tom Welsh

      Er Gillian, there is a huge global market in steel products, which are essentially commodities. The Chinese could not possibly charge British buyers higher prices than other buyers – otherwise the other buyers could simply resell to Britain. It’s rather like water in a single space like a swimming pool; you cannot have deeper water at one end than the other (provided the bottom is flat, of course).

  • Bob Smith

    The BBC (yes, I know, they don’t always tell the truth), are reporting that even with massive state subsidies the Chinese steel industry is in trouble and will have to shed 1,000,000 jobs in the next few years. Neither the UK or the EU are going to impose high tariffs and this isn’t just about China as countries such as India and Vietnam are producing lots of cheap steel. The answer is not just about tariffs but about this country realising that strategic industries need to be subsidised and in public ownership.

    • Tom Welsh

      Erm, let me see: from what we have been told, British steel costs more than twice as much as Chinese steel. Yet even at that price, Chinese corporations have to be discouraged from buying it. That British steel must be really, really, really good! Or else something doesn’t add up.

      • bleb

        “Erm, let me see: from what we have been told, British steel costs more than twice as much as Chinese steel. Yet even at that price, Chinese corporations have to be discouraged from buying it. That British steel must be really, really, really good! Or else something doesn’t add up.”

        I think you are missing the fact that there are different types of steel. I think the British steel being exported to China is specialised steel for particular applications.

  • Haward

    Javid is well to the right of Thatcher. He is an Ayn Rand devotee, a nutcase and a sociopath. Dog eat dog and each man for himself is how he sees it. He is stone fucking mad and a selfish bastard of the highest water.

  • J Galt

    And Pigs might Fly!

    A deal has been done, the low waged “Northern Workhouse” slaves have been hired out – remember Cameron showing the Chinese President round his new “Plantation”?

    Cheap steel flooding in may be part of it, China’s EU colony.

  • frank tait

    The thing that bugs me about cheap imported steel is that surely we don’t have to buy the stuff. There is always somewhere where the labour is cheaper until of course when we become the cheap labour. The capitalists dream a large educated population out of work!

    • Tom Welsh

      Well Frank, imagine you are manufacturing cars – or something that uses a lot of steel. If you choose to go on using expensive British steel instead of the cheapest good quality steel you can find, your cars (or whatever) are going to be too expensive. Unless you take firm control of the entire world economy and tell everyone what they are going to buy (whether they like it or not) high prices will tell in the end.

      • Mervyn Hyde

        German cars are extremely expensive but people still buy them, but in the final analysis, the race to the bottom only serves the interests of the 1%.

        The cost of manufacturing is not the problem anyway, we all use the same technology these days, it’s distribution and maximisation of profits that is the real problem, and always has been.

      • Why be ordinary?

        True, but “price” and “good” are neither as simple as it might seem. Issues like delivery time and reliable supplier relationships also matter. There’s a peculiar British obsession with being cheap, which partly explains why we lost industry while the Germans (as Mervyn points out) manage to sell things expensively

  • giyane

    Can we have a 72% re-balance of the last election results to counter the electoral discrepancies which brought Thatcherite swivels to power, please.

  • Why be Ordinary

    And bringing Tata Steel into public ownership will help because? Perhaps it will, butwhile I understand your argument on tariffs I don’t think the UK experience of civil servants running industry makes this self evidently a good idea

    • Why be Ordinary

      You could compare with the solar panels case – not much discussed in the UK but raises the same issues. Cheap Chinese solar panels undercut the EU industry but promoted faster and wider adoption of solar power by making it cheaper to produce

  • YouKnowMyName

    From 1951 until 2002 there was actually an EU supranational institution dedicated to Steel:

    https://en.wikipedia.org/wiki/European_Coal_and_Steel_Community

    The Community had little effect on coal and steel production, which was influenced more by global trends.

    AEP in the Telegraph has some nice graphs showing the global trends, mentioning the Chinese reverse tariffs aimed at the UK, and speculation that weak Cameroon’s position is due to concern over nuclear Hinkley C or not.

    http://www.telegraph.co.uk/business/2016/04/01/defiant-china-slaps-steel-tariffs-on-britain-as-trade-war-looms/

    • Why be Ordinary

      Yes, but it wasn’t actually about industrial advantage it was designed to be a step towards making war in Europe “not only unthinkable but materially impossible” in effect by removing national sovereignty over the coal and steel industries

  • Alcyone

    Has anyone seen any evidence of the Government discussing this issue with Tata’s corporate management at all, in the last few weeks/months?

    Also I haven’t noted Tata management being interviewed on TV at all. Why not?

    Tata in India has a long history of caring for their workers.

    Then there is the issue of how US steel consumers cope with the more expensive steel with the 256% duty. If so, why can’t British industry? I wonder if JLR, a successful Tata company, buys their steel intra-group?

  • Alcyone: Of course, the most intriguing question is...

    Why Now? When oil prices have taken a massive dive and energy costs should, theoretically, be at their lowest point in a decade?

    Btw, does anyone know since when have the Chinese been subsidising their steel makers to the tune of 72%?

  • Alan

    Surely the usual Tory advice will be for the steelworkers to get on their bikes and look for work and the people who voted the Tories into power should have known that.

  • Enoch

    Which proves .. that ..256% is a fair tariff,

    1. It doesn’t prove any such thing. Where did you get that ‘fair’ from in those calculations?

    2. If I can buy steel, or a laptop, or chop suey, or anything else more cheaply from China than from the hyper-expensive UK, then I should be left to get on with it. Butt out, bossyboots! The last thing we need is more state interference in our lives and businesses.

    • John Spencer-Davis

      You won’t be able to buy much at all if everything is outsourced to China and you’re unemployed as a result.

  • Anon1

    I should be interested to hear Craig’s thoughts on this statement of 20 January by EU competition commissioner, Margrethe Vestager:

    “The European steel industry needs to be competitive globally… It cannot rely on public funds to survive… It is in this context that EU state aid rules don’t allow public support for the rescue and restructuring of failing steelmakers… in view of the chronic over-capacity of the steel sector, EU Member States and the Commission have already since the 1990s agreed to prohibit rescue and restructuring aid to steelmakers in difficulty… As past experience has shown, this type of aid distorts competition. It also doesn’t help in the long run… The Commission has consistently applied this approach to state aid control in the steel sector – it has had to take tough decisions ordering recovery of illegal state aid in a number of EU countries, including Belgium, Germany, Italy and Poland.”

    http://europa.eu/rapid/press-release_STATEMENT-16-118_en.htm

    Illegal state aid. The rankest hypocrisy here is surely Craig’s continued and unflinching support for the EU.

    • Why be ordinary?

      How much of your tax bill do you want to spend to keep steel workers employed making stuff that no one wants to buy? And for how long?
      The purpose of state aid limitation is to stop a subsidy race in which everybody gives money to “their” Steel Industry – so over production continues and the more competitive have no actual advantage. The EU is trying to stop unfair competition from China as Craig makes clear. State aid would just be a way of kicking the can down the road. It can go on for only as long as taxpayers are happy to pay.
      If the UK were to leave the EU, do you think that the Chinese would treat us better? They would be lot less scared of measures taken by the UK than by the EU collectively, especially as without the UK in the EU the EU itself would take a stronger line against China as Craig makes clear.

  • Habbabkuk (la vita e' bella)

    Craig

    Can you please be entirely clear?

    You say : “By contrast, the 13% tariff which is the maximum Sajid Javid instructed UK diplomats in Brussels to accept”

    Dos this mean that 13% is the tariff finally imposed by the EU Commission?

    As you know, the imposition of ant-dumping duties subject to quallified majority voting (either positively or negatively.

    Therefore, whatever UK diplomats were instructed to seek would not necessarily be the final duty imposed.

    Thank you.

  • Tom Welsh

    Fwiw here is a Chinese explanation of the situation. It does not deny that the Chinese government has been heavily subsidizing steel production, but points out that only 12% of Chinese steel production is exported (which apparently amounts to 6% of global steel production).

    Given that China is suffering from lack of demand for steel even at those very low prices, and that many of its 1 million steel workers may be facing redundancy, I’m not sure they can be blamed for selling any surplus over domestic needs at whatever price they can get for it on the world market. As a matter of interest (thank God I am not an economist, so this is just from first principles) why would China lower the price of its steel below whatever is necessary to find buyers? If the US government claims that it must effectively increase the cost of Chinese steel by two and a quarter times in order to level the playing field, why on earth don’t the Chinese double their price? Then they would apparently still undercut Western steel, and make twice as much money.

    I would also like to know how this situation compares with the precipitous drop in the price of oil (down 70% since June 2014). The media are full of conflicting explanations, some of them absurdly complicated and contrived, but no one is blaming oil producers for “dumping”. Why not? How is oil different from steel? Could it be that the plunging oil price was intended to wreck Russia’s economy, so the US government found no fault with it? (Even though it is doing the US economy a lot of harm too).

  • Tom Welsh

    Also interesting:

    ‘According to Michael Lind, protectionism was the policy of the United States from the passage of the Tariff of 1816 to WWII, “switching to free trade only in 1945, when most of its industrial competitors had been wiped out” by the war’.

    https://en.wikipedia.org/wiki/Protectionism

    From the same source, here is US President McKinley speaking on the subject of protectionism in 1892:

    “Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefiting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest’…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.’ And that spot of earth is where labor wins its highest rewards”.

  • nevermind

    Alan kindly pointed out that
    “and the people who voted the Tories into power should have known that.”

    don’t mind if I change this sentence slightly, because it does not reflect the cheating party politicians in power, Alan.
    To ” and the 27% of eligible voters who conjured up a win, unknowing of the illegal practises, the Conservatives cheating on hotel costs and sundries in their electoral declarations of the last election.

    Now these pirates are fleecing us in any know and unknown way, selling off more public assets, wrecking the life’s of steelworkers who are victims of a global race to the bottom.
    I think its time for the EU to elect its commissioners and adopt/practise some limited protectionism, equally African countries, to develop some sustainable marker policies regulating the EU’s impact on other countries.
    Doha and Uruguay were bad for the world, lets not make more mistakes with TTIP.

  • bevin

    The system doesn’t work: it never did but it was always possible to delude ourselves into believing that, eventually, the circle would square itself. Nursing that delusion was the task given to the media, the intelligentsia and the political class. It is they who are charged with providing opium to the people.

    The obvious and immediate answer to the question of what to do about the tens of thousands of steel workers and those whose incomes depend upon them is to guarantee, to every one of them, an income sufficient to keep them in comfort.

    This was the purpose of the Elizabethan Poor Law, which was introduced because what is happening to steel workers now was happening to peasants, thrown off their land by enclosures and engrossing, then.
    It is the fundamental purpose of government to ensure that every person in the country should receive a maintenance. And that, when the means of providing that is taken from them, it should be supplied by society as a whole.
    As a principle this has never been seriously disputed. There have always been those who, like the current government, insist that the only means to make poor people work is to ensure that the alternative is starvation. Such was the thinking behind the Poor Law ‘reforms’ in the C18th culminating with the 1834 law.
    This doctrine was never popular, quickly discredited and, by 1945, abandoned. It had to be, because until it was established that there was a nation with common interests and solidarity, based on something more substantial than fear of starvation, the basis for national defence was continuously subverted. “All in it together” means, at the very least, that all are guaranteed the necessities of life.

    It was established, during the War, that not only should employment be guaranteed but that the economy should be planned and ordered to work in the interests of the British people; healthcare of the highest standard should be available to all, education, again of the highest standard, should be provided free of charge for all, housing at cost, or below cost, should be available for all. Nobody should starve, nobody should want for clothes or shelter, every child should be fed well, every mother’s welfare attended to by public authorities. The old and the infirm should be sheltered and cherished.

    It was the crisis of war that made it imperative for the the nation to re-discover the necessity of protection. It was immediately clear, in both 1914 and 1939, that Free Trade and the Poor Law had ruined British agriculture: famine stared our fathers in the face. After generations of living on Danish bacon, Canadian flour, New Zealand mutton and Argentine beef, (all imported at the cost of neglected land and villages depopulated, their inhabitants, the skilled and ingenious peasantry, driven abroad, into cities and abandoned to pauperism) there were national campaigns to revitalise, quickly and at any cost, the production of food.

    Similarly they discovered that leaving industry to the vagaries of the marketplace meant that many vital industries, necessary for national survival had either become extinct or were antiquated and obsolescent, because, since the mid nineteenth century the flow of investment had been abroad to places where labour costs were lower, where land was free for the stealing and where the social contract consisted of the simple alternative to obey or be wiped out.

    The essence of Thatcherism/Blairism is that the consensus of 1945 is outdated because the nation no longer exists (that is what was meant by ‘There is no such thing as society’). Britain is part of an Empire in which the needs of the British people don’t count. That is what the EU, the TTIP and the WTO are about: the eradication of sovereignty which is rapidly bringing us to the point at which it is ‘illegal’ for Parliament to plan and govern the economy in the national interest. The national interest no longer counts, even in an abstract sense. Because the national interest is to take what the world economy, dominated by vast monopolies (some called ‘private’ others, indistinguishable, ‘state owned’), providentially issues.

    Port Talbot is another ‘wake up’ call. The latest in a long line which began decades ago. The surface of things is sometimes deceptive: under the illusion of moderate prosperity and normality the British economy is rotting away. What exists in London and its surrounds is a parasite which is growing independent of its host. That is what the current government knows: Port Talbot is of no more interest to it than Darjeeling or Dayton. Oh, it will howl and lament, if that is what people want but, just as Obama did in Flint, it will do nothing except try to dampen public concerns. And in this work it will be assisted by its invaluable auxiliary, the media, the Academy and other Establishment organs, the political class which dominates the political parties and which is saturated in neo-liberal ideology.

    William Blake was right that the real battle is the ‘mental fight’. Intellectual idleness, going along with the ideology of those whose interest is to plunder us, giving in to their relentless barrages of half truths, lies and empty slogans, rather than thinking things through for ourselves, these are our real enemies.

  • Republicofscotland

    I wonder if the intentional collapsing of the British steel industry is part of a appeasement process towards China, to encourage trade.

    My mind turns to the humungus “white elephant” the power station at Hinckley Point, which when complete will produce 7% of Britian’s electricity. The China General Nuclear Power Corporation (CGN) will have a 33.5% share, in the nuclear power station and, Chinese investors will also be involved in developing a new reactor at Sizewell in Suffolk and to design and develop a power plant in Bradwell, Essex.

    The Chancellor has announced he will open up the bidding process to build the HS2 to Chinese firms and investors offering contracts worth £11.8 billion to build the high-speed rail line.

    The seven rail contracts are to build tunnels and track beds for the first phase of HS2 linking London and Birmingham, and the Treasury will encourage British and Chinese firms to partner and bid jointly for the work.

    A report published by international law firm Pinsent Masons and the Centre for Economics and Business Research predicted that China is set to invest £105 billion into UK infrastructure by 2025.

    Finally I’m not sure if this investment will go ahead.

    Chinese firm, SinoFortone Group is to invest £2 billion in two biomass power stations on Anglesey and Port Talbot, Wales, creating 1,000 jobs.

    • John Spencer-Davis

      “The China General Nuclear Power Corporation (CGN) will have a 33.5% share,”

      I assume you copied and pasted this sentence from The Independent.

      “Chinese investors will also be involved in developing a new reactor at Sizewell in Suffolk and to design and develop a power plant in Bradwell, Essex.”

      I assume you copied and pasted this sentence from The Independent.

      “The Chancellor has announced he will open up the bidding process to build the HS2 to Chinese firms and investors offering contracts worth £11.8 billion to build the high-speed rail line.”

      I assume you copied and pasted this sentence from The Independent.

      “The seven rail contracts are to build tunnels and track beds for the first phase of HS2 linking London and Birmingham, and the Treasury will encourage British and Chinese firms to partner and bid jointly for the work.”

      I assume you copied and pasted this sentence from The Independent.

      “A report published by international law firm Pinsent Masons and the Centre for Economics and Business Research predicted that China is set to invest £105 billion into UK infrastructure by 2025.”

      I assume you copied and pasted this sentence from The Independent.

      “SinoFortone Group is to invest £2 billion in two biomass power stations on Anglesey and Port Talbot, Wales, creating 1,000 jobs.”

      I assume you copied and pasted this sentence from The Independent.

      http://www.independent.co.uk/news/business/news/hinkley-point-nuclear-power-plant-qa-how-big-a-stake-will-china-have-what-other-projects-will-a6703046.html

      Please, if you are going to copy and paste things, can you give us the source? Many thanks.

      • Republicofscotland

        Congratulations John you found the missing link, Darwin would’ve been proud of you. ?

        Yes John I shall bear that in mind, pity though you didn’t take time to comment on it’s contents, but rather chose to point out the missing link. ?

  • Republicofscotland

    Although I loathe quoting or linking to the Daily Mail, this does seem interesting.

    “Britain led efforts to block EU tariffs that might have protected the steel industry in this country from a flood of cheap Chinese imports, it emerged yesterday.

    George Osborne and David Cameron were accused last night of being more concerned with courting China than the fate of Tata steelworkers.

    Ministers opposed EU proposals earlier this year to put a 66 per cent tariff on cheap steel products, saying it would lead to higher prices for UK consumers.
    Instead, the tariffs stayed at 9 per cent. Officials are now going back to Brussels to increase the tariffs which the EU did agree upon from 9 to 20 per cent.

    Axel Eggert, director general of the European Steel Association, which represents the industry across the continent, told the Financial Times: ‘The UK is the ringleader in a blocking minority of member states that is preventing a European Commission proposal on the modernisation of Europe’s trade defence instruments.”

    http://www.dailymail.co.uk/news/article-3518278/UK-blocked-EU-bid-raise-China-steel-tariff-protected-industry-cheap-imports.html

  • Roderick Russell

    CM’s comment – “But Javid was at least honestly setting out his Thatcherite doctrine.”

    Allowing an import (Chinese steel) to be subsidized by its government so that its sales price in the UK is less than 1/3 of its actual cost is not free market economics; it is just lunacy. No wonder Tata can’t afford to hang on. But here is the irony – we have subsidized the City to the extent of billons (i.e. bank bailouts, etc) thus creating thousands of otherwise uneconomic jobs in the City, whilst at the same time allowing foreigners to subsidize our imports thus destroying thousands of otherwise economic jobs (steel industry) in Main Street. I am reminded of the phrase “those whom the gods wish to destroy they first make mad”

  • Clydebuilt

    In my FREE copy of today’s Sun …..China had imposed a tariff on UK Steel ….. TRUE……apparently it only applies to a particular version produced at Port Talbot……

    Is Reading The Sun , even if it’s Free a crime against journalism ?

  • Mervyn Hyde

    Presuming China believes that there will eventually be an upturn in the world economy, rather than dumping steel on the world market, it would be in their interests to stockpile their steel.

    It’s economic madness all round to follow the race to the bottom. Killing off other countries bread and butter industries, is in fact killing off their own market.

  • fwl

    Thanks, clear simple message. Why though do British Governments appear so keep to run down and undermine everything. We need more investigative journalists and a more ballsy media

    BTW the 4th paragraph’s final sentence does not seem to be finished. Are some words missing “though it may sound” …..

  • Peter

    If the Chinese government is silly enough to sell steel for less than it costs them to make, then more fool them.

    It is certainly very good news for anyone who uses steel in the UK. Like shipbuilders, construction companies, engineering companies, car makers, train builders and a host of other industries.

    Ps And if anyone wants to sell me a new car for less than it costs them to build it, then they are more than welcome!

    • Habbabkuk (encouraging interesting and diverse views)

      Peter

      “If the Chinese government is silly enough to sell steel for less than it costs them to make, then more fool them.”

      ________________________

      You have obviously not understood economics Craig Murray blog style.

      The Chinese govt is doing this to keep people in work.

      No different from the UK govt (hypothetically) keeping open UK steel plants, the coal industry and diverse other industrial concerns which are entirely uncompetitive in order to keep people in work.

      If the UK govt were to do this, would you also say “more fool them”?

  • Habbabkuk (encouraging interesting and diverse views)

    Lysias

    I should be interested to hear your views on the issue raised by Craig and in particular , since you are an American, whether you think the US countervailing duty at the level of 250% is justified.

  • Tony_0pmoc

    This is the soft version

    http://zelo-street.blogspot.co.uk/2016/04/john-whittingdale-and-dominatrix.html

    and this is the hard version – but I don’t know whether to believe this – as he keeps getting the spellings wrong.

    http://www.cameraassassin.co.uk/Video/index.html

    but almost certainly some of it is true – and it stinks to high heaven…

    That is what we have in our Press and Government.

    Why do people still buy these newspapers and vote for these horrible people?

    Yours disgusted,

    Tony

  • John Hooley

    Politicians talk a lot about national security but how secure can we be if we do not have our own steel industry? Will it work if we have to build planes and ships from steel supplied by countries who do not support us?

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