Save our Steel! Save our Jobs?

EU member States have recently intensified their calls upon the European Commission to deploy trade defence measures to stem the rising tide of cheap imports of steel from China. It is contended that the slowdown of the Chinese domestic economy has prompted steel manufacturers to increasingly turn towards international markets in order to find a vent for excess production. Global steel prices have plummeted recently and are currently at a historic low.

Jobs are at the heart of the debate, notably in the UK, where about a fifth of the country’s workforce in the industry was lost or put at risk last month as the result of a spate of plant closures. The European Steel Association (Eurofer) has suggested to use China’s attempt to receive Market Economy Status at the World Trade Organization as a bargaining chip in order to halt China’s “dumping of unprecedented volumes of steel” that has been largely responsible for destroying almost 20% of the EU workforce in the sector since 2008.

The calls for punitive action against China seems to resonate well with EU officials, who have pledged a “full and speedy” response following an EU summit on that matter on 9 November. Luxembourg’s economy minister, Etienne Schneider, who chaired the talks, even opened the possibility for a lighter treatment for European energy-intensive businesses such as steel under the emissions trading scheme, whose actual aim is the reduction of CO2 emissions.

Imports from China and UK jobs

Using data from the World Input Output Database we quickly confirm the staggering rise in UK imports of basic and fabricated metals (B&F metals, ISIC rev 3 codes 27 and 28) from China. Over the past decade, imports have roughly tripled.

If we compare this trend with the number of UK employees in that sector using Socio Economic Accounts, we see a steady decline since the late 1990s. However, the rate of decline in the number of employees has been highest at a time where Chinese imports rose relatively slowly (end 1990s until mid 2000s), predating the “steel glut” from China! Any causality from imports towards job losses is therefore not an obvious result of these statistics, to say the least. Moreover, the sheer amplitude of the phenomenon, the fact that the number of UK employees in the sector has almost halved between 1995 and 2009, rather suggests that trade defence measures against China are not likely to reach their objective of saving UK jobs in the sector. The problem appears to be more structural. Lastly, it is worth mentioning that the number of employees in the basic and fabricated metals sector in the UK made up just 1.14% of total UK employees in all industries. While punitive tariffs may offer some scope for temporary relief, this must be seen against the costs of such tariffs for the rest of the UK economy, or the other 98.86% of employees.

 

 

Steel as an intermediate good

It is conventional wisdom in the economics literature that taxing intermediate goods is counterproductive, as it raises the price of inputs for downstream sectors. Blonigen (2014) confirms a sizable negative effect of (price-raising) industrial policy in the steel sector on downstream export performance across countries. Roughly 78% of UK B&F imports from China have been used as inputs by UK industries, notably the transport equipment, machinery and construction sectors, besides the B&F metals sector itself. While these industries still source less than 4% of their total B&F metal products
from China (the vast majority still comes from the UK), levels and shares of these imports have risen significantly over the past decade. If anything, access to cheaper imports from China has helped those industries maintain economic viability, which appears to be much needed. In terms of numbers of people employed, both the transport equipment and the machinery sector have shed labor over the past decade, whereas the construction sector has somewhat expanded. Those three industries alone account for more than 6.5% of total employment in the UK and it is hard to see how these sectors could possibly gain from higher prices for steel from China, especially if competitors in other countries continue to have unfettered access to cheap Chinese steel.