On April 1st 2016 an article appeared on The Telegraph in which China raised its steel import tariffs from 14% to 46% from the European Union (EU), South Korea and Japan alleging that it had suffered “substantial damage” from their trading abuses. Unlike the U.S., which imposed recently a 256% tariff, the U.K. cannot implement on its own a similar measure due to restrictions of the EU trade laws that allow a 13% tariff.
This measure comes in perfect timing to kill off the remaining steel factories left in the EU zone which have been struggling to revert a continual strain of losses from the previous 5 years, and with special notoriety, U.K’s biggest steel producer Tata Steel at Port Talbot, one of the oldest welsh industries, will pull out its operations due to imports of Chinese steel, high energy costs and weak demand.
This tariff coincidently comes right after British prime minister, David Cameron confronted the Chinese president Xi Jinping at a meeting in Washington, pleading for action to slow the flood of Chinese steel exports reaching Europe. Although this measure will not impact directly the U.K.’s steel industry, it may be a concern on a wider market effect.
This implemented measure does not have a trade explanation since china is the biggest steel producer of the world, It seems that recrimination, as small as it may be, was the desired effect.
Beginning of a Trade War.
While this particular tariff is going to have virtually no impact on European steel, mainly because the biggest steel producer is China, this is more of a warning shot on any future tariff implemented on their products will be met with equal recrimination.
The big picture of course is that China has been accused of dumping their steel for below what they sell it for in their home market, and that has destroyed British steel. Now the British government is trying to find a way to keep from losing 50,000 jobs from their steel industry.
Unfortunately, this is how trade wars start: a little bit of eye for an eye treatment soon descends into an orgy of recriminations and counteractions thus diminishing the wealth of all countries involved. Taking the protectionist side will not necessarily produce the best results in this case.
Problem spreading over the Eurozone:
Over the past year, stock prices of european companies have had difficulties with the rising imports of steel from developing countries. Big steel mills, such as Acerinox (Spain), Aperam (Holland) and Thyssenkrupp (Germany) have had a rough period and bad fiscal results. This problem has to be tackled not separately by the U.K. but get involved the whole EU to determine if China is engaging in the unlawful practice of dumping and if so, what measures the block should take.
European steel asosiation (EUROFER) “Competition Guidelines” link:
European commission “The EU steel industry report” link:
Evans-Prichard, A. April 1st, 2016 “Defiant China slaps steel tariffs on Britain as trade war looms” The Telegraph.