Protecting Steel Will Just Clobber the Rest of British Industry

As ever with steel, the prime minister worries that floods of cheap imports would otherwise undermine domestic producers’ viability, with the government keen to protect a declining industry heavily concentrated in Port Talbot, Scunthorpe and Hartlepool. So keen, in fact, that Anne-Marie Trevelyan, the trade secretary, changed the government’s independent Trade Remedies Authority’s (TRA) policy evaluation criteria, flipping its conclusion from advocating tariff revocation to extending them.

The fresh authority report argued that UK producers would face “serious injury” if protections expired. That may well be true, but warnings about the broader cost of protectionism can be read between the lines.

Quotas on steel products — allowing a set quantity of imports before 25 per cent taxes are applied — certainly protect much of the British steel industry from competition, “saving jobs”, while insulating upstream industries such as scrap metal. By raising steel prices, though, the authority admits that tariffs harm a far longer list of steel-using sectors — construction, manufacturing, cars and rail.

One reason protectionism can be popular is it “concentrated benefits and diffuse costs”. Tariffs’ effects are obviously seen as crucial to inefficient steel producers that would go under if exposed to global competition. The resultant higher prices, in contrast, are dispersed across downstream businesses for whom steel usually accounts for less than 1 per cent of turnover.

That apparent small effect on each firm can blind us to how the harms quickly add up. Industries benefiting from tariffs (steel, coal and scrap) employ about 49,700 people, albeit centred in politically sensitive “deprived areas”. The biggest steel-using sectors outlined above employ 4.9 million nationwide, making a mockery of claims that tariffs are in the “national interest”. Factor in steel’s use in “buildings, vehicles, appliances and countless other goods” and cost uplifts quickly add up to net industrial job losses and higher consumer prices. The authority admits that revoking quotas entirely could lower different steel product prices directly by between 2 per cent for gas pipes and 19 per cent for railway material. There’s one way to cut living costs.

If not convinced by theory, Johnson should have heeded lessons from America’s foray into steel protectionism. After Donald Trump’s 25 per cent tariff in 2018, American steel jobs increased by about 1,000, pre-pandemic, while US imports from China crashed.

Industry gains were both short-lived and eclipsed by higher US manufacturing input prices. As economists Kyle Handley, Fariha Kamal and Ryan Monarch found, price pass-throughs from higher costs harmed both domestic-facing manufacturers competing with foreign firms and acted as a 2–4 per cent tariff on steel-using exporters, reducing their export growth by hitting their price competitiveness.

In all, research estimates that 75,000 jobs were lost thanks to Trump’s steel and aluminium tariffs, vastly outweighing any jobs saved. A raft of steel importers demanded exemptions from the rules.

The UK’s quotas, five of which were extended for two years yesterday, are slightly more forgiving, but have similar effects. Domestic manufacturers will face continued elevated costs, but fresh uncertainty, including retaliation risks from other countries.

Trevelyan herself warned that India, Turkey and South Korea can respond, given that the UK is breaching international agreements. Trump’s experience shows trade wars escalate quickly, with other industries, such as aerospace and whisky, now facing reprisal risks.

Depressingly, both Labour and the Conservatives back this decision to prioritise steel by hamstringing British industry. A policy said to “level up” the country threatens to level down manufacturers already clobbered by surging energy costs.