Robert Armstrong is the Director of the Institute for Free Trade
On 1 July, just as Economic Affairs launched, the United Kingdom imposed its first major new protective tariff since Brexit. These will apply to steel imports generally: a 50 per cent duty, up from 25 per cent, on anything arriving above quotas that have themselves been slashed in half.
As you reach for something stronger than tea, consider this: between half and nine-tenths of those shrunken tariff-free quotas, depending on the product, will be filled by the European Union. So, yes – we will have a more EU-dominated steel market than at any time while it was a member of the bloc.
In April, Brussels replaced its expiring steel safeguard with a Donald Trump-era replacement, couched in the obligatory language of “global overcapacity”. That means China. The upshot was tariffs at 50 per cent and quotas to be halved. The EU takes 78 per cent of our steel exports. UK Steel called it potentially the biggest crisis the industry has ever faced. Peter Kyle flew to Brussels presumably with the intention of negotiating a carve-out for the UK. Considering the “EU reset” and Keir Starmer’s endless prostration in front of the EU, perhaps this could be the time all that goodwill and adults-in-the-room “reasonableness” would come up trumps?
Not so, alas. Britain got essentially the same deal as the rest of the nations with EU trade deals: a slightly smaller reduction in quota.
Britain’s steel safeguard – a legacy of EU membership – was due to expire at the same time. While retaliatory tariffs would only harm our industry, Britain’s provisional quotas had at least the superficially satisfying virtue of spite. Eurofer, the European steel producers’ lobby, complained bitterly that EU mills would be cut to 9 per cent of previous hot-coil volumes. Then Eurofer wrote its letters, the meetings happened, and the final regime emerged with the EU holding the dominant share of nearly every quota. Outrageously but perhaps unsurprisingly, our leadership was successfully lobbied by the other side.
The threat of losing access to the EU market was answered by guaranteeing the EU privileged access to ours. It would ensure that EU steel, including some of the most expensive steel products on the global markets (though very important for our supply chains), had a large and artificial price advantage over most steel products from elsewhere. An EU diplomat summarised the settlement, I assume with a smug face and a cigarette, by saying that it would bring costs for both sides, but “slightly higher costs for the UK.”
It should not be surprising that this negotiation came from the same government behind the Chagos deal and the brilliant but lesser-known EU fishing quota extension. The latter involved the Government granting fishing rights to the EU for a further ten years in exchange for the right to join the ‘SAFE’ defence procurement program and to apply their high-cost SPS rules in our territory. The EU then sent us the quote for joining SAFE, around 650 times as much as they asked from Canada, a price for indulgences even Starmer couldn’t stomach.
The economics are even more dismal than the diplomacy. Britain produces around 3 million tonnes of steel a year and consumes roughly three times that; imports are the bloodstream of downstream manufacturing. The Confederation of British Metalforming (representing 200 companies, more than 75,000 employees, the fasteners and forgings and cold-rolled products that feed aerospace, automotive, defence and construction) has warned that domestic mills lack the capacity and the capability to produce the grades British firms require. “Everyone connected with the sector believes there will be a shortfall,” says Steve Morley, its President. One speciality supplier reckons orders already placed at foreign mills will cost an extra £3.3 million to land after 1 July. A Yorkshire stockholder reports that the entire annual quota for one steel size has been swallowed by a single Merseyside infrastructure project.
The Government, to its credit and its great shame, half-knows this. It softened the cut from 60 per cent to 51, and exempted eleven categories of steel after the industry pointed out that no British alternative exists. At least they have tacitly acknowledged that they are taxing inputs their own producers cannot supply. But they will press ahead, in vain, with a foolish import substitution policy on our island that makes barely 0.2 per cent of global steel.
Britain’s chosen answer ‘protects’ a 3-million-tonne upstream industry by taxing the far larger economy built on consuming steel, while handing European mills a ring-fenced position in what remains of the import market, totally insulated, by quota design, from Turkish, Indian, American and Asian competition.
The EU is sliding into its own version of Trumpian trade politics. I rather subscribe to the school of thought that they’ve been like this all along. Still, Britain, holding the one unarguable prize of Brexit, an independent trade policy, has used it to once again copy the EU’s worst instincts.
Thank you for this. The results of government activity in the economy often look as though we are run by a hostile foreign power.