Brexit may aggravate a headache for the U.K.’s embattled steel industry: more under-priced Chinese supply, according to a trade group.
Britain, which is looking toward a future of free trade outside the European Union, has for years resisted a proposal that would raise EU tariffs on imported steel, saying it would increase costs for users. If the U.K. adopts less protectionist policies than other regions when it leaves the bloc, that may spur more below-cost imports from China, lobby group U.K. Steel warned.
Once the hub of the steelmaking world, British output plunged in recent decades as plants became less efficient and struggled to compete with a global surplus, partly fueled by Chinese exports. While some of the country’s remaining operations have been saved from closure for now, concerns are mounting that the U.K. will lose out post-Brexit as politicians in Europe and the U.S. push to establish protective barriers for their domestic steel industries.
“Unless you believe that China is going to notably decrease exports, which we do not, all other countries will need to race to put up trade barriers or be left the odd man out,” said Seth Rosenfeld, an analyst at Jefferies International in London. “If the U.K. doesn’t follow in the footsteps of the EU and U.S. in establishing higher and higher trade barriers, this would potentially expose the country to being the next easiest destination to ship steel.”
After years of blocking a draft law to scrap an EU cap on anti-dumping duties and bring practices more in line with the U.S.—which has no such limit—Britain was outvoted in December by less import-friendly member states. The final version of the draft legislation still needs to be ironed out with the European Parliament, which in principle favors allowing higher tariffs in certain cases.
Separately, the EU on Tuesday announced five-year tariffs as high as 74 percent on heavy-plate steel products from China to curb competition for EU producers, including in the U.K. The duties follow provisional levies introduced in October at the same rates, depending on the exporting company.
Steel was among sectors Prime Minister Theresa May ranked as a low priority for the two years of EU exit negotiations and trade talks, while the car industry was one rated as high, the Times reported this month, citing a November memo.
Gareth Stace, director of U.K. Steel, said he’s concerned that Brexit will allow more Chinese steel to come to Britain.
“Are we then suddenly going to be the world’s dumping ground for steel, because we actually have a weak regime?” he said in an interview in London.
While China makes half of the world’s steel, it only accounted for about 8 percent of the 6.2 million metric tons of steel products Britain imported last year. Germany and Spain were the next biggest suppliers to the U.K.
British steel is just a shadow of its Victorian-era dominance. Output is now less than 15 percent of U.S. production and less than 2 percent of Chinese supply. Things got so bad that Tata Steel Ltd. tried to sell its unprofitable U.K. assets.
Trade talks may focus on areas which contribute more to the economy. Britain employs 2.6 million in manufacturing industries such as the car sector, which exported a record amount in 2016.
More Chinese supply could decimate the steel industry, said Stephen Kinnock, the Labour lawmaker who represents the area in Wales where Tata Steel’s Port Talbot furnace is located.
“This government has all but stripped Britain of the ability to impose effective tariffs on illegally dumped Chinese steel,” he said in an e-mail. “Brexit must not be used as an excuse for laying our steel industry prostrate at the feet of Britain’s state-owned Chinese competitors.”