As David Cameron vows to raise issue of Chinese steel with Xi Jinping, what are his options?

 
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The dumping of Chinese steel into Europe has helped drive prices down even further (Source: Getty)

Britain’s industrial towns are facing an uncertain future as job losses in the steel industry continue to mount. Calls from those affected to “do something” are understandable.

But the truth is that, under current government policies, this once iconic industry (like coal before it) is becoming increasingly unviable.

So in the case of SSI, whose Redcar plant was mothballed last week, while business secretary Sajid Javid rightly committed to support the affected workers with a £80m programme to help them re-skill or start their own businesses, the government also correctly resisted demands to perform CPR on a failing site with the aid of taxpayers’ money.

Read more: Tata Steel confirms 1,200 job cuts in the UK

Does this mean the government should abandon steel? Absolutely not. But contrary to Jeremy Corbyn’s call for Britain to follow the lead of economically stagnant Italy, and take over the running of loss-making steel works, its action should be practical and, crucially, sustainable.

The headwinds facing the steel industry have not come out of the blue. While it’s true that the global collapse of steel prices (they have almost halved in a year) has brought a new urgency, other drags on the industry, including cripplingly high energy prices, are home-made disasters.

Read more: Xi Jinping's visit overshadowed by UK steel concerns

British manufacturers typically pay a far higher price for energy than their European competitors, not least because of the green energy levies which add directly to the cost of producing a tonne of steel.

When the margins are slim, these additional costs can be a straw on a camel’s back. Ironically, these green taxes often don’t even cut carbon emissions globally, as production is simply outsourced to countries with fewer environmental regulations and much lower costs.

The dumping of subsidised steel by China into European markets isn’t going to end any time soon, and Europe is in no hurry to come up with new tariffs.

Cameron has vowed to raise the issue of imported Chinese steel with President Xi Jinping this week, but what really can he say? That he’ll whack a vast tax on China’s imports? This would be no more of a long-term solution than promising failing British steel plants an indefinite subsidy.

Cuts to energy costs, tax breaks and reductions in other overheads are the main weapons the government has. It should use them.

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