The big story behind Port Talbot

In today’s printedition of the New Statesman I have a brief review of Yanis Varoufakis’s new book. (The review also looks at Piketty’s newly published collection and translation of newspaper articles. I’ll talk more about each when the review appears online, but for now you can read a similar (in parts) double reviewby Paul Mason.) The organising macroeconomic theme in his book is the need to find systems capable of successfully dealing with current account surpluses. In my review I say I’m not sure whether this framework is really capable of holding up everything that the author wants it to support, but there is no doubt of the importance of the issue. For example, it seems to me this is the framework, albeit at a more industry specific level, with which to see the current crisis over the threatened closure of the UK’s steel plant at Port Talbot.

The surplus in question here is the surplus Chinese capacity to produce steel. Ambrose Evans-Pritchard in the Telegraph, who has a similar perspective, reportsan OECD estimate that China's excess capacity is over twice the size of total European Steel production. Because China is able to subsidise production in various ways, this means this steel can beat UK production on price. The US department of commerce is reportedas thinking that the subsidy on some types of steel justifies a tariff of 236%!

If this is correct, then this story is not about neoliberalism or the free market, but a story of a rigged market. To put it another way, it is a market where one set of producers have the ability to eliminate their competitors by flooding the market at a loss because they have the ‘deep pockets’ of a state behind them.

The EU have been trying to raise tariffs against Chinese steel producers for three years, but have been blockedby a coalition of countries led by the UK. The UK Business minister Sajid Javid has been quite explicitabout this: he prefers cheap steel because it helpsother parts of UK industry. It may also have something to do with wanting to curry favour with China because of other matters (which was the point of John McDonnell’s Little Red Book stunt, if only he hadn’t started reading from it!). This is not Javid upholding the principles of a free market, but instead allowing a large state to rig a market. The irony in this case is that the state in question is not the one he works for. 

Postscript (11/4/16) For more detail, see this from Ben Chu