Timmy elsewhere

At City AM:

Tim Worstall, senior fellow at the Adam Smith Institute, says No

Far from rejecting cheap Chinese steel, we should thank the oppressed Chinese taxpayer for making us all richer. Subsidies are a distortion to a market and we normally don’t like such distortions. But think through what the allegation here is.

The Chinese government is subsidising the price of the steel which is flooding out of China. Some call this a subsidy to those steel producers: it isn’t, it is a subsidy to steel consumers. That’s us, of course – we are all consumers of steel in tin cans, cars, fridges and the skeletons of lovely high rise buildings. This can indeed be seen as unfair on other producers of steel. But we don’t run the economy for the interests of producers; we run it for us, the consumers.

The Chinese government is, quite literally, sending us free money that it has taken from its citizens. This might not be a bright idea for the Chinese, but what else should we do but say “thank you. May we have some more?”

28 thoughts on “Timmy elsewhere”

  1. ‘Some call this a subsidy to those steel producers: it isn’t, it is a subsidy to steel consumers. That’s us,’

    This will eventually penetrate the dimmest of skulls, unless those skulls are possessed by people with a vested interested.

    It’s like people complaining that Uber is taking away existing cab drivers’ livelihoods, as though cabs existed to provide drivers with livelihoods.

    On which, by the way:
    http://www.breitbart.com/tech/2015/11/05/if-bernie-sanders-hates-uber-why-is-it-the-only-cab-service-he-uses/

  2. I remember some representatives from the European airlines complaining that the Middle Eastern airlines were working at an unfair advantage because they were being subsidised by their governments with the result that tickets for passengers were cheaper.

    They never did explain why this was a problem I should be concerned about.

  3. Tim, I am not averse to your argument. However I also acknowledge that what I save in buying imported steel I then subsequently lose via the increased tax that’s demanded from me to keep our unemployed steel workers housed and fed.

  4. Mmmmm…
    I think this depends on how good economists you think the Chinese are.
    Ask yourself why they’re doing this? The Chinese either have or are building steel-making capacity in excess of world demand.. By subsidising steel into a fixed sized or falling market they’re forcing capacity reduction on their competitors. This is costing real money. They’re not doing it for fun.
    One answer, is they foresee being able to establish a large enough proportion of world steel-making capacity to dictate prices. So enabling them to earn back the subsidy cost & turn a profit. Not a bad strategy. There’d be a lagtime for the rest-of-the-world to build new or re-commission mothballed steel production. The lagtime would be greatest – out to infinity, maybe – in the Western developed countries, as environmental pressure groups used the legal systems to prevent this happening. Eventually, the Chinese would lose their dominance & the market in steel prices would return to normal.
    The question is: is this, in the end, a zero sum game or do the Chinks make a buck?

  5. So Much For Subtlety

    Everything said is true, but the question is whether they intend to drive everyone else’s steel industry into the dust, after which they can charge what they like.

    A short term benefit may not be a long term gain.

  6. SMFS: i really doubt the barriers to entry into the steel market to be so high that the chinese can recoup their losses

  7. Economists really hate this argument. Because there’s a desperate shortage of cases where it can be shown that he policy worked. The losses from the price reductions always work out (in any case I’ve heard about at least) larger than any future profit.

    Maybe the Chinese don’t know that (and I wouldn’t ascribe it to a plan at all. It’s just individual producers reacting to short term pressures) but they bloody well ought to given the pasting they’ve taken in rare earths in the past 5 years. Trying to exploit a contestable monopoly just doesn’t work.

  8. So Much For Subtlety

    Emil – “i really doubt the barriers to entry into the steel market to be so high that the chinese can recoup their losses”

    I would be willing to bet Britain is close to having built its last steel mill. Another one will never be built. Even Australia cannot get a new coal mine past the Greenies and their NIMBY allies.

    The planning approvals for a steel facility on a green field site would be horrendous. Another runway at Heathrow would be a walk in the park by comparison. How is that going?

  9. SMFS;

    a) it doesn’t need to be in Britain. India or somewhere in Africa is enough not to allow the Chinese to recoup their losses
    b) we can’t really blame the Chinese for our Nimby’s and greenies

  10. Everything said is true, but the question is whether they intend to drive everyone else’s steel industry into the dust, after which they can charge what they like.

    This argument is the one usually put forward by Lefties in support of protectionism: has it ever been shown to have actually occurred, in any industry, ever, i.e. an entity subsidising the price of something to the point that all competitors are forced out of the market, at which point that entity enjoys a monopoly and can charge what it likes?

  11. So Much For Subtlety

    Emil – “a) it doesn’t need to be in Britain. India or somewhere in Africa is enough not to allow the Chinese to recoup their losses”

    Well no one where outside the former Soviet Union, with maybe the exception of Brazil, is in any position to challenge China right now. But it is possible. However I don’t think we should just assume moving in and out of this industry is frictionless.

    “b) we can’t really blame the Chinese for our Nimby’s and greenies”

    Well the Russians and Saudis have been funding America’s so they have probably been funding Britain’s. We inflict a lot of stupid and pointless damage on ourselves. We should stop.

    Tim Newman – “This argument is the one usually put forward by Lefties in support of protectionism: has it ever been shown to have actually occurred, in any industry, ever,”

    I can’t think of one although it has been tried. It was the fear behind the Japanese car industry. They might have succeeded if the West hadn’t forced them to share their technology with the West.

  12. has it ever been shown to have actually occurred, in any industry, ever, i.e. an entity subsidising the price of something to the point that all competitors are forced out of the market, at which point that entity enjoys a monopoly and can charge what it likes?

    Rockefeller’s Standard Oil?

    Of course, it didn’t end well when the courts decided it was a monopoly and broke it.

  13. “Economists really hate this argument.”
    Not everything’s economics ,though, is it Tim? The Chinese don’t have to have read economics books. It might not work in the long run, but the disruption whilst its failing to work, mightn’t be pleasant. And there’s the factors that are not economic. As is said above, how would you get permission to open a steelworks in the UK? Economics would be a very small factor in that discussion.

  14. It was the fear behind the Japanese car industry.

    I thought the greatest fear behind the Japanese car industry was that they could create 4wds and motorbikes which didn’t piss oil everywhere, whereas we had been telling customers for years that such things are “unavoidable”. I don’t know what technology we forced them to turn over to us, but moving away from paper gaskets in Landrovers in the 1980s was probably a technological breakthrough at the time for the British car industry.

    There wasn’t much wrong with our steel though, not that I’ve heard anyway. Credit where it’s due.

  15. Not everything’s economics ,though, is it Tim?

    I have some sympathy with this argument: I think there is a case for a government propping up an industry which employs lots of otherwise unemployable young men, producing something tangible which customers want – even if the price is high (i.e. steel). But what usually happens is the thing being produced is utter shite (cars) or the money, or – in the last couple of decades – the money which should be earmarked for keeping factories open and young men employed has been captured by the Middle Classes to keep their dim but university educated offspring employed instead. We don’t have factories any more, we have NGOs and government bodies stuffed full of SJWs. Give me expensive steel any day.

  16. SMFS:
    OK Japanese foreign investment was a way of getting round quotas. (partly at least- other incentives exist) This does not apply to this Chinese steel brouhaha. The implication is not that the Sinos have better tech nor cheaper costs of production even, but that their government helps.them.
    Arguing to negate this help to save British puddlers is not to balance it against the upside. That is cheaper costs for the domestic steel customers. And they are manufacturers higher up the value chain. So i would argue that British Manufacturing is being helped by the Chinese government.

  17. Is there a difference in outcome between this and well meaning virtue signallers in the First World sending their old clothes to Africa. Which is widely thought to kill off the chances of African clothing manufacturers getting established.

  18. @TimN, I suppose you have a point, assuming you’ll be happy in 10 years time, once the moribund remnants of the European aviation industry have finally been eaten by their grossly overpaid staff, to have to change planes in Abu Crappi when flying from London to Paris.

    @TimW, yes, we get the argument but we all do have to produce in order to be able to consume. I get to consume no cheap and subsidised Chinese steel unless I am producing something. To the extent that the subsidy is (like almost all strategic subsidising) a long-term market-cornering initiative, it’s something we should respond to with more than just “thanks for the cheap steel”.

  19. “how would you get permission to open a steelworks in the UK?” Good grief, why would you want to? How much coking coal do we mine annually? How much iron ore? The steel works on Teesside were built there originally because it was a convenient location for bringing together ore and coal which were located not far off. It also was reasonably well placed for selling steel to the industrial north and north-east.

    “To the extent that the subsidy is (like almost all strategic subsidising) a long-term market-cornering initiative”: isn’t it far more likely to be a “stop the proletariat stringing me up” subsidy?

  20. I suppose you have a point, assuming you’ll be happy in 10 years time, once the moribund remnants of the European aviation industry have finally been eaten by their grossly overpaid staff, to have to change planes in Abu Crappi when flying from London to Paris.

    I’ll cross that bridge when I come to it.

  21. Exactly. The comment I made on the Guardian was: so, you want to force UK steel consumers to pay more for their steel? Immediately followed by demands from those steel consumers for protection when they start going bust.

  22. The trouble with this stupid protectionism game is it completely missed the point.

    Scunthorpe, Redcar et-al at are all falling over because of a combination of ridiculous working practices and government environmental and energy policies.

    The working practices are largely thanks to the nationised era, (it’s never easy to fix a workforce that has become institutionally lazy), and the government were told when they introduced the environmental regulations it would merely shift steel production to parts of the world where no-one cares.
    Why is everyone wandering round now looking surprised exactly what was predicted has come to pass?

  23. Is there a difference in outcome between this and well meaning virtue signallers in the First World sending their old clothes to Africa. Which is widely thought to kill off the chances of African clothing manufacturers getting established.

    The other, possibly bigger problem is the cotton and textile subsidies and tariffs in the richer countries.

  24. Scunthorpe, Redcar et-al at are all falling over because of a combination of ridiculous working practices and government environmental and energy policies.
    probably more to do with high western wages, which is a good thing, but does rather oblige us to be much better at doing anything that low wage countries also do, or doing something they can’t do.

  25. The high western wages wouldn’t be nearly so much of a problem if they sacked 50% of them, and then made the rest do some work. Honestly, I’ve seen some lazy workforces, but only in the UK steel industry have I seen whole teams of fitters so habitually lazy they don’t actually leave the mess room all shift (or even bother donning overalls), found the fulltime management team for a part of a site closed in the 1970s, or where the control room of a broken down generating plant was fully staffed two years after it came offline with little likelihood of ever returning to service…

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