By Adam Smith
Chinese president Xi Jinping’s recent tour of Manchester seemingly gives the global economic giant’s assent to George Osborne’s much-touted Northern Powerhouse. With promises of investment secured, a golden era for UK-China relations has been ushered in, with the North’s economy set to benefit. Osborne’s Northern Powerhouse has become entrenched in the political lexicon, and the hope of an economically prosperous North to rival London edges closer to reality thanks to Chinese investment. However, Xi’s visit comes as the latest chapter in the demise of Britain’s steel industry across the North East of England, with China itself playing a leading role in this depressing paradox.
With thousands of jobs lost across the North East and major companies facing liquidation the industry finds itself in a desperately precarious situation. Continued dumping of subsidised Chinese steel in the market has driven down the commodity’s price, essentially condemning the UK steel industry to an accelerated managed decline. Imports of Chinese steel have quadrupled in the last two years, highlighting the pressure emanating from the East. Osborne’s enthusiastic political rhetoric for a Northern Powerhouse implied the government would challenge Xi’s steel subsidisation, and attempt to stem the flow that is smothering the region’s economy. Yet with barely a muttering the UK government seems content to let the industry fail; the promise of Chinese investment elsewhere seemingly too lucrative to risk rocking the boat.
Foreign Secretary, Philip Hammond, confirms this deferential position towards Xi, suggesting that Cameron would not press Beijing on the controversial issue. The vast national benefits of closer ties with the world’s second largest economy seem to have led to the marginalisation of the steel industry’s plight, effectively taking it off the table for discussion. Struggling British manufacturing is seen as a secondary concern to China’s involvement in a multi-billion pound nuclear deal and further investment being pumped into health, technology and financial services. The grandiose vision of a Northern Powerhouse promptly sacrificed for London-centric interests, raising questions of the veracity of Osborne’s claims that the Tories are championing the North’s cause. This does little to allay concerns in the North East that the Westminster elite are truly committed to redressing North-South disparity.
Many in the region argue the government has the capacity to rescue the industry and simply lacks the political will to do so. Interventionist industrial policy has saved jobs in the past, yet there are strict EU rules that specifically restrict state aid for steel industry, lending credence to the position that the government’s hands have been tied. Signs of action have materialised, as earlier this year the government voted for increased anti-dumping measures against certain Chinese steel products. But with much of the industry already eviscerated it looks like too little, too late.
The loss of the industry and its specialist skills are a devastating blow to a region with already high levels of unemployment due to a combination of factors, which could have detrimental effects on the relationship between the North and Westminster. Undoubtedly this dents Osborne’s Northern Powerhouse in the short-term, but the relationship secured with Beijing should provide benefits going forward. EU rules, economic modernisation and dependence on Beijing converge to ensure leaving the UK steel industry to fail is the government’s most practical option. However, it is difficult to envisage Germany or France displaying such apathy towards the loss of this key strategic industry.
Operating in a global economy makes introducing protectionist policies around the faltering UK steel industry an unfeasible long-term option. Continuous buffeting by falling prices, high energy costs and cheap imports have taken their toll on the industry, with the global surge of competition having apparently engulfed what remains. Abandonment of this historic industry is painful and will reverberate around the North for years to come, but is a defensible course of action due to the political and economic landscape. Thatcher’s government started this de-industrialisation of Britain and Cameron appears poised to pen its final chapter, the transition to a service-based economy nearly complete.
It must be conceded that UK manufacturing cannot realistically compete globally and thus logically Britain’s future does lie in services. However, this pursuit of economic modernisation by the Conservatives has led to industrial decay in the North East, with little offered as a replacement. Governmental reaction to the steel industry’s crisis reaffirms the Conservatives’ enthusiasm for the deindustrialisation of the North East. As of yet, equal eagerness to find a solution for those now unemployed has not occurred. These woefully inadequate plans highlight the need for improved governmental planning and diligence to ensure the Northern Powerhouse agenda progresses from a political fantasy into a productive reality.
Photograph: 96tommy via Flickr