No need to steel ourselves for sterling weakness

With sterling again under downward pressure I am once more taking the liberty of posting a short section from our pre-EU referendum research "Brexit II – Even further OUT" (April 2016):

Two particular recent headlines have highlighted the contradictions at play in the run-up to our EU referendum. One has been the effect uncertainty is having on the pound, or more specifically the downwards pressure being put on it. The other noteworthy news of late has been the revelation that Tata Steel, the owner of what we knew once as British Steel, is placing its UK assets up for sale, and more specifically its considerable works around Port Talbot. This development was to some all the more disquieting because it comes so soon after the closure of the Redcar steel works, and threatens over two thousand jobs directly and still more along the supply-chain, and in tertiary sectors.

Now, I could go down my preferred route and argue that as difficult as it is to stand back, we should allow market forces to determine where Britons should be employed. I would recommend that our public spending efforts should be focused not on intervention but on education, training and retraining, to speed and ease how workers transition between sectors;

a reorientation which any healthy economy needs to undergo if it is to remain fit for modern purpose. What then of the vocal calls for state intervention to protect a ‘strategic’ industry? Such demands are naively Luddite at their very core and potentially open-ended, indeed viral. After all, where do we stop intervening? And how much state money do we waste before we give up?

We only need remind ourselves of the state intervention in Rover Group so it could continue ‘volume car making’ rather than allow a private sector takeover to create a niche sports car maker. If we reflect on this episode we will realise the wasteful, indeed seemingly criminal, and ultimately forlorn nature of such tinkering. Whilst some would claim the UK has suffered avoidable economic and social pain I would say it has gone through essential rebalancing; and with job numbers at record highs and unemployment comparatively low across most of the country, I would claim the evidence is on my side. Continuing with efforts to preserve UK steel making there are those who point the finger at China. They argue that the UK steel industry would not find itself in its parlous state were the UK State to take appropriate measures against the dumping of Chinese steel into ‘our markets’. My response is not to challenge the very subjective, indeed dubious, concept of ‘dumping’. Rather, I would point to the tariffs imposed on steel imports from seven countries – including UK-made steel – by the United States, and the impact this has had on shifting China’s export attentions.

Few can argue that were Brexit fears to continue to exert downwards pressure on the pound this would help Tata’s efforts to find a buyer for its UK assets, which after all, produce traded goods whose competitiveness can only improve with a weakening pound. There is, of course, the counter-argument that fears over Brexit and the potential for such a move to trigger trade sanctions against the UK will hardly be viewed favourably by potential buyers. Well, as I have already pointed out with new ‘preliminary’ duties on cold-rolled steel imported to the US, the UK is already a victim of trade sanctions imposed by a ‘friendly trade-partner’, and the EU has afforded the UK practically no protection against these. In fact, often well intended, but flawed EU regulations have acted to raise UK production costs, forcing us to join others across ‘The Union’ in becoming ever less competitive. There has of course been the criticism of the UK from the EU that we stood in the way of following the US in imposing “anti-dumping” import tariffs on China. Rather than reflect badly on the UK this claim is another indictment of the EU: whenever its lack of competitiveness is exposed it claims it is being “dumped on”. The plain fact is that the US tariffs on Chinese steel came after considerable lobbying by US based steel makers including Arcellor Mittal, whose considerable French operations explains why the UK was included in the seven country super-tariff list compiled by Washington, and not our Gallic neighbours.

The simple truth is that the UK is Europe’s most flexible economy and the one which is prepared to trade most fairly. Just consider the strong performance of our steel-intensive car makers, whose success has come about despite the loss of Rover Group. Our car making volumes are amongst the most impressive across the developed world, with demand for what we assemble strongest from within the UK and across the developing world. Moreover, our steel-intensive construction activity is also increasing. Whether we source our steel needed from our own mills or from overseas should not matter quite frankly. What should mater is continued domestic growth and engagement with the developing world. And neither of these relies on our membership of the European Union, but on us remaining competitive and adaptable; to both of which ends a freely floating pound should be welcomed. And we only have a free-floating pound because we were fortunate enough to EXIT the ERM in September 1992.