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After Manufacturing
Steel Overcapacity Rattles Europe

20 percent of jobs in the steel industry in the EU have disappeared since 2008, and a huge overcapacity in China (driven by the government assisted bubble in manufacturing capacity which has distorted the Chinese—and global—economies) threatens more cuts. Several EU governments have come together to write a worried letter to the European Commission urging action:

“The European Union cannot remain passive when rising job losses and steelwork closures show that there is a significant and impending risk of collapse in the European steel sector,” stated the letter, dated Friday and addressed to three members of the European Commission and a minister from the Netherlands and seen by the Financial Times.

“The commission should make full and timely use of the full range of EU trade policy instruments,” it said.

[…]

The letter also argued that in order to safeguard the competitiveness of sectors such as steel, the most efficient plants should not be subject to what it called undue carbon costs.

The unwinding of the China bubble is going to put lots of pressure on producers, economies, central banks and the world trading system. Central banks all over the world are trying to keep their currencies as low as possible—a measure that promotes exports and deters imports. China’s currency is likely to fall as authorities there work to promote exports, provide relief to debtors and banks struggling with the consequences of massive over-borrowing and over-building.

In the long run, there is no protecting high levels of employment in industries like steel in places like Europe. A combination of high wage costs, high land prices, and high energy prices (due to taxes and anti-pollution regulations) make it harder for the steel industry to survive at all. And where the industry manages to hold on, it will be forced to accelerate the development of automation: the more expensive your workers are, and the more you worry about cost competition, the better robots look. The European steel industry of the future is likely to be more specialized, and have many fewer employees. The EU is fighting to slow what is an irresistible process.

The real problem—and this goes far beyond the EU—is to start thinking about what jobs are going to replace steel jobs. That’s going to require a deep shifts in European culture, law and policy: Europe needs to become more entrepreneurial, and to accelerate the development of a small firm based service economy.

This is not going to be easy; countries like Germany and France have been fighting for decades to slow the decline of manufacturing jobs, without doing nearly enough to prepare for a new, post-mass-manufacturing economy.

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  • Anthony

    What’s Holding Back World Economy? Certainly, more than adjusting to a new post-mass-manufacturing economy lies at root perhaps.

    “Seven years after the global financial crisis erupted in 2008, the world economy continued to stumble in 20015. According to the United Nations’ report World Economic Situation and Prospects 2016, the average growth rate in developed economies has declined by more than 54% since the crisis. An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007, while inflation has reached its lowest level since the crisis.” http://www.project-syndicate.org/commentary/whats-holding-back-the-global-economy-by-joseph-e-stiglitz-and-hamid-rashid-2016-0

  • Jim__L

    What a phenomenal opportunity to use steel in one-time (or once-in-a-generation) infrastructure projects!

  • Fat_Man

    “The real problem—and this goes far beyond the EU—is to start thinking about what jobs are going to replace steel jobs.”

    Border guards.

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