Britains Steel Industry

Question: Trade theories and current crisis of british steel industry. you must used quite few different countries. Demonstrate the application of trade theories applicable in the British steel industry context. Answer: In the recent times, the British steel industry is facing the heat as there are repeated job cuts as owing to the lack of demand of steel, the global steel prices have slumped by more than 50% since June 2014 (Robinson, 2015). Additionally with China in doldrums, it is expected that the global demand would remain slump in the near future and hence the prices would not increase drastically. The condition is further worsened by a strengthening of the UK pound which makes importing steel a more viable option for the various British customers (Bowler, 2016). The slump in the steel industry can be explained on the basis of Heckscher-Ohlin Theory. As per the Heckscher-Ohlin theory, amongst the two nations one of them would be comparatively more efficient in the production of one good and thus would be able to do so as a lower cost. Since, the lower cost producer has comparative advantage, only it should produce that good and trade the surplus with the other country and in the process both the countries gain. This comparative advantage is derived primarily on the basis of national factor endowments such as labour, land , capital. In the case of UK-China, it is apparent that China is the comparatively more competitive producer of steel primarily because of lower labour costs, economies of scale, availability of cheap man power along with government support (Dombusch, Fischer Startz, 2012). As a result, it makes sense for UK to import steel from China as this would be cheaper than the steel domestically manufactured (Robinson, 2015). This is further facilitated through the appreciation of pound which tends to make imports even more attractive. As a result, it is logical that the customers would shift to cheaper Chinese substitutes in order to remain competitive. This is apparent from the increase in imports of steel from China which reached the levels of 687,000 tonnes in 2014 as compared to 303,000 in 2013 (Bowler, 2016). Hence, the closure of less competitive British Steel industry is bound to happen sooner rather than later. It is advisable that the UK with its competitiveness lying in engineering and skilled manufacturing especially automobiles import the steel from China and instead focus on increasing the sales of high technology goods along with automobiles which they can provide to China since the competitive advantage is with UK. Thus, through international tra de theory both the nations can benefit by engaging in trade (Dombusch, Fischer Startz, 2012). References Bowler, T 2016, Britain's steel industry: What's going wrong?, BBC News, Available online from https://www.bbc.com/news/business-34581945 (Accessed on March 27, 2016) Dombusch, R, Fischer, S Startz, R 2012.Macroeconomics, 10th edn, McGraw Hill Publications, New York Robinson, M 2015, New crisis for British steel industry as Tata announces nearly 1,200 job losses in Scotland and Scunthorpe, Mail Online Website, Available online from https://www.dailymail.co.uk/news/article-3280523/New-crisis-British-steel-industry-Tata-expected-announce-1-200-job-losses-UK-today.html (Accessed on March 27, 2016)