The British government might be taking the first steps towards what many considered unthinkable, the part-nationalization of a manufacturing industry in the interests of the nation; specifically, Tata’s U.K. steel business.
The U.K.’s supposed uncompetitiveness in the steel industry has been put down to global oversupply. China, Japan, and South Korea are all seeking to protect their own capacity through so-called dumping of cheap steel on world markets. But there is a deeper context—and steel is but one of the many victims in the long sorry story of the decline in the U.K.’s manufacturing capacity. It would seem the government is unable to achieve the long-touted goal to “rebalance” our economy—at least, under current policies.
One sign of our unbalanced economy is the persistent balance of trade deficit—we buy more than we sell. This deficit does not indicate U.K. manufacturing is intrinsically uncompetitive compared to foreign competition, rather that our exchange rate with other currencies is over-valued. In theory, market forces should force currency devaluation on a nation with a trade deficit—but such forces keep the pound “high” because we attract sufficient foreign exchange to meet our needs (and prevent depreciation). We do this, not through exporting, but through the capital account.
