Problems in the steel industry By 2016, China's steel industry had expanded rapidly and accounted for just over half of world production but China's economy had huge excess capacity: 30% in the case of steel which led to cheap export prices. Chinese economic growth in real terms was slowing and aggregate supply was greater than aggregate demand. Profit margins were already small but the collapse of world steel prices which fell significantly in 2015 (as shown in Fig. 1.1) worsened the situation. The dumping of cheap Chinese imports of steel caused problems for the United Kingdom (UK) steel industry. There were thousands of job losses at three major steel factories which was devastating news for UK steel workers and the regional economies. Some argued that despite this there was no case for the UK Government to intervene to save the steel factories. Steel is used in the construction industry and in the production of cars, household appliances and many other goods. Companies that use steel are much more numerous than companies that produce it. If steel prices are low, the costs of companies that use steel are reduced. So there should be no complaints or pleas for government intervention about supposedly unfair competition from cut-price imports. Industrial policy is a valid aim of government when it comes to identifying market failures. There is even a strong case for rescuing industries that face temporary external shocks, such as occurred with the United States (US) Government's rescue of Chrysler and General Motors in 2008 as the economy fell into deep recession. For steel, however, it is a buyers' market. The closure of unprofitable steel factories is not a market failure at all. It is a reflection of costs being too high and the industry being uncompetitive. Rescuing steel factories with public money would do nothing to alleviate the problem of overcapacity. It would divert scarce resources from more productive uses such as long term investment in infrastructure. [Figure 1.1: Changes in world steel price, 2014-2016]