Steel showdown: Sunak’s defence ambitions face China’s dominance – Matthew Brooker

Matthew Brooker discusses the significance of steel production in the context of national security and military capability, drawing parallels between historical perspectives, such as Winston Churchill’s comparisons during World War II, and modern challenges faced by countries like Britain and its allies. He highlights the evolving nature of warfare, emphasizing the importance of technology, defence systems, and strategic planning alongside traditional factors like steel production. Brooker’s analysis delves into the complexities of globalization, interdependence, and the balance between self-sufficiency and global trade dynamics in the realm of national defence.

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By Matthew Brooker

In April 1941, Winston Churchill wrote to Japan’s foreign minister to caution the country against entering World War II on Germany’s side, in a letter that culminated with a comparison of steel production in the US and Britain relative to the Axis pact’s Asian member: almost 90 million tons versus 7 million tons. It went without saying that output of the metal was a measure of industrial and therefore military might. The letter aged well, the UK’s wartime leader observed in his subsequent history of the conflict.

Britain is again contemplating the needs of war preparedness and defense economics. Prime Minister Rishi Sunak pledged last month to raise military spending to 2.5% of gross domestic product by 2030 and appears poised to make this a central election issue. The country faces an “axis of authoritarian states” that includes Russia, Iran, North Korea and China, Sunak says. Has the premier looked lately at the disparity in steel production between Britain and this list of potential adversaries? By Churchill’s yardstick, the position might already be considered close to hopeless.

China alone accounts for more than half of global output, producing 1.02 billion (metric) tons last year, or more than seven times as much as India, the second-biggest producer, according to figures from the World Steel Association. Add the contribution of Russia and Iran, and this modern-day axis pumps out more than three times as much metal as democratic allies the US, Japan, South Korea, Germany, France and Italy combined. Britain’s steel production was a paltry 5.6 million tons last year, ranking it 26th in the world.

The question arises, then, of how concerned Britain and its allies should be about this imbalance. The world has changed vastly in the eight decades since World War II — but, in some ways, not as much as we might have thought, at least prior to Russia’s invasion of Ukraine. We live in a technology-rich environment of artificial intelligence, cyber warfare and simulation planning, all of which may prove critical in any broad conflict. But war will never be completely virtual. Two years of attritional fighting in Ukraine have reminded us of the enduring importance of manpower and materiel: the ammunition, artillery and tanks necessary to sustain a war effort, all of which require steel. Past and future coexist on the battlefield. “World War I with drones” is how Gerard DiPippo, a senior geo-economics analyst at Bloomberg Economics, characterizes the trenches of Ukraine.

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That doesn’t make the gulf in steelmaking capacity automatic cause for alarm. Not all steel is created equal. Only specialty metal is suitable for munitions, such as ballistic steel that has been hardened to withstand bullets and other projectiles. These high-performance alloys are a tiny proportion of overall production: Some estimates suggest US military applications account for less than 1% of the country’s domestic steel output; the vast majority of production goes to civilian purposes, such as infrastructure and housing. 

Nothing better illustrates the point than defense expenditure. The US, with about 4% of global steel production, has by far the world’s biggest military budget, outspending second-ranked China by a factor of more than three, according to data from the Stockholm International Peace Research Institute. The UK, having dropped to an also-ran among steel producers, remains the fourth-largest military spender. There’s no meaningful correlation between the size of a country’s steel industry and its military capability. 

Nevertheless, the feeling persists that there should be — that the health of domestic steel industries is intrinsically tied to national security. Such anxieties stem from steel’s historical significance as a symbol of industrial strength and are easily inflamed: Witness the handwringing over Nippon Steel Corp.’s planned acquisition of United States Steel Corp. or the furor surrounding Tata Steel Ltd.’s handling of the former British Steel.

Globalization was a project predicated on peace, underpinned by the idea that knitting nations together in the mutual interdependence of trade would make them less likely to go to war. If steel or any other industry shrank because it was being outcompeted by lower-cost producers in another region, then that was the way the system was designed to work. All countries would end up better off as they focused on their comparative advantage. What if globalization breaks down, though, leaving the steel furnaces on one side and mostly software developers and wineries on the other? The economics change when what’s at stake is national survival rather than efficiency of capital allocation.

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In such circumstances, the appeal of self-sufficiency naturally rises. This, though, is an illusion. Interdependence will remain a fact, as it was even during World War II, when Britain’s early survival depended on aid from America and the wider resources of its empire. The British Army’s Ajax armored vehicles are assembled in Spain, as Trevor Taylor, professorial research fellow at the London-based Royal United Services Institute, points out. They use metal from Sweden; UK submarines, meanwhile, are made with steel from France. The strength of friendly supply chains is a more critical factor than the size of indigenous production capacity.

Military analysts don’t lose sleep over China’s vast lead in steel production, which in any case is more a signifier of overcapacity and internal imbalances in an investment-heavy economy that has just gone through a gigantic real estate bust. The small share of output that democracies currently devote to military uses means there is plenty of room to ramp up if needed, and in any protracted conflict there would be time to adjust the industrial structure (as Russia appears to have managed already in its war with Ukraine). The more critical issue, identified by Sunak in his call to increase military spending, is the adequacy of munitions stockpiles and defense systems that are ready to respond immediately to any challenge.

The gap in steel production may look scary. Unlike in Churchill’s day, there are more important things to worry about.

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