It left me scratching my head last month when Donald Trump’s former commerce secretary, Wilbur Ross, felt compelled to strongly back the proposed Nippon Steel acquisition of U.S. Steel in a Wall St. Journal oped. At the same time, a bipartisan gaggle of outraged U.S. senators denounced the deal.
Ross, who was CEO of major steel companies, laid out a persuasive fact-based case that there is no economic or national security threat from the merger, arguing the attacks “only create unnecessary geopolitical tensions, and those, not the acquisition itself, could endanger American national security.” Conservative Columnist George Will echoed this.
U.S. Steel accepted Nippon Steel’s offer of $14.1 billion — reportedly double the offer made by major American steel producer Cleveland-Cliffs, although Cleveland-Cliffs is challenging that assessment.
The Nippon deal is currently under review by the Committee on Foreign Investment in the United States, the inter-agency committee that reviews the national security impact of national security.
What’s going on here? Is the acquisition by a company from Japan, arguably one of the closest and most important U.S. allies, a threat to U.S. security or competitiveness or is it a xenophobic reflex reaction, reflecting the burgeoning economic nationalism in Trump/Biden trade and industrial policies?
In an election year, there has been a bipartisan backlash against the deal.
GOP Sens. J.D. Vance (R-Ohio), Marco Rubio (R-Fla.) and Josh Hawley (R-Mo.) sent a letter to Treasury Secretary Janet Yellen protesting the sale to a firm “whose allegiance is to a foreign state.”
Democratic Sens. John Fetterman (D-Pa.) and Bob Casey (D-Pa.) also sent a letter to Yellen urging disapproval. Fetterman called the deal “absolutely outrageous.” The Democrats rightly chided Nippon Steel for not first consulting with the United Steelworkers. Fair point.
For all his talk about strengthening alliances and “friendshoring” supply chains, Biden appears skeptical.
In a statement, Lael Brainard, a top White House economic adviser, said Biden “believes the purchase of this iconic American-owned company by a foreign entity — even one from a close ally — appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability.”
With U.S. Steel an iconic firm that literally built America, from the Empire State Building to the planes and ships that fought World War II, the quasi-populist angst is understandable. But the cold facts suggest it does not reflect economic reality.
U.S. Steel is no longer a dominant nor technologically leading force, ranked second to NUCOR among U.S. steelmakers, and 27th globally. It is ranked the 573rd largest U.S. company and employs fewer than 22,000. Technological change has increased productivity such that while it took 10.1 worker hours to produce a ton of steel in 1980, it now takes 1.5 worker hours. Seventy-one percent of the steel used in the U.S. comes from American producers.
As for national security, the U.S. military requires only 3 percent of the steel produced by U.S. manufacturers, none of which is supplied by U.S. Steel. Regarding the U.S. industrial base, Nippon Steel has reassured United Steelworkers it would fully honor existing labor agreements and retain the name U.S. Steel. It already owns two steel plants in the U.S. and is a leader in steel technology. Thus, U.S. Steel, a laggard in tech modernization, would likely become more competitive.
The combined heft of Nippon and U.S. Steel would make Nippon Steel the world’s second-largest steel producer, make the U.S. more competitive with China and foster a more integrated, innovative global steel firm, bolstering supply chain security.
Steel is one of the most protected sectors of the U.S. economy, with over 60 percent of imports protected by tariffs. Though the central steel trade problem is caused by China’s heavily subsidized overproduction, the Trump administration also levied 25 percent tariffs on U.S. allies in Europe, Canada and Japan, which Biden removed and replaced with quotas.
If the criteria for approval are national security and industrial base and supply chain security, there is a persuasive case for going ahead with the deal. Indeed, the gap between the facts and the political rejection raises the question: Why?
In part, the horror and indignation seem part of the backlash to the excesses of globalization and the hollowing out of U.S. industry. Again, fair enough. But it is difficult to see how opposing the merger will enhance U.S. manufacturing or result in an America that is more competitive with China.
In a larger sense, U.S. reticence may reflect the American difficulty in adjusting to a diffusion of wealth from West to East in an increasingly multipolar world. An inward-looking economic nationalism is driving populism in the U.S. and the West.
But it’s not 1991 anymore. U.S. GDP is 25 percent of the world economy, and we are 5 percent of the global population — 95 percent of markets are elsewhere. Despite a surge of protectionism, global trade remains roughly at the same level as the world economy before the pandemic. However, there is an unresolved tension between America First industrial policies and building trade and tech networks with like-minded partners.
The Committee on Foreign Investment in the United States could decide to impose conditions for approving the sale to address the concerns of labor and Congress.
Rejecting the deal would also raise some troubling questions. Japan is the largest investor in the U.S., with more than $700 billion employing more than half a million U.S. workers. If more trusted and resilient supply chains are a goal of U.S. industrial policy, then what message is sent to allies and partners by rejecting investment from a publicly owned firm from a key U.S. ally?
And if Japan’s investment is deemed unacceptable, from where is foreign investment welcome?
Robert A. Manning is a distinguished fellow at the Stimson Center. He previously served as senior counselor to the undersecretary of State for global affairs, as a member of the U.S. secretary of state’s policy planning staff and on the National Intelligence Council Strategic Futures Group. Follow him on X/Twitter @Rmanning4.