The Biden administration let it be known last week that it is ready to follow through on the opposition to Nippon Steel’s $15 billion bid for Pittsburgh-based U.S. Steel that President Joe Biden first expressed in March. His replacement atop the Democratic ticket, Vice President Kamala Harris, has recently come out against the deal, too.
By the Editorial Board
The decision, which is not yet official pending the report of a foreign investment advisory committee, would make little sense, even in the context of Mr. Biden’s project to promote domestic manufacturing. The president has spent billions of dollars in this effort. Under both Mr. Biden and his predecessor, Donald Trump, the United States has ring-fenced the steel market with stiff tariffs to stop cheap imports, attract investment and stimulate domestic production. The bid by Nippon Steel, which promised to inject $2.7 billion of new capital and supply better technology, would seem to be a win for those policies — a perfect example of “friendshoring.”
What’s truly inexplicable, though, is the likely rationale for the ban: national security. Perhaps in the 1980s, Japan could have been considered a strategic economic threat. It was fear of “Japan Inc.” that prompted Congress to authorize presidents to block prospective mergers on national security grounds, after vetting by the body currently reviewing Nippon Steel’s bid: the Committee on Foreign Investment in the United States, or CFIUS. Today, though, Tokyo is one of Washington’s closest friends and a critical ally in the United States’ confrontation with China. Japan is boosting its defense capabilities, and it has been helping the United States slow China’s development of advanced technologies. Members of Congress have slammed Nippon Steel for a joint venture with China’s state-owned Baoshan Iron & Steel, but the Japanese, in deference to those concerns, exited the Baoshan partnership last month.
At $7.3 billion, the only U.S.-origin alternative offer for U.S. Steel, by Ohio-based steelmaker Cleveland-Cliffs, is less than half what Nippon is willing to pay for a company that might be iconic but has slid to 24th-largest among the world’s producers. Along with the hostile signal it would send other geopolitical allies interested in investing in U.S. industry, the lack of any plausible economic reason to block this sale leaves politics as the only explanation — specifically, the politics of winning Pennsylvania, and its 19 electoral votes, in November.
In this crucial battleground, which went for Mr. Trump in 2016 and Mr. Biden in 2020, some 3,000 people work for U.S. Steel’s Pittsburgh-area plants, out of 3,800 total employees in the state, and the United Steelworkers of America is a source of money and volunteers for Democrats — though Mr. Trump has made inroads among the rank and file. In January, he was the first of the remaining major candidates to echo the union’s position. This apparently compelled Mr. Biden to argue that “it is vital” for U.S. Steel “to remain an American steel company that is domestically owned and operated.” Last week, Ms. Harris declared that the American steel champion “should remain American-owned.”
The union’s ostensible reason for opposing the Japanese bid is that it lacks the intent and financial wherewithal to meet the current labor contract’s provisions on pensions, retiree health care, investment and profit-sharing. That seems debatable since Nippon Steel has publicly committed to abide by U.S. Steel’s collective bargaining agreement and not shift jobs abroad. Meanwhile, U.S. Steel has warned that it will have to reduce its workforce in the state and possibly move its headquarters out of Pittsburgh if the deal does not go through.
And there’s more. The Alliance for Automotive Innovation, a lobby group for U.S. carmakers, has warned members of Congress that a combination of U.S. Steel and Cleveland-Cliffs would threaten competition. It would control all of the nation’s blast furnace steel production and between 65 and 90 percent of the steel that goes into cars and light trucks. “In a combined company, 100 percent of the domestic e-steel needed for electrical motors and EV production will be concentrated in a single company,” it argued. Stand by for the antitrust case.
Pandering to special interests is old hat in politics. The possible consequences of a second Trump presidency are such that we can understand why Mr. Biden and Ms. Harris might try to out-pander him now and then. Still, the foreseeable negative impacts of blocking the Nippon Steel bid — a more concentrated, less competitive U.S. steel industry and a damaged alliance with a key Pacific nation — outweigh this policy’s electoral upside. Which is not surprising, since Mr. Trump was the first to embrace it.
