Biden Should Keep His Protectionist Nose Out of Nippon Steel's Acquisition of U.S. Steel

In December 2023, U.S. Steel Corporation (U.S. Steel) announced that Nippon Steel was going to acquire U.S. Steel. Nippon Steel (Nippon) is currently the fourth-largest steel producer worldwide and would become the third largest post-acquisition. What should be a simple business transaction in the private sector has been sucked into the politics of an election cycle. 

In March, President Biden expressed his opposition to the acquisition by saying that U.S. Steel is to remain in the United States. A day later, Nippon Steel announced that there would be no plant closures or layoffs in the United States as a result of the acquisition. Of course, that did not stop Biden from visiting the United Steelworkers Union headquarters last week. After Biden vowed that U.S. Steel would remain in the United States, U.S. Steel's stock price dropped. Contrast this to when stocks soared after U.S. Steel announcing the deal in December. Here are some facts about this acquisition that Biden would prefer to ignore:

• U.S. Steel is not what it used to be. President Biden might have some nostalgia about the good ‘ole days, but U.S. Steel has waned in its influence. In its heyday, U.S. Steel produced 40 percent of the world's steel. Now it is the 27th in world output and 2nd in U.S. output with 11.2 million tons of steel last year. At its peak, U.S. Steel employed over 340,000 employees. Now, that employment figure is at 15,000, representing a 96 percent decline from its peak. It is the 652nd largest company in terms of market capitalization, which is less than 1/100th of its size in 1901 as a proportion of the overall economy. Why? It was a combination of mismanagement and government interventions (e.g., import restrictions, subsidies, "Buy American" procurement preferences) that the U.S. government used to prop up U.S. Steel. 
• Japan is a friend and ally. Japan is not a hostile power, certainly not like China. Quite the opposite! Japan and the United States started developing their military relationship with the Treaty of Mutual Cooperation and Security in 1960. The fact that Japan is not the economic competitor that it was in the 1980s would explain why Japanese investors have not been on the radar of the Committee on Foreign Investment in the United States (CFIUS) since the 1980s. Plus, calling Nippon Steel a foreign company is misleading because it has been operating in the United States for 40 years and already has operations across eight U.S. companies employing 4,500 U.S. employees. Blocking this acquisition would risk alienating a key economic and security partner of the United States. 
• The acquisition does not harm U.S. national security. Those making the national security argument assume that putting this steel production into foreign hands would lead to domestic shortages. This is problematic for a number of reasons: 
• One is that the Pentagon only needs 3 percent of domestic steel production. 
• Two, Nippon is not looking to close U.S. production. Nippon is injecting $1.4 billion in capital investments at the U.S.-based plants because Nippon wants to ramp up steel production in the United States. This is in no small part because Nippon wants a presence in the U.S. market and the Trump/Biden steel trade barriers are getting in the way. 
• Three, the Department of Defense does not procure steel from U.S. Steel. Even if Nippon were to move production to Japan (which we established in the previous sub-point they are not going to), it would not impact the U.S. government's ability to procure steel. 
• This acquisition can help with national security. Rather than harming U.S. Steel, Nippon is saving U.S. Steel and actually contributing to the U.S. economy. While U.S. Steel will not be domestically owned, it will still have operations in the U.S. If anything, Nippon's capital and expertise will enhance the U.S. economy by making U.S. Steel's operations more efficient (see below). Together, Japan and the U.S. can better confront China's increased dominance in the global steel market, as well as its general influence in the Asia-Pacific region, with this acquisition. 

• Impact on foreign direct investment (FDI). Foreign investment encourages other companies to invest into the United States, thereby creating more wealth and job opportunities. It is because of Nippon's capital and expertise that most steel industry experts believe that this acquisition will help U.S. steelworkers and the overall manufacturing sector. The synergy with the acquisition will improve steelmaking (see below). If this acquisition is blocked, what sort of message does that send to investors in allied countries in the future? Japan is a leading source of FDI, which helps employ 900,000 U.S. citizens at U.S. subsidiaries of Japanese-owned companies. Disincentivizing foreign direct investment would only be a shot to the metaphorical foot of the U.S. economy. 

Postscript: What should be clear is that Biden is not motivated by sound economics or national security concerns, but rather with his eye on electoral concerns. Even NPR admits that Biden is opposing the acquisition to court the unions and blue-collar workers in swing states. 

Plus, this is part of a perturbing trend of the Biden administration to block several notable mergers and acquisitions, including that of Albertsons and Kroger. One of the main premises of capitalism is that parties voluntarily enter an economic transaction that both find to be mutually beneficial, which is the case here with Nippon and U.S. Steel. Private companies should not need a slew of lawyers to gain approval from the government to engage in voluntary, mutually beneficial business deals. 

The fact that Biden thinks that a nominally Japanese corporation purchasing a nominally American corporation is inappropriate should have zero place in U.S. trade or national security policy. Much like with Biden's student loan "relief" program, Biden is putting good politics over good policy. If Biden wants to be better at economic and national security policy, he needs to go beyond a limited, domestic view and take on a broader view that entails working with allies to strengthen economic and national security ties.