Biden Blocking Nippon's Acquisition of U.S. Steel Undermined National Security Instead of Improving It

In December 2023, Japanese steelmaker Nippon Steel offered to buy U.S. steelmaker U.S. Steel at a 40 percent premium on its stock price. Nippon Steel even offered unprecedented veto power over the merged entity's future U.S. plant closure decisions to allay Biden's concerns, but it was not enough. It also did not matter that 98 percent of the U.S. Steel shareholders approved the $14.9 billion deal in April 2024 or that Biden's Committee on Foreign Investment in the United States (CFIUS) could not find a national security threat from the acquisition.  Biden decided to block the proposed acquisition last week anyway. Why? Biden believes "there is credible evidence" that Nippon Steel "might take action to impair the national security of the United States." Biden does not actually state what credible evidence might exist. That reason for that is because there is no credible evidence. 

As I pointed out in my April 2024 analysis on the acquisition, the acquisition would not have harmed the United States' national security. Forget for a moment that Japan has been a military ally to the U.S. since the 1960s or that Nippon Steel already operates numerous steel plants in the United States. The Pentagon only needs about 3 percent of domestic steel production. Rather than looking to hinder steel production, Nippon Steel was looking to inject money into capital investments ($2.7 billion, to be precise) to produce steel in the United States. The steel industry needs new technology and innovation, which the U.S. has now been deprived of due to Biden's decision. 

Third, the Pentagon does not procure steel from U.S. Steel, making the national security argument all the more tenuous. More to the point, I illustrated how the acquisition could actually help with national security. By making U.S. Steel more efficient, the acquisition could have bolstered the U.S.-Japanese alliance. Here are a few additional points to consider on how Biden actually made matters worse:

• U.S. Steel was unprofitable for most of the past fifteen years. Even if the Pentagon procured steel from U.S. Steel, how exactly does allowing for a steel producer to continue flailing help national security?
• The Right-leaning Hudson Institute, which is known for its national security expertise, concluded in its report on the Nippon Steel-U.S. Steel proposal "that this proposed transaction would advance American economic, national security, and political interests at a time when the needs for secure domestic steel production and supply chains are paramount."
• As the authors pointed out, Japan is the leading foreign direct investor in the United States. The Nippon Steel acquisition was meant to be a sign of goodwill to bolster that alliance. 
• Nippon Steel's injection of capital would have better empowered the United States to withstand the dumping of excess Chinese steel into U.S. markets. 
• Economic and industrial competitiveness is what has historically been helpful to U.S. national security. Strengthening the U.S. steel in the capacity, quality, and cost-effectiveness that would have come with the U.S. Steel acquisition would have put the U.S.' national security on better footing in the future. 
• In December 2023, the bipartisan Select Committee on the Chinese Communist Party recommended that Japan be added to a whitelist of allies to received fast-track investment approval precisely because Japan has been such a good ally (see page 32 of the report). That hardly sounds like the consideration one would give a national security threat. 
• Blocking the acquisition contradicts the Biden administration's own articulation of national security assessments. As the Atlantic Council brings up, this precedent could "justify interventions into transactions for broader economic competitiveness reasons or to favor domestic political allies." No kidding! Biden caved into the influences of steelmaker Cleveland Cliffs, much like Biden acquiesced to the American Federation of Teachers with school closures in the pandemic era (see p. 415 of this House Oversight Committee report). This sort of politicization has the real potential to undermine national security in the future.
• The acquisition could have helped advance such elements of national security as friend shoring and de-risking from China. 

The aforementioned arguments should make it evidently clear that Nippon Steel acquiring U.S. Steel is not a national security threat. By Biden erroneously labeling it one, it makes it more difficult for allies and partners to trust the United States, which also undermines national security because it erodes trust in the U.S.' allies while abusing the law out of political gain. Giving into these protectionist instincts to prohibit the investment and operation in the U.S. also means less foreign investment which, you guessed it, undermines national security. Economic logic are legal arguments go to the back burner when politicking is involved. Biden has tarnished his political career and made his reputation more disgraceful by making the national security of the United States worse off with his decision to block the acquisition.