Biden’s “To Do” List For His Last Weeks: Approve The Merger of Nippon Steel and U.S. Steel
By Diana Moss and Ed Gresser
As President Biden “runs through the tape” in his last weeks in office, he should take a few minutes to approve U.S. Steel’s purchase by Japanese firm Nippon Steel. Doing so would have myriad benefits and virtually no costs. The merger would help America’s heavy industry, support a core U.S. international alliance, and promote fair competition and supply for steel users in the United States. Approving the merger is, basically, the right thing to do.
Nippon Steel’s bid to purchase U.S. steel succeeded in late 2023. That is, at least as far as the money, the terms, and the agreement of U.S. Steel’s management and Board of Directors. The two companies agreed on a $14 billion deal that would bring new blue-chip Japanese technology and capital to a fading U.S. industrial icon and help preserve metal production in Pennsylvania.
Nonetheless, the Nippon-U.S. Steel merger has proved controversial. Fears about foreign ownership of a major American metals producer quickly generated opposition from both the Biden administration and the incoming Trump administration. The issues have also divided the United Steelworkers union, with union leadership opposing the deal while many Pennsylvania members support it.
The Biden administration in January decided to refer the issue to the “Committee on Foreign Investment in the United States (CFIUS).” CFIUS is a multi-agency group led by the Treasury Department that reviews about 400 acquisitions a year to ensure that foreign investment — which generally promotes employment and investment — doesn’t put core U.S. security issues at risk. Political debate, including comments by President Biden and Mr. Trump, however, raced far ahead of this official CFIUS review to declare opposition to Nippon Steel’s purchase of U.S. Steel.
In the last 10 months, opponents of Nippon Steel’s bid have argued loudly but unpersuasively that there’s some sort of problem. One argument is that Nippon Steel has made investments in China. Many U.S.-based and U.S.-owned manufacturers have such investments, and it doesn’t mean they’re security risks. Another is that Nippon Steel might file fewer trade lawsuits than U.S. Steel’s current management has done. This is both a concerning and laughable assertion that, essentially, billable hours for the trade bar is a “national security” issue.
Should the U.S. government block the deal, the current U.S. Steel management has said it would have to phase down its older, integrated Pennsylvania operations, and likely move the company’s headquarters from its historic Pittsburgh home to Arkansas where it operates smaller mini-mills. This would be a sad ending to a long story, and a disaster for smaller western Pennsylvania towns still reliant on steelmaking for jobs.
This outcome, of course, begs the question: “How does a Nippon Steel-U.S. Steel merger actually affect U.S. national security?” The answer is: Not at all. A survey of previous mergers and acquisitions over the last several years fails to uncover even one remotely similar case that was mitigated or blocked as a result of national security concerns under CFIUS.
The use of CFIUS review to block the Nippon Steel-U.S. Steel merger raises serious problems. First, it sets an alarming precedent for leveraging the CFIUS process to pursue a political goal. If so, we could fully expect future mergers that pose no concerns to be blocked under the guise of “national security.” Second, the failure of a Nippon Steel-U.S. Steel deal to move forward will intensify pressure on U.S. Steel to find an alternative buyer in the U.S.
That buyer is likely to be the newly-formed mining and metal conglomerate, Cleveland-Cliffs. U.S. Steel’s board last year considered their bid financially weaker than Nippon’s, and therefore, less likely to make U.S. Steel stable and profitable again. Even setting this aside, the merger would combine the largest and third-largest U.S. steel producers, vaulting a Cleveland-Cliffs-U.S. Steel into the №1 spot, above U.S.-based Nucor, leaving around 60% of total U.S. raw steel production in the hands of two companies.
A merged USS-Cleveland-Cliffs’ dominant position would also extend to near complete control of iron ore mining, as well as the blast furnaces at steel mills in the U.S. that make high-grade steel for automobile manufacturing. Rejecting a Nippon-U.S. Steel merger for purely political reasons, in favor of a patently anticompetitive Cleveland-Cliffs-U.S. Steel merger would mean higher consumer prices for automobiles and other steel-intensive products. It would also remove a major employment opportunity for steelworkers in regions of the country where Cleveland-Cliffs and U.S. Steel now compete, putting downward pressure on wages and benefits.
As a result, a Cleveland-Cliffs-U.S. Steel combination would almost certainly get a thumbs down from the U.S. Department of Justice (DOJ). But this may not be the end of the story. With a politically charged atmosphere around U.S. Steel, a Trump White House could pressure its DOJ to “fix” a Cleveland-Cliffs-U.S. Steel merger in order to pass muster under U.S. antitrust law. The sheer magnitude of necessary divestitures to restore lost competition, however, is staggering. There is almost no chance of identifying divestitures — and potential buyers of those assets — adequate to protect consumers.
The evolution of Nippon Steel’s bid for U.S. Steel during 2024 makes it clear that it raises no significant national security question. With no political interests at stake, President Biden should let it go ahead. Doing so will help preserve the health of heavy industry in the U.S. and in Pennsylvania specifically, encourage fair competition in the U.S. steel market and, therefore, the competitiveness of the U.S. auto, machinery, and other metal-using industries, and underscore the trust and value of America’s relationship with Japan. It is clearly the right thing to do, whether in terms of law or of policy, and we hope President Biden will make the right call.
