Nippon-US Steel Deal Sparks A Knee-Jerk Backlash

Labor has good reason to fear corporate takeovers, but it is American, not Japanese, management that is known for mass lay-offs.

In fact, US Steel's workforce shrank from 29,000 in 2018, when then-president Donald Trump slapped a 25% tariff on imported steel, to less than 23,000 in 2022. That figure is set to drop by another 1,000 due to the downsizing of the company's plant in Granite City, Illinois, which was announced on November 28 this year.

All in all, US Steel's workforce has been slashed by 25% since 2018. Trump's tariff was supposed to protect American jobs but had the opposite effect, and the union couldn't and apparently still can't do anything about it.

Ironically, Dan Simmons, president of United Steelworkers Local 1899, which represents the workers in Granite City, told reporters that“The optimistic side of this [the acquisition] is that Nippon [Steel] was a part of a joint venture back many years ago with National Steel, when I was an employee then and they were a good partner to have.”

Rather than downsizing, Simmons says,“The right decision would be to fire those furnaces back up and make steel again because prices are very good.”

Nippon Steel may do just that. Its rationale for the acquisition includes the attractiveness of the US steel market, where quality standards are high and the rebuilding of manufacturing and infrastructure are expected to support long-term growth in demand.

It also needs to get behind the wall of tariffs first erected by Trump and built out by Biden that is unlikely to be dismantled regardless of who wins the presidential election in November 2024.

Nippon Steel has been operating in the US through joint ventures and largely- or wholly-owned subsidiaries since the 1980s. Wheeling Nippon Steel began as a joint venture with Wheeling-Pittsburgh Steel in 1984 and is now a 100%-owned subsidiary.

It was followed by the establishment of Nippon Steel Pipe America, International Crankshaft, the Indiana Precision Forge and Suzuki Garphyttan steel bar and wire companies, Standard Steel (steel wheels) and the steel sheet joint ventures NS Bluescope and AM/NS Calvert, which ArcelorMittal and Nippon Steel bought from ThyssenKrupp in 2014.

Nippon's acquisition of US Steel, if it is completed, will be its ninth investment in the US. It would add US Steel's integrated steel mills in the US and Slovakia to those of Nippon Steel in Japan, India, Thailand, Brazil and Sweden. Nippon Steel has downstream operations in China, Southeast Asia, the Middle East, Brazil and the US.

The deal would raise Nippon Steel's total annual crude steel capacity from 66 to 86 million metric tons as calculated using the methodology of the World Steel Association – i.e., the sum of the nominal full production capacity of companies in which it has a 30% or greater equity interest.

Nippon Steel would then vault from 4th to 2nd place in the world steel rankings, overtaking Ansteel and ArcelorMittal to become nearly two-thirds the size of China's top-ranked Baowu Steel, which has an annual crude steel production capacity of about 130 million metric tons.

The acquisition was unanimously approved by the boards of directors of both companies. It is subject to approval by US Steel shareholders and regulatory authorities, neither of which is expected to oppose the deal.

Nippon Steel plans to fund the transaction primarily through borrowings from Japanese banks, from which commitment letters have already been received. The deal is expected to close in the second or third quarter of 2024.

If US Steel had instead accepted Cleveland-Cliff's offer, the combined entity would have had a monopoly on blast furnace steel production in the US and a dominant share of the market for steel used in the US motor vehicle industry.

As part of the Nippon Steel Group, the US steel industry will remain competitive. US Steel will retain its brand name and headquarters in Pittsburgh under the deal.

On December 19, Senators Fetterman and Casey and Representative Deluzio sent a letter to Treasury Secretary Janet Yellen, who is also chair of the Committee on Foreign Investment in the United States (CFIUS), urging her to block the proposed acquisition. They wrote:

Senators Hawley, Vance and Rubio likewise wrote to Secretary Yellen, saying in a statement:

The world's leading business dailies have taken issue with these nationalistic views. The Wall Street Journal, for one, criticized both what it sees as a throwback to protectionism and the inability of politicians to distinguish between Japan and China. It asked:“Do they think the Japanese are going to bomb Pearl Harbor?”

The Financial Times, in an editorial entitled“The misguided US backlash against Nippon Steel raises a question of trust,” asks“If Japan does not count as a legitimate buyer of assets in the US, who does?”

Japan's Nikkei said“US Steel takeover opposition sends the wrong message to Japan” and quotes Joshua Walker, president of the Japan Society, saying that“It sends all the wrong messages. We can't celebrate Japan as our most important and critical ally and then attack Nippon Steel with the type of xenophobic rhetoric we are seeing.”

All this puts Biden, a self-proclaimed strong supporter of both labor unions and the US-Japan alliance, in a tight spot. In a statement issued by the White House, National Economic Advisor Lael Brainard said:

At this point, it seems likely Biden will pass the buck to Treasury's CFIUS to approve or reject the deal. But the final decision may not be made until June or even September, which will put the US Steel-Nippon deal in a politicized spotlight in the run-up to the November 2024 election in an important swing state.

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