Unions, Politicians Getting Nippon-US Steel Deal All Wrong

Biden replaced those taxes with quotas (for European producers at least) and used those barriers to incentivize foreign companies to invest in US production. The Inflation Reduction Act helped domestic producers to up their game.

The
deal
by Nippon Steel to purchase the company was valued at $14.1 billion, a little less than twice the offer from Cleveland Cliffs, a domestic competitor, and a 40% premium on the closing price of US Steel shares on the day it was announced. Combining US Steel with Nippon, now the world's fourth-largest maker, will produce the world's second-largest steel company, trailing only China Baowu Group.

The deal should be applauded. Instead, the announcement was protested by both sides of the political aisle.

Republicans denounced the purchase, with Republican Senator JD Vance of Ohio
warning
that it would undermine US national security since foreigners would be“less responsive to US national security needs.” A
letter
from Vance and fellow GOP senators Marco Rubio and Josh Hawley to Treasury Secretary Janet Yellen calls Nippon Steel“a company whose allegiances clearly lie with a foreign state.”

After meeting with Teamsters officials, former President Donald Trump, the likely GOP nominee for the 2024 election,
called
the deal“terrible” and said he would“block it instantaneously. Absolutely.”

Democrats have been no less apoplectic. Senator John Fetterman of Pennsylvania, where US Steel is headquartered,
thundered
that“The acquisition of US Steel by a foreign company is wrong for workers and wrong for Pennsylvania. I'm gonna do everything I can to block it.” Bob Casey, Pennsylvania's other senator, and Ohio's Sherrod Brown, both Democrats, agree.

Steelworkers, too, complained, saying that they had not been consulted before the deal was struck and challenging Nippon Steel's commitment to the collective bargaining agreement their union signed with US Steel. Nippon Steel said it will honor all existing union contracts.

With 1 million union members in key swing states, political calculations weigh heavily on any administration decision. The Biden administration has acknowledged the firestorm. Lael Brainard, the president's national economic adviser,
said
the deal deserved“serious scrutiny.”

The administration will finesse complaints by referring the purchase to the Committee on Foreign Investment in the United States (CFIUS), which Yellen chairs (hence the letter from the GOP senators), for an interagency review that will assess their concerns.

The deal should go through.

The Department of Defense has downplayed national security concerns since the military needs just
3%
of domestic steel production. US Steel doesn't sell anything to the Pentagon and
pointed out
that its“manufacturing technologies and processes are not designed specifically for the production of steel with military applications, nor does US Steel have any products, capability, or know-how that is specific to any US government applications, including US military applications.”

To call Nippon Steel a foreign company is misleading. It's already operating in the US, with stakes in eight companies employing some 4,000 people. The purchase is intended to increase production to serve US consumers (and offset declining demand in Japan) and improve efficiency in US operations, both of which should be welcome by politicians and the public.

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Back in the Japan-bashing days: Newsweek's cover advertising a story on Sony's 1989 acquisition of Columbia Pictures, Photo: Ko Unoki / LinkedIn

The idea that Japanese purchases of US companies are a threat is a relic of that brief, misguided moment in the 1980s and '90s when such investments were seen as symbols of American decline and proof of Japan's claim to be the world's leading economy.

US Steel's moment may have passed, but Nippon Steel's purchase is a sign of American resurgence and strength, not weakness.

Today, Japan is the United States' closest ally in the Indo-Pacific. It has worked ever more closely with the US to promote security not only in this region but around the world. Their bilateral efforts in economic security, in particular, are pacing projects with other countries.

If the US truly wants to work with like-minded nations to build resilience, ensure stable and secure supply chains, and forge a coalition to backstop its preferred vision of international order, then this deal should go through.

Brad Glosserman
(... ) is deputy director of and visiting professor at the Center for Rule-Making Strategies at Tama University as well as senior adviser (nonresident) at Pacific Forum. He is the author of Peak Japan: The End of Great Ambitions (Georgetown University Press, 2019).

This article was originally published by Pacific Forum . It is republished here with kind permission.

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