December 22, 2023 - 1:00pm
Nippon Steel’s bid to purchase US Steel for $14.1 billion has sparked concerns in Washington. The quantity the Japanese company is offering, way above US Steel’s price, is a sweet deal for the American steel champion shareholders. But unions and a coalition of Rust Belt senators like J.D. Vance and John Fetterman see things differently, calling for US regulators to block the agreement.
Yet the controversy around the Nippon deal reveals a broader tension between an economic nationalism that protects American industries and a China hawkishness that depends on strengthening international alliances.
That an American company with “US” in its name would fall into foreign hands is certainly a dent to national pride, but the concerns around this acquisition are not just symbolic. Steel production is a strategic sector deeply connected to the security of vital supply chains and American jobs for industries like construction, automakers and — most importantly — the defence sector. What might happen if a foreign company such as Nippon does not see eye to eye with America’s national interest?
This is complicated by Japan’s longstanding alliance with the US. Japan, due to its technological and industrial capabilities (for the first time in its postwar history, it has agreed to sell advanced air systems to Washington), is an indispensable ally for the US in the frontline against China.
What’s more, Washington is clearly wary of obstructing the growth of one of its ally’s leading companies. This is why President Joe Biden has taken a cautious approach, saying that the deal needs to be seriously scrutinised while welcoming “manufacturers across the world building their futures in America with American jobs and American workers”.
For his part, Nippon Steel’s president Eiji Hashimoto remarked that the goal of this deal is to “exclude China”, giving the free-market world a fighting chance on the steel production front. And he might actually have a point. China is the largest steel producer in the world, and in 2023 the country’s steel production grew for the first time in three years, reaching close to one billion metric tons.
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SubscribeUS Steel is old and has US in the name and… that’s about it. Nucor is the better, more successful American steel company. Nippon Steel, a more successful company, wants to buy US Steel primarily to use it’s assets, steel mills and workers, to make Nippon’s more successful products.
I’m old enough to remember the panic in the 80’s over Japanese cars. There was a lot of hemming and hawing and complaining from lawmakers, but the Japanese solved the problem by building a bunch of factories in America to make cars for America. They presumably want to do something similar with steel and since US Steel already has a bunch of steel factories and useful assets, that’s a huge benefit to them, which is why they’re offering such a premium price.
For a bit of background, China’s m.o. for the past two decades has been to subsidize targeted industries with public funds or use partially government owned corporations and their opaque Communist system to shuffle money around and accomplish the same thing. Having thus artificially lowered the cost and created a surplus, they then flood the global market in order to eliminate competition and create a monopoly. At present, and for the past several years, they’ve been flooding the markets with cheap steel. A lot of steel makers in other countries have complained about this, Nippon and US Steel among them, and lobbied for various types of protectionism.
It is extraordinarily significant that the Nippon Steel president Hashimoto actually said publicly that the goal was to exclude China. This is not a small thing. China will see that quote and will complain to the Japanese government about it even though they know very well their actions prompted all this. That quote though, is for an American audience. China is about as popular with American voters these days as Biden himself is. He’s hoping anti-China sentiment will overcome protectionist sentiment in Congress and with the people. Hashimoto has very shrewdly and purposefully named the enemy in order to give Biden a way to sell this to the American public in an election year because he understands the political and geopolitical situation both his company and both of our countries are in. In short, he looks like a competent leader of a competent company headquartered in one of America’s longest standing and most important allies, one that already has an excellent record of hiring Americans in the automotive industry.
My guess is there will be some conditions related to national security that the Pentagon will demand related to keeping so much production capacity on US soil and which Nippon probably already knows are coming. Biden can then say he negotiated and took steps to protect American workers or whatever and talk about China and take the easy win. This is such a layup that I would bet a fair sum that China is behind some of the lobbyists trying to get the deal shot down.
At least they’re not selling it to a Chinese company, installing electric blast furnaces, cutting 3,000 jobs and eliminating its ability to produce virgin steel.
Yet
Yes, I doubt the Pentagon would allow that at this point, and I’m fairly sure the Pentagon will demand some agreements be tacked on to preserve so much production capacity of certain kinds related to war mobilization, and based on the comments in the article, Nippon probably already knows that and may have already agreed to a lot of it. They just won’t announce it now. Large mergers and purchases of business always have to be scrutinized and approved, even if they’re between American companies, for anti-monopolistic reasons. They’ll go through the process and then a couple months from now when we’re talking about election primaries they’ll announce they reached an agreement and talk about Japan/America ties and combating China’s unfair trade practices, and maybe have some kind of press conference or photo op.
This is what I was thinking too. Indeed, even if there are no written agreements much of this probably goes without saying.
This may be the least worst of the available options. Japan has been a reliable ally for some time. I get the hesitation since a major American brand is involved, but it’s not like the climate cult of the left is in thrall to big manufacturing.
And also Japanese management will be less likely to follow environmentalist fads. Business there is pretty cut-throat, modelled on the best of Anglo-American free trade principles which are currently on the wane on the other side of the Pacific.
A couple of things.
In the UK, British Steel sold several plants to Tata Steel of India. There were some job losses. But according to UK law, with an incoming company the pension rights have to be protected. This means pensions for those who have retired and those who will retire. Usually, there are pension contributions from the company, as there were for British Steel before the sale. The new company can’t just discontinue these pension rights. What is the US situation?
A few years ago there was a poll which asked people which British company was number 1 in terms of longevity, reliability, etc – the model British company. Ford got the biggest number of votes. Even though Ford is American (with a bit of Japanese thrown in) it had become British because it was there in Britain. Who actually owns US Steel? The easy answer is the shareholders. Who are they and where are they based?
Who owns Nippon Steel?
Years ago there a was a terrible explosion in one of the huge gun turrets on one of our battleships. The Navy swore it would rebuild it, then the Pentagon swore they would do it with American steel. But none of the American producers could bid on the new barrel; they couldn’t produce the quality of steel, in such a large piece, that such a fierce gun would demand. A Japanese company won the bid; there was an uproar; then, supposedly, some American company reconsidered and came to the rescue.
But I would bet that gun has never been fired, with a full charge, to this day! Too dangerous. So maybe we’re better off with a Japanese “connection”. They tend to be more reliable.