Last week, U.S. Steel accepted Nippon Steel’s $14 billion purchase offer. Some in Congress, along with the steel maker’s union, want the deal quashed on national security grounds. This would be an untenable precedent and jeopardize America’s industrial capacity and defense preparedness.
There’s growing bipartisan support in favor of finding a domestic buyer for U.S. Steel. Ohio-based Cleveland-Cliffs is a fan favorite, even though the company’s bid came up short last summer. Esmark and Nucor, both of which were rumored to be interested in U.S. Steel, round out the shortlist.
But there isn’t an obvious business case for any of these companies to acquire U.S. Steel.
In terms of Cleveland-Cliffs, Esmark’s CEO put it this way: “If you merge a dinosaur with a dinosaur, you are going to get a dinosaur.”
As for Esmark and Nucor, analysts doubt that either could squeeze cost savings out of U.S. Steel.
Yet, members of Congress aren’t looking for a business case. They’re playing election-year politics with the sale of an iconic American manufacturer from a key swing state. Elected officials risk nothing by talking up the need to have the deal reviewed by the Committee on Foreign Investment in the United States. President Joe Biden has called for “serious scrutiny.” Some in Congress have already reached their own conclusions.
In a letter to President Biden, Sen. Sherrod Brown (D-Ohio) insisted that selling U.S. Steel to a foreign company — any foreign company — would be a mistake.
Likewise, Sens. Bob Casey (D-Pa.) and John Fetterman (D-Pa.), and Rep. Chris Deluzio (D-Pa.) have argued that “there were bids made by American companies that would not trigger our expressed security concerns.”
Across the aisle, Sens. Marco Rubio (R-Fla.), J.D. Vance (R-Ohio) and Josh Hawley (R-Mo.) explained to Treasury Secretary Janet Yellen, who chairs the Committee on Foreign Investment in the United States, that to allow U.S. Steel to be bought “by a foreign nation, even an ally, raises serious economic and national security concerns, especially since there are viable options to maintain American ownership.”
Traders put the odds of the deal being approved at 70 percent. Several considerations loom large. One is that Cleveland-Cliffs CEO feels his company dodged a bullet in losing out on U.S. Steel and doesn’t want to be one of those “viable options to maintain American ownership.” Another is that the Committee on Foreign Investment in the United States has broad latitude to evaluate the national security implications of the acquisition as it sees fit.
In 2022, President Biden issued an executive order on how the committee might assess the “evolving national security threat landscape.” It insists the U.S. “recognizes the importance of cooperating with its allies and partners to secure supply chains,” but also warns that “certain foreign investment may undermine supply chain resilience and therefore national security.” Where foreign owners would have undue leverage to hold up supplies, for example, the committee can either restructure or even reject an investment.
The spirit of the executive order can be gleaned from the fact that there are 24 mentions of the word “threat” or “threaten.” The worry is that the acquisition creates an opportunity for foreign persons or entities to “pose a threat to national security,” not that there’s an existential risk inherent in foreign ownership.
Which brings us back to Nippon Steel. The company vows to keep U.S. Steel in Pittsburgh, honor the company’s existing labor contract and help it reduce its carbon footprint by making more use of mini mills. How does any of this pose, or otherwise enable Japan to make, a threat to national security?
Moreover, the executive order lauds “open investment” as a means of improving the “competitiveness” of American companies, thereby contributing to “supply chain resilience.” How does Nippon Steel’s acquisition of U.S. Steel not check these two boxes?
The deal is a combination of “ally shoring” and “near shoring” in reverse. A Japanese company wants to invest in a pillar of U.S. industrial capacity and defense preparedness. If this presents a holdup problem, then U.S. Steel does business in a vacuum, rather than as part of a global supply chain.
None of this is to say that the Committee on Foreign Investment in the United States shouldn’t deliver on President Biden’s desire for “serious scrutiny” of the deal. That said, the administration should be careful to moderate its rhetoric about the deal, not only because allies are watching, but because adversaries like China are watching too.
Vance wrote that “the future of U.S. Steel will be consequential for the future of the U.S. steel industry.” He’s right. But it’s pure jingoism to imply that Nippon Steel, as a foreign buyer, can’t contribute to this future as well.
The Committee on Foreign Investment in the United States’s guidelines don’t prejudge this. Neither should Congress.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a global fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Follow him on X @marclbusch.
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