Closing the Steel Deal—or Not

This week’s column is about Nippon Steel’s proposed acquisition of U.S. Steel, which has created a good bit of controversy in the trade and investment commentariat. I’m not a financial expert and cannot comment on whether the proposal makes sense from that point of view. In the end, that will be up to the shareholders. However, since the transaction requires approval from the Committee on Foreign Investment in the United States (CFIUS), it is also a trade and investment policy issue that deserves some discussion.

If substance were all that mattered—which is hardly ever the case—this would not be a hard decision. The legal criterion for rejecting a foreign investment is whether or not it would harm our national security. There is no economic competitiveness or public good test which some other countries have adopted. If Nippon had tried to acquire a U.S. steel company in 1988 in the midst of a wave of concern about Japan’s competitive tactics, the deal would have been quickly rejected. Now, however, Japan is a friend and ally (and also not as significant a competitor as it was 40 years ago). Plus, despite former president Trump’s application of tariffs on steel imports on national security grounds, the case that U.S. Steel makes products that have significant national security implications for the United States or that putting its production into foreign hands might lead to domestic shortages is a difficult one to make.

If that was all there was to it, this would be an easy, quick decision. However, this is a case where politics will prevail. It is an election year; U.S. Steel is an iconic U.S. company with a presence in states that will matter in the election, such as Pennsylvania. Politicians in both parties have already come out against the sale—Senators Sherrod Brown (D-OH), J.D. Vance (R-OH), and Bob Casey (D-PA), as well as former president Trump, for example. Brown and Casey are up for reelection this year, and the outcome of both those races will be critical in deciding which party controls the Senate in the next congress. The Biden administration, as I have said about other trade actions, is very political in its approach to trade, and its handling of this case will be no exception.

That does not, however, automatically mean the sale will be rejected. Instead, it will probably come down to what the United Steelworkers Union (USW) decides to do. The union has three choices—it can support, oppose, or adopt a position of sullen acquiescence and let the deal go through. The union’s statements thus far have been negative but have not entirely shut the door. If union leaders are smart, they will follow the precedent set by then-AFL-CIO president Richard Trumka Jr. on the United States-Mexico-Canada Trade Agreement (USMCA), where he made clear organized labor might support the agreement if it were changed to address his concerns. It was, and he did. Steelworkers are a tough group. They have a hard job, have been through recurring crises for 50 years, and know how to take care of themselves. Their concern this time will focus on assurances that Nippon will maintain and upgrade U.S. Steel’s Rust Belt blast furnaces where the workers are unionized rather than favor its mini-mills in the South where they are not. It appears the company is willing to talk, so it is up to the union to decide if it wants to play ball. An agreement may not, in the end, be possible, but it would be in the union’s interest to find out what the company is willing to put on the table and then draw its own conclusion about whether Nippon can be trusted to honor any commitments it makes.

There are also a boatload of other issues that don’t have much to do with national security but which will no doubt enter the public debate—the longstanding antidumping duties against some of Nippon’s imports, objections from those who say their relatives who were prisoners during World War II were abused by the company, antitrust concerns surrounding potential alternative deals with other U.S. producers like Cleveland Cliffs, whether Nippon is paying too much, among others. These may be relevant to the political debate, but they are not issues to which CFIUS will give much weight.

One thing there does appear to be a consensus on is that any decision is not likely to be made until after the election. In light of the opposition by some members of Congress that Biden wants to protect and the certainty that any decision will irritate somebody, it makes political sense to wait, though that is hardly a profile in courage. Waiting also has the advantage of giving the company and the union time to negotiate, if they choose to do so. Regardless of the timing, however, political dilemmas remain. What do those members of Congress do if the United Steelworkers Union ends up supporting the deal? What will Trump say if the very workers he claims to be defending tell him they support it? What will Biden do if it becomes obvious the deal would benefit the workers, and they oppose it anyway? The one certainty is 10 more months of media speculation and politician grandstanding, so strap on your seat belts and get ready.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.