Many politicians oppose Nippon Steel’s buyout offer for U.S. Steel. Among them are President Biden, former President Trump, Sen. Sherrod Brown (D-Ohio) and Sen. John Fetterman (D-Pa.) — and, now, Vice President Harris as well. “U.S. Steel should remain American-owned and American-operated,” she said on Sept. 2.
Still, the sale is far from dead. And to ensure U.S. Steel’s survival and the future of its workers, the deal must go through.
U.S. Steel put itself up for sale last year not because it wanted to be owned by a Japanese company but because its management needed an infusion of capital and expertise to thrive in a difficult industry, and there weren’t other alternatives.
An American company, Cleveland-Cliffs, offered $7 billion for U.S. Steel. Nippon, the world’s fourth-largest steelmaker, bid $14.9 billion, all in cash — a 142 percent premium to the stock price. At a special meeting in April, more than 98 percent of U.S. Steel’s voting shares favored the transaction.
Cleveland-Cliffs, which ranks 22nd globally (U.S. Steel is 24th) has its own problems. Its stock is down 40 percent this year, revenues and earnings have fallen and the company is burdened with debt and is cutting investment. It is unlikely to make another serious bid.
Politicians who oppose the deal think they’re capitalizing on a new wave of protectionist sentiment. Maybe so, but if they have their way, they will simply usher U.S. Steel to its doom.
Nippon is a well-managed business, and America is lucky that it wants to save what was once the largest corporation in the world. As the Value Line Investment Survey put it, “The business combination is expected to provide U.S. Steel with advanced technologies, creating a critical edge in a competitive industry.”
That’s good for the U.S. and for U.S. Steel’s workers, whose jobs are currently in jeopardy. U.S. Steel’s workforce has already been halved since 2011, and the trend is only accelerating. The company’s revenues dropped 14 percent in 2023 compared with the year prior. Value Line ranks its financial safety as the lowest in the industry.
Nippon has what U.S. Steel needs, pledging to invest $2.7 billion to upgrade its facilities. U.S. Steel “doesn’t have the money” to do that, says its CEO. Without that infusion, the company’s executives say that the Mon Valley Works outside Pittsburgh will probably shut down.
The United Steelworkers union opposes the deal, even though many of its members support it. Perhaps the union is making threats to generate better job guarantees, but it’s playing with fire. Nippon could just walk away.
“An acquisition by Nippon,” says William Alan Reinsch, a global business expert at the Center for Strategic and International Affairs, “…probably enhances the domestic industry. This is mostly a political issue.”
The opposition of the presidential candidates will certainly prevent a sale before the election, but, over the longer term, their arguments are flimsy and rhetorical. The fate of the deal lies with the Committee on Foreign Investment in the United States, a board of administration officials who review foreign purchases of American companies on national security grounds.
By no stretch of the imagination would a Nippon purchase harm U.S. security. Japan has been a staunch American ally for 79 years and is the number one bulwark against Chinese and North Korean aggression.
Japan is also in the process of doubling its defense spending, and it has put aside decades of self-imposed restraints on its own military. In an interview with the Washington Post, exiting Prime Minister Fumio Kishida said that “the security environment has become significantly severe, [and] the international community is at a historical inflection point.” Blocking this sale would be an insult to one of America’s best allies in a time of crisis.
And in the ridiculous, unthinkable worst-case scenario — if the deal were approved and then Japan were to side against us in a war with China — the U.S. government could simply seize Nippon’s American steel mills.
Rejection by the Committee on Foreign Investment would be unprecedented. Since 2016, presidents have only blocked six transactions on the advice of the Committee. All involved high technology — semiconductors, software, crypto. None involved manufacturing, or Japan for that matter. The committee recently extended its review of Nippon-U.S. Steel by 90 days, a sign that it may just be waiting until after the election to pass a positive judgment.
Let’s hope so. Nippon appears to be the last salvation for the business Andrew Carnegie founded 123 years ago. If the deal goes through, U.S. Steel won’t be American owned, but it will still be based in Pittsburgh, employing American workers, making American steel, paying American taxes and helping American communities.
James K. Glassman is a former Under Secretary of State and senior fellow at the American Enterprise Institute.