The US Steel Deal: National Security or Failed Business Deal?

Former United States President Joe Biden's decision to block Nippon Steel's (Nippon Steel) $14.9 billion acquisition of US Steel has drawn criticism from various quarters. In response, US Steel and the Japanese steelmaker have now taken legal action, suing the US government.

Its proposed acquisition was poised to bolster US Steel's competitiveness and deepen economic ties between the United States and Japan. However, Biden's decision, which he claimed was driven by national security concerns, has raised questions about the consistency of US policies and their impact on the bilateral relationship.

The Acquisition Proposal

Nippon Steel, Japan's largest steelmaker, aimed to acquire US Steel, a once-dominant American steel manufacturer, with a pledge to invest $2.7 billion into modernizing its facilities. This would have included significant upgrades to the Mon Valley Works and Gary Works plants, enhancing their productivity and competitiveness. The Japanese company also committed to preserving jobs and honoring labor agreements with the United Steelworkers (USW) union. In addition, it planned to relocate its North American headquarters to Pittsburgh.

As noted by Drs William Chou and Paul Sracic in their report for the Hudson Institute, Nippon Steel's acquisition would have introduced advanced technologies to US Steel's operations, bolstering its ability to compete globally, especially against Chinese steelmakers, who currently dominate the global market. The deal also promised stability for the US steel industry, which underpins critical sectors such as infrastructure, shipbuilding, and energy.

Political and Labor Opposition

Despite its merits, the agreement faced resistance from key political figures, including Biden and President Donald Trump, as well as the USW union. USW raised concerns about Nippon Steel's understanding of its Basic Labor Agreement.

Furthermore, the union accused US Steel of violating partnership terms by pursuing the acquisition without union consent. These objections were amplified as the 2024 US presidential election neared, with candidates from both major parties opposing the deal to court union votes.

*Eiji Hashimoto, Chairman and CEO of Nippon Steel, speaking at a press conference.*

The Committee on Foreign Investment in the United States, tasked with reviewing deals involving foreign investors for national security, reviewed the acquisition. However, it could not reach a consensus and left the final decision to Biden. His rationale centered on safeguarding national security and critical supply chains, despite assurances from Nippon Steel that the acquisition would not compromise these interests.

Criticism of Biden's Decision

Observers have criticized the decision as lacking a rational basis and undermining the Japan-US alliance. Several critics have highlighted the inconsistency in Biden's approach, contrasting it with past decisions to block acquisitions by Chinese firms on legitimate security grounds. JAPAN Forward editor-in-chief Yasuo Naito noted that blocking a Japanese company's investment disregards the strong economic and security ties between the two nations. Naito emphasized that Japan's substantial contributions to US manufacturing and innovation further highlight the importance of maintaining these ties.

Local stakeholders, including the Mayor of West Mifflin, Pennsylvania, supported the acquisition. They cited the potential for job creation and environmental improvements funded by Nippon Steel's investments. These benefits, they argued, far outweighed any speculative risks to national security.

Yoshihisa Komori's Perspective

Veteran journalist Yoshihisa Komori has offered a nuanced critique of Nippon Steel's approach.

In a series of tweets, Komori highlighted the challenges Nippon Steel faced in its joint venture with China's Baoshan Steel. Over time, it deteriorated into a relationship marked by distrust and exploitation. He warned that similar pitfalls could arise in the US, especially if Nippon Steel's moves are perceived as overreach. Furthermore, Nippon Steel has not made a complete break from its relationship with the Chinese steel companies.

Komori's critique also touches on the importance of maintaining a balanced alliance. While Japan should continue to support its allies, he argued, it must also safeguard its own strategic interests. That includes industries where technological superiority is critical.

Broader Implications

The rejection of Nippon Steel's bid has broader implications for US-Japan relations. As Chou and Sracic emphasized in their Hudson Institute report, Japan is one of the largest foreign investors in the US. It has invested over $720 billion, supporting more than 900,000 American jobs. Blocking this acquisition sends a mixed message to Japan and other allies about the reliability of the US as a partner in economic collaboration.

*David Burritt, CEO of US Steel, delivers a speech in Detroit, USA, September 2024 (©Reuters/Kyodo).*

Their report also rebuts national security concerns, noting that US Steel's output is primarily used in non-defense sectors like automotive and home appliances. Only 3% of US steel production serves the Department of Defense, and Nippon Steel's acquisition would likely strengthen rather than weaken the domestic steel supply chain.

The rhetoric surrounding the deal often overlooks the depth of the US-Japan relationship spanning decades of mutual cooperation in defense, trade, and technology. It also highlights America's need to trust and respect Japan. Both nations face rising challenges from global rivals and need each other more than ever to secure shared interests in the Asia-Pacific region and beyond.

Author: Daniel Manning