Nippon Steel Deal Will Strengthen US Steel and National Security

On December 19, Washington DC-based think tank the Hudson Institute published a comprehensive report on the Nippon Steel (NSC) bid to buy out US Steel. Titled "The Real Deal for US Steel," authors Dr William Chou and Dr Paul Sracic analyze NSC's proposed $14.9 billion USD acquisition of US Steel.

On December 18, 2023, NSC, the world's fourth-largest steelmaker, offered an all-cash bid to acquire US Steel. Over the years, US Steel has declined, becoming the twenty-fourth largest steelmaker globally and only the third largest American manufacturer.

NSC's proposal included a 40% premium on US Steel's share price. Perhaps more importantly, it included pledges to honor existing labor agreements with the United Steelworkers (USW) union. NSC also stipulated plans to relocate its North American headquarters from Houston to Pittsburgh. Additionally, Nippon Steel committed to investing $2.7 billion in upgrading US Steel's facilities, aiming to enhance productivity and competitiveness.

Labor and Community Perspectives

Despite these commitments, the USW expressed concerns, questioning NSC's understanding and capacity to uphold the Basic Labor Agreement (BLA). The union filed an arbitration grievance against US Steel, alleging violations of partnership agreements that require prospective buyers to agree to new labor deals before finalizing a sale.

In an interview with JAPAN Forward, Chou noted, "Even though the arbitrators have declared this deal legal, none of NSC's efforts seem to satisfy USW, who continue to make demands without offering solutions, or until very recently, refused to meet for the past nine months."

Political figures, including US President Joe Biden, also opposed the deal, emphasizing the importance of US Steel remaining under American ownership.

As Hudson's report highlights, however, local stakeholders have expressed support for the deal. Supporters include the Mayor of West Mifflin, Pennsylvania, and representatives from USW Local 2227. For instance, the Mayor cited NSC's $800 million earmarked for environmental upgrades at Mon Valley Works as a potential game-changer for local employment and sustainability efforts.

*US Steel headquarters in Pittsburgh. (©AP/Kyodo)*

Antitrust Considerations

Hudson's report indicates that NSC's acquisition would likely raise minimal antitrust concerns due to the limited overlap between its operations and those of US Steel. In contrast, a competing bid from Cleveland-Cliffs could raise significant antitrust scrutiny. It would lead to substantial market concentration, particularly in US iron ore mining and steel production for automobiles.

Industry groups, such as the Alliance for Automotive Innovation (AAI), have expressed opposition to a Cleveland-Cliffs acquisition. AAI estimates suggest that such a merger could increase steel prices by 15%.

Rebutting the 'National Security' Issue

The report also addresses national security concerns. Significantly, it notes that US Steel does not produce steel for the US military. Most of its output serves the auto and home appliance sectors. Chou clarified that only 3% of American steel capacity is used by the Department of Defense.

Moreover, the report argues that NSC's acquisition would strengthen US national security by ensuring a stable domestic steel supply chain.

Critics have raised concerns about NSC's operations in countries like India, suggesting that lower production costs abroad could lead to the offshoring of US Steel's operations. However, NSC has stated it has no intention of shutting down US Steel's domestic facilities and plans to enhance its capabilities.

Moreover, the report emphasizes the strong US-Japan alliance. It notes that Japan is a leading foreign direct investor in the US, with over $720 billion in cumulative investments as of 2023.

Chou emphasized the strategic implications. "If NSC acquires US Steel, it'll strengthen the capacity and competitiveness of the US steel industry," he stated. "It provides more steel for many of the infrastructure projects in industrial capacity, shipbuilding, and energy that will be priorities going forward."

Technological Advancements and Political Impact

NSC's acquisition is expected to bring technological advancements and capital investment to US Steel, potentially revitalizing its operations and enhancing competitiveness. The proposed $2.7 billion investment includes significant upgrades to existing facilities. Proposed upgrades include replacing or upgrading the hot strip mill in Mon Valley Works and revamping Blast Furnace 14 at Gary Works.

The proposed acquisition has become a focal point in US political discourse, with bipartisan opposition citing national security and economic concerns. President-elect Donald Trump has also expressed intentions to block the deal, aligning with the USW's preference for domestic ownership.

However, Hudson's report suggests that blocking the acquisition could deter foreign investment and harm US-Japan relations. Japan accounted for 10% of foreign direct investment in the US manufacturing sector in 2023, supporting over 900,000 American jobs.

*A US Steel plant in Michigan, September 2024. (©Reuters/Kyodo)*

"This case is not an issue about Foreign Direct Investment (FDI) but rather internal USW union dynamics that would've opposed any non-Cleveland-Cliffs acquisition," Chou explained. "The US remains open to FDI," he affirmed. "As we realize that we're in a strategic economic and security competition with China, we need our allies to invest and strengthen our supply chains and industrial bases. That includes things like semiconductors, shipyards, and natural gas."

Additionally, Chou underscored the deal's most crucial advantage. "It'll enhance our resilience against Chinese dumping and uphold fair trade values," he concluded.

Author: Daniel Manning