These days, when both parties instantly agree on something, it’s probably a bad idea. So, it’s not surprising that the reaction was swift when U.S. Steel announced its intent to accept Nippon Steel’s purchase offer.
“Today, a critical piece of America’s defense industrial base was auctioned off to foreigners for cash,” Senator J.D. Vance, the Ohio Republican, said in a statement. Senator John Fetterman, the Pennsylvania Democrat, cranked up the indignation: “It’s absolutely outrageous that U.S. Steel has agreed to sell themselves to a foreign company.” For good measure, he dragged in the trope about “hard-working Americans being blindsided by greedy corporations willing to sell out their communities to serve their shareholders.”
Senators Sherrod Brown of Ohio and Bob Casey of Pennsylvania, both Democrats and both facing tough reelection fights this year, have also criticized the proposed acquisition, while Senator Josh Hawley, the Missouri Republican, tore himself away from his moral panic about America’s manhood crisis long enough to join Vance and Marco Rubio, the Florida Republican senator, in sending a letter to Janet Yellen, Treasury Secretary and chair of the Committee on Foreign Investment in the United States (CFIUS), urging her to prohibit the sale.
The senators’ contention that the U.S. Steel sale to a Japanese company would endanger national security is fiction. The Pentagon has estimated it needs only about 3 percent of annual domestic steel production to fulfill its needs.
Steel-producing communities would likely benefit. Nippon insists U.S. Steel would continue to operate under its own name, keep its headquarters in Pittsburgh, and honor its union contract. Some steel analysts say that Nippon believes Joe Biden’s infrastructure program will stimulate domestic demand for steel. Therefore, Nippon’s logical course is to become an American producer as the administration enforces the Buy American provisions of the Bipartisan Infrastructure Act.
Nippon’s $14.1 billion cash offer is almost double that of Cleveland-Cliff’s rejected tender in August (ironically, the Justice Department may have had to block the takeover because the combined company would have controlled 65 to 90 percent of vehicle-grade steel, potentially making automakers apoplectic). U.S. Steel’s board would be crazy to reject the latest bid, especially as Nippon’s offer immediately spiked the steelmaker’s share price by 26 percent.
Far from erasing a historic American company, as the senators fret, Nippon’s acquisition may rescue it. U.S. Steel’s is bloated, complacent, and stagnant. It has consistently failed to modernize.
At its formation in 1901, U.S. Steel was the first billion-dollar company in history. It used its near-hegemonic position to bully other producers into line and effectively cartelize steelmaking. It reached peak employment in World War II and peak production shortly after the war. (Who can forget the line in The Godfather Part II when mobster Hyman Roth declares in 1959 Cuba, “Michael, we’re bigger than U.S. Steel”) but everything was downhill from there.
By the early 1950s, foreign steelmakers shifted to the basic oxygen process for production, while U.S. Steel stuck with the legacy open-hearth process for more than a decade afterward. In the 1980s, domestic startups like Nucor innovated with electric arc furnaces to efficiently produce steel from scrap; U.S. Steel lagged by decades, only installing its first electric arc plant in 2020.
Nippon surpassed it as the world’s largest steel producer in 1971. It fell out of the Dow Jones 30 Industrials by 1991 and was removed from the S&P 500 in 2014. Its market capitalization before the proposed acquisition was less than that of the Texas Roadhouse restaurant chain. For decades, it has been a linchpin of U.S. national security only in the fevered imaginations of politicians.
Should CFIUS block the acquisition, it would damage, not protect, our security. Japan has been a close alliance partner for over seven decades. It possesses the second-largest free-world navy and is the largest foreign purchaser of our F-35 fighter. A 1900-mile archipelago off the East Asian mainland, Japan is vital to American strategy in preventing a Chinese maritime breakout beyond the “first island chain” into the Pacific.
Yet politicians like Vance and Hawley, who wish to abandon Ukraine to concentrate on an existential Chinese threat (a bad-faith argument debunked here), systematically alienate our most important ally in deterring China. Further, if Japan is not fit to make direct investments in the United States of America, who is? It should not be overlooked that the dollar’s status as the world reserve currency and the “exorbitant privilege” that status brings are predicated on America’s openness to foreign investment—certainly by close allies.
This is anything but a plea for laissez-faire at all costs. The United States must have a vibrant manufacturing sector and protect critical technologies and manufacturing processes. We have to stand up to predatory practices by hostile foreign nations. But that means, above all, safeguarding advanced sectors like silicon chip design and manufacture, AI, aerospace, and robotics. The CHIPS and Science Act was a good step in that direction. Steel is an essential commodity but just a commodity. It is typically one of the first sectors, after textiles, that a poor country invests in to industrialize.
Similarly misguided is the notion that foreigners are clobbering our steel industry. Yes, steelmaking has plummeted in the rustbelt, but it has nosedived almost everywhere in the developed world. Steel production is a shadow of what it once was, from England’s Black Country to Belgium’s Borinage to Germany’s Ruhr to Poland’s Silesia. Japan, despite its tradition of lifetime jobs, has also seen employment fall, albeit not as steeply as in the U.S.
China, the focus of our national security concern, has not been immune. Manchuria, in northeastern China, was the Middle Kingdom’s first industrial region, and the steel plants there were heavily subsidized in the Mao era. But it is now China’s first postindustrial region. Once the subsidies were phased out, employment fell, equipment became obsolete, and Manchuria, once China’s most prosperous area, became one of its poorest, with an aging population and outmigration of university graduates. China’s steel dumping, seen in that light, is less a sinister master plan than a desperate remedy to maintain social stability in a stagnating region.
Having grown up in the rustbelt myself, I know how steel, even more than other heavy industries, has the primordial allure of Vulcan at his forge. But nostalgia is unproductive, particularly when alloyed with resentment and victimhood. The knee-jerk senatorial opposition to the Nippon deal is driven by an American obsession with a supposedly once-glorious manufacturing era. But nine years of Make America Great Again should remind us that nostalgia run amok is both foolish and dangerous.
Nippon’s purchase of U.S. Steel is the only plausible route to revitalizing the company and will also promote a closer alliance with Japan against a rising Chinese threat. CFIUS has no alternative but to greenlight the deal.