Biden Scuttles Steel Deal

In an affront to our most important Asian ally and the largest foreign investor in the US, President Biden blocked Nippon Steel’s acquisition of U.S. Steel.  

 “A strong domestically owned and operated steel industry represents an essential national security priority and is critical for resilient supply chains, the President said in a statement.

“That is because steel powers our country: our infrastructure, our auto industry, and our defense industrial base. Without domestic steel production and domestic steel workers, our nation is less strong and less secure.”

"The Biden administration’s politicization of Nippon Steel’s acquisition of U.S. Steel threatens to impose a high economic cost on the American people in the years ahead, said John Murphy, Senior Vice President and Head of International at the U.S. Chamber of Commerce.

"The first detrimental impacts will likely be felt by steelworkers — in Pennsylvania, Indiana, and other states — whose livelihoods are threatened by this decision," he averred.

Opponents of the deal argued that Nippon Steel would sacrifice integrated steelmaking capacity in favor of cheaper mills in Asia and the American South.  

President-elect Trump also has said he would oppose the sale, although he has made the point that he encourages Japanese investment in the United States.

United Steelworkers union leadership has opposed the sale, although many in the rank and file support it, arguing that they do not see how US Steel will be able to continue operations without major investment.

In his announcement, President Biden touted his support for domestic steelmaking.  Through steep tariffs on Chinese steel and investment in clean energy, the US steel industry “is the strongest it has been in years,” he argued.

Ultimately, the President said his decision was made on national security grounds. “We need major U.S. companies representing the major share of US steelmaking capacity to keep leading the fight on behalf of America’s national interests.

"As a committee of national security and trade experts across the executive branch determined, this acquisition would place one of America’s largest steel producers under foreign control and create risk for our national security and our critical supply chains.”  

The executive action follows an announcement late last month by the interagency Committee on Foreign Investment in the United States (CFIUS) that they were unable to reach a consensus on the proposed sale to Nippon Steel and referred it to President Biden for a final decision.  

Chirstmas Day, Democratic Senators Sherrod Brown (OH), Bob Casey (PA), and John Fetterman (PA) sent a letter to the White House reiterating their opposition to the deal.  Democrat Joe Manchin (WV) and formerly vocal Republican opponents JD Vance (OH), Marco Rubio (FL) and Josh Hawley (Mo) kept mum.

Stalking Horse for Concentration?

The eminence grise in the affair, Cleveland Cliffs CEO Lourenco Goncalves has conducted a stunningly effective public campaign to keep a deep pocketed acquirer from purchasing the rival integrated steelmaker.  Cliff's own offer was spurned by the board on financial and execution concerns.

"The combination of Cleveland Cliffs and US Steel would control over half of the domestic market for flat-rolled steel products," notes a recent Cato Institute study of the deal.  Both companies sell raw materials to other domestic and foreign steel producers in addition to their own internal uses of these supplies, and their merger would eliminate the competition between them.

"If Cleveland Cliffs were to acquire US Steel, it would place 65–90 percent of steel used in vehicles under the control of a single firm, lead to anticompetitive pricing, and have a downstream effect on American autoworkers. In fact, if Cleveland Cliffs acquires US Steel, it would own 100 percent of the iron ore mines in the United States and that would certainly require divestiture, undoubtedly leading to job losses within the company," the study continues.

 “There’s no process. This is not going to be a process." Reuters quoted the Cliffs Chief telling analysts in March.   "CFIUS is just cover for a President to kill a deal. CFIUS is a bunch of bureaucrats, second and third level, inside the cabinet...It means the President can do whatever he wants."