Biden blocks Nippon Steel deal

With less than two weeks in US President Joe Biden’s term, the president blocked Japan’s Nippon Steel’s proposed $14.9B purchase of US Steel, citing national security and supply chain concerns.

“It is my solemn responsibility as president to ensure that, now and long into the future, America has a strong domestically owned and operated steel industry that can continue to power our national sources of strength at home and abroad“, the outgoing president said in a statement on Friday.

But first, some backstory…

Founded in 1901, US Steel is as American as, well, US Steel. It supplied metal for the Empire State Building, pioneered workplace safety rules like hard hats, and even got name-dropped in The Godfather II!

It was the world’s largest company for a time, but these days it isn’t even the largest steel company. In fact, it’s the world’s 24th largest steel company, at the tail end of a list that’s long since been dominated by China’s industry.

Washington has tried to stem the bleeding over recent years by —

• Imposing a 25% tariff on most steel imports (Trump)
• Renegotiating certain steel quota arrangements (Biden), and
• Giving local steelmakers a boost via industrial policy (Biden).

And sure, the sector has welcomed the help, but CEO David B Burritt says a takeover from Nippon Steel (the world’s 4th largest producer) would do something bigger: turn the firm back into a “truly global steel company”. 

Not so fast. 

Biden, Harris, and Trump all stated they wanted US Steel to remain US-owned on the campaign trail, and there’s been a bipartisan push for the powerful (if mysterious) Committee on Foreign Investment (CFIUS) to investigate the deal on national security grounds.

CFIUS has been around for half a century, but US presidents have only blocked eight deals on CFIUS grounds. Seven of the eight have involved deals originating from China. And the most recent one (from May) involved a China-owned crypto-miner buying land right next to a US nuclear base in Wyoming!

But here we are now talking about a steel deal, with a major US ally (Japan), and America’s top foreign investor, which already owns another Pennsylvania steelmaker (Standard). So then… why not let it own another?

There are a couple of factors at play here. First, sure, steel often pops up in national security discussions because of (for example) its core military, energy, and infrastructure uses.

But second, the United Steelworkers union has long opposed the deal, worried about “good jobs, benefits and retirement plans.”

And United isn’t any old union: it’s the largest industry union in North America (1.2 million members). And it’s headquartered in Pennsylvania, which isn’t any old state. Despite the US election now being done and dusted, blocking the deal aligns with one of Biden’s initial presidential pledges: to be the most “pro-union” president in history.

So how is everyone reacting? 

• CFIUS announced on 23 December it was unable to reach a consensus on deal, and ultimately laid the decision at the president’s feet,
• US Steel issued a fiery statement on Friday (today), stating “the process was manipulated to advance President Biden’s political agenda” and vowing to “take all appropriate action“,
• And the markets seem to agree – US Steel shares plunged ~7% in the hours following the announcement.

As for Japan? It’s mostly stayed silent in public, although Prime Minister Shigeru Ishiba reportedly urged President Biden to approve the deal in a letter back in November.

INTRIGUE’S TAKE

Sure, Japan has stayed silent in public, but it’s been busy behind the scenes. We’ve been hearing it for months, and it’s now there for all to see: soon after opposition to this deal first emerged, Nippon Steel hired one of DC’s top lobbying firms, US Steel hired another, and the Embassy of Japan added a few more to its own roster. And to be clear, lots of countries do this. The top spenders are the Saudis, but even tiny Palau gets amongst it.

Still, it’s interesting that all the lobbyists in Washington weren’t able to budge the needle.

And that raises some more intriguing questions:

• Are we seeing a change in the role of CFIUS?
• Are we seeing a change in US openness to foreign investment?

All we’d say is that, first, this political process is coinciding with a geopolitical one. And second, any big business not watching both processes very closely might be in for a shock.

Also worth noting:

• Nippon Steel has argued the deal will “enhance American national security”and has pledged to keep US Steel headquartered in Pennsylvania.
• The US department of justice reportedly also opened an antitrust investigation into the Nippon-US Steel deal in April.