Nippon Steel and the Art of Investing in America Again

The U.S. presidential elections are still many months away, but the political winds are impacting policy positions across the board in Washington. Economic interests are no exception, and the pressure to demonstrate patriotism over pursuing a lucrative deal is on the increase.

Nippon Steel’s deal to buy out U.S. Steel is an example of such a case. The share price of U.S. Steel surged nearly 26 percent following the Japanese company’s announcement in December 2023 that it would purchase the iconic U.S. manufacturer. Not only did Nippon Steel state that it would not change the company’s name and would maintain long-established labor union relations, but it also pledged to pay 40 percent above the U.S. company’s closing share price at $14.9 billion.

Yet as the backlash from Capitol Hill makes clear, a deal that’s attractive for businesses isn’t necessarily going to be alluring for political leaders. In the current domestic context, selling a U.S. asset can be seen as a sign of U.S. weakness, a case of “selling out” U.S. industry to a foreign entity. After all, the steel industry represents the backbone of the country’s economic foundation and history of strength. U.S. Steel is a particularly fraught example; none other than Andrew Carnegie, J.P. Morgan, and Charles Schwab banded together to establish the Pittsburgh-based company, literally to build up the skyscrapers, railroads, and bridges that laid the foundation of U.S. industrial strength and projected national power.

Nippon Steel assumed that because its offer made good business sense for the U.S. company, there would be no political or workforce opposition. That was a mistake. Vehement opposition from legislators on both sides of the political aisle including Senators J.D. Vance (R-OH), Bob Casey (D-PA), and Sherrod Brown (D-OH) should have been expected. But given that President Joe Biden is facing a tough election as the United States advances industrial policy to boost domestic manufacturing and enhance national economic competitiveness, it should have come as no surprise that the White House too would voice its concerns about the Nippon Steel deal.

Opposition from swing state legislators, including Pennsylvania and Ohio, is hardly surprising at any time. What is driving a wedge between Tokyo and Washington, though, is the argument from the Biden administration that the buyout could endanger U.S. national security.

As the United States turns increasingly to Japan to coordinate international efforts to keep critical technologies from China, the Biden administration’s argument that the deal warrants close scrutiny in consideration of national security and supply chain concerns seemingly poses a contradiction. While the expectation is that the Nippon Steel buyout would pass scrutiny by the Committee on Foreign Investment in the United States (CFIUS), which assesses the impact of foreign investment transactions on national security, the backlash against the deal cannot be ignored at such a politically sensitive time. Even its supporters may want to stall the purchase process until after the November elections.

The fact that U.S. Steel itself had been amenable to a buyout at all should raise concerns among policymakers. Once synonymous with U.S. strength, U.S. Steel’s dominance in the steel industry has continued to falter as other countries stepped up efforts to invest in their own steelmaking capabilities. Even amid growing calls to block the transaction, there has been no call for taxpayers to help U.S. Steel or for greater public spending on advancing the steel industry. It is a far cry from the strategy taken by China, which has supported its manufacturers as its needs for rapid industrialization and growth boosted steel demand.

As Chinese steelmakers account for six of the world’s biggest producers, and the biggest U.S. producer, Nucor, comes in at 16th place, U.S. policymakers must realistically consider the national security concerns regarding the international steel producing landscape. After all, the goal of U.S. economic resilience is to be able to push back against authoritarian governments leveraging their economic dominance and weaponizing their economic advantages for political as much as economic gain. The fate of U.S. Steel should be a wake-up call for Capitol Hill as well as the White House to invest in the country’s key industries, and to partner with like-minded countries as a strategy of collective economic security to push back against over-dependence on China.

As the rallying cry to invest more in the United States and press for manufacturing to strengthen in the country once again, the Nippon Steel deal should be an opportunity for Washington to encourage more foreign investments from trusted partnering countries, and not less.