The Japanese takeover of U.S. Steel
Japan is one of the United States’ best friends.
Japan’s Nippon Steel has agreed to buy U.S. Steel for $14.1 billion, and Rust Belt senators from both parties are raising alarms. “A critical piece of America’s defense industrial base was auctioned off to foreigners for cash,” said Sen. J.D. Vance, R-Ohio. Sen. Joe Manchin III, D-W.Va., called it “a direct threat to our national security.” Sen. Sherrod Brown, D-Ohio, claimed the offer “insulted American steelworkers.” They and other critics want the Biden administration to block the acquisition under a federal law that regulates potential security risks from foreign investment. And on Thursday, a top White House official said the deal “appears to deserve serious scrutiny.”
The proposed transaction should easily pass muster. Large-scale capital investment by a Japanese company poses no danger to U.S. national or economic security, as the relevant agency — the Committee on Foreign Investment in the United States, chaired by Treasury Secretary Janet L. Yellen — has every reason to conclude.
This bout of Japan-bashing harks back to the panic over Japan’s economic rise in the late 1980s — which was overblown, too. Japan is a U.S. ally and party to a mutual defense pact. The two countries cooperate on the production of microchips and other sensitive technologies. And Nippon, which has been operating in the U.S. since 1984, would have no interest in, say, forgoing profits to cut production of steel for American weapons.
Under the deal, U.S. Steel would retain its brand and Pittsburgh headquarters, as part of a new, combined, company that would be the world’s second-largest steel manufacturer — and a free-world rival to China’s state-owned Baowu Group. Consolidation is necessary to compete with China, which manufactures more than half the globe’s steel.
The United Steelworkers, which represents about 11,000 U.S. Steel employees, called the company’s board “greedy” for accepting the best offer. The union wanted the board to sell to Ohio-based Cleveland-Cliffs, even though that company made an initial offer of $7.3 billion, about half what Nippon countered with. But there’s no reason the acquisition should harm the workforce, since the Japanese firm promises to honor all existing union contracts.
The irony of ironies: Much criticism of Nippon Steel’s bid emanates from those who support the industrial policies that made U.S. Steel an attractive takeover target in the first place. President Donald Trump imposed a 25 percent tariff on steel imports that President Biden largely kept in place. Mr. Biden’s signature legislative achievements — a bipartisan infrastructure bill, the Chips Act and the Inflation Reduction Act — included inducements, such as tax credits for wind farms built with domestic steel, that incentivized the Japanese company to buy an American steelmaker.
Mr. Vance’s opposition is especially interesting. “Allowing foreign companies to buy out American companies and enjoy our trade protections subverts the very purpose for which those protections were put in place,” Mr. Vance wrote in a letter urging CFIUS to block the sale, along with two GOP colleagues. In “Hillbilly Elegy,” the 2016 memoir that propelled him to national fame, Mr. Vance recounted the initial negative reaction in Middletown, Ohio, when another Japanese company, Kawasaki, acquired Armco, which owned the steel mill where his grandfather had worked. It was as if “General Tojo himself had decided to set up shop in southwest Ohio,” Mr. Vance recalled. Then the locals realized new owners could invest in their decaying community. “The Japanese are our friends now,” his grandfather told him.
“The Kawasaki merger represented an inconvenient truth: Manufacturing in America was a tough business in the post-globalization world,” Mr. Vance wrote in his book. “If companies like Armco were going to survive, they would have to retool. Kawasaki gave Armco a chance, and Middletown’s flagship company probably would not have survived without it.”
Mr. Vance had it right the first time. Yes, it’s natural to lament the slow decline of the iconic U.S. Steel, America’s first billion-dollar corporation, which, in 1901, made Andrew Carnegie the richest man in the world. Over the past few decades, Nucor overtook U.S. Steel in revenue and profitability by using electric arc furnaces, which also generate less carbon, rather than U.S. Steel’s less-efficient blast furnaces. It is no longer 1943, when U.S. Steel’s employment peaked at 340,000, as it helped arm the Allies to defeat the Axis powers, including Imperial Japan. Now the firm has fewer than 15,000 workers, and Japan is one of the United States’ best friends, whose companies already employ tens of thousands of U.S. workers at auto plants across the country — and should be welcome in steel, too.