Economic illiteracy and unseemly xenophobia hit the U.S. Steel deal
The crisis du jour, according to some febrile senators, is a Japanese corporation’s intention to buy America’s 573rd largest U.S. corporation (as this is written, its market capitalization is smaller than that of Casey’s General Stores).
The U.S. corporation for sale has fewer employees (22,470) than Dave & Buster’s (a chain of restaurants with games).
Three excitable Republican senators, all self-described conservatives, have temporarily suspended their vigilance against socialism to exhort the Biden administration to prevent this market-directed efficiency in capital allocation. The senators — Ohio’s J.D. Vance, Missouri’s Josh Hawley and Florida’s Marco Rubio — say that if Nippon Steel, the world’s fourth-largest steelmaker, purchases U.S. Steel, the 27th-largest, U.S. national security will be imperiled.
Vance says U.S. Steel is a “critical piece” of the U.S. “defense industrial base.”
But this corporation, which is just the fourth-largest U.S. steel producer, will still produce steel, but more efficiently. And Defense Secretary Jim Mattis said in 2017 that just 3 percent of domestic steel production is required for defense purposes. And Japan, one of the most important U.S. allies, will become more so as a collaborative producer of an important commodity. And, by the way, Nippon vows to keep U.S. Steel’s headquarters in Pittsburgh.
Rubio, whose campaign donors include domestic sugar producers, and who says sugar import quotas protect America’s “food security,” says the sale of U.S. Steel is a “poignant metaphor” for America’s “deindustrialization.” Nippon, however, intends to modernize, not liquidate, U.S. Steel.
A Vance-Rubio-Hawley letter to the Biden administration derides U.S. Steel for acting to maximize shareholder value, and says Nippon’s “allegiances clearly lie with a foreign state.” No, Nippon’s allegiances are to its shareholders, who it thinks will prosper if U.S. Steel also does in alliance with Nippon.
Bruce Craig expects this. In a letter to the Wall Street Journal he said: “I am a steel metallurgical engineer with more than 50 years consulting on large industrial projects around the world, some of which require very high quality steels. I have also been through many of the Nippon Steel mills and U.S. Steel mills. Without exception Nippon has some of the highest-quality steel-making technology of any steel producer in the world. U.S. Steel on the other hand ranks far below many of the other high-quality mills around the world. America would benefit by having Nippon Steel upgrade the quality of our steel-making.”
Pennsylvania Sen. John Fetterman, a Democrat, calls it “outrageous” that
U.S. Steel is selling itself to a “foreign nation.” But Nippon is not a nation. Like U.S. Steel, it is a publicly traded private corporation, some of whose shares probably are owned by U.S. individuals and pension funds.
As Reason’s Eric Boehm notes, Nippon, which has been operating in America for 40 years, already owns two U.S.-based steelmakers, Standard Steel and Wheeling-Nippon Steel.
Time was, U.S. Steel symbolized American bountifulness. (As did A&P grocery stores. Remember them? Didn’t think so.) But U.S. Steel peaked early.
Brian Potter, who writes the Constructive Physics newsletter, says that when U.S. Steel was formed in
1901, it was the world’s largest corporation, and the nation’s first billion dollar corporation — its $1.4 billion valuation was more than twice the size of the federal budget. By 1971, however, U.S. Steel was no longer world’s largest steelmaker. It chose to become a ward of government.
It sought protection from foreign competition through government “industrial policy” — protective tariffs, import quotas, subsidies, “Buy American” mandates, etc. — rather than through modernization.
Predictably, its industrial muscles atrophied. Potter says: “As far as I can tell, no major steelmaking technology over the last century came out of U.S. Steel.”
Vance, Rubio and Hawley pose as protectors of workers (steelworkers are 0.05 percent of the non-farm labor force), but Nippon says it will keep U.S. Steel’s union commitments.
The senators seem somehow threatened by foreign corporations’ investments in the U.S. economy.
This, even though, as National Review reports, these investments are, cumulatively, larger than the German economy. And these investments come here to finance Americans making things here. Matthew J. Slaughter, dean of Dartmouth’s Tuck School of Business, recently noted in the Wall Street Journal that Japanese companies employ more than 963,000 Americans.
Economic illiteracy, mixed with foggy nostalgia and unseemly xenophobia, is a familiar populist cocktail served by demagogues to the gullible. Do you remember the 1989 angst when Mitsubishi’s purchase of Rockefeller Center supposedly somehow signaled Japan’s ascendancy over a declining America?
In 2000, a U.S. company bought Rockefeller Center. So, politicians manning the nation’s ramparts to fend off foreign investors can breathe a bit easier.
Economic illiteracy, mixed with foggy nostalgia and unseemly xenophobia, is a familiar populist cocktail served by demagogues to the gullible. Do you remember the 1989 angst when Mitsubishi’s purchase of Rockefeller Center supposedly somehow signaled Japan’s ascendancy over a declining America?