Let Nippon Steel save U.S. Steel
Two presidential candidates, a handful of Pennsylvania politicians, and several union leaders were quick to publicly condemn the decision by U.S. Steel’s board of directors to entertain an offer to merge with Japan’s Nippon Steel. This outcry seems to be based on a gut reaction against foreign investment in Pittsburgh’s proud and revered steel industry.
I cannot understand how the immediate responses could be so negative. In my opinion, a U.S.S.-Nippon merger would significantly benefit Western Pennsylvania and the overall U.S. economy.
Nippon and U.S.S.
The basic question is: Why is Nippon Steel interested in U.S. Steel? It comes down to the fact that steel is no longer primarily a domestic industry. It is a global industry.
To successfully compete in 2024, a steel company needs to be both large enough and have access to enough investment capital to effectively operate wherever in the world demand for steel is highest. While China remains the largest domestic market for steel, America — with its thriving economy — continues its high demand for steel products, and that is likely to continue.
Pittsburgh obviously has a long history as a steel town, but few may realize that steelmaking today is an industry increasingly dependent upon the very latest technologies, and the costs to develop these technologies are astronomical.
As the fourth largest steel company in the world, Nippon Steel has the wherewithal to invest in maintaining and expanding its technology base in a highly competitive global marketplace. Because U.S. Steel for years has strived to heighten the level of its technology, the resources available from Nippon Steel would be essential to its continuing viability.
The stark truth facing industries such as steel is that the American stock markets — while now booming — favor highly-touted tech and AI businesses over more traditional blue-chip companies. That reality has not been lost on U.S.S. leadership and its shareholders.
A secure owner
When stock markets are not viable enough to provide adequate access capital, companies with deeper financial pockets like Nippon Steel may offer the only realistic opportunities for survival.
Some of those publicly criticizing the proposed deal between Nippon Steel and U.S.S. have claimed that a sale to Nippon Steel would directly threaten U.S. national security interests. I disagree.
Under U.S. law, the only way for a U.S. president to block a proposed deal of this nature is to have the Committee for Foreign Investment in the United States (CFIUS) investigate and officially determine that the transaction poses a serious risk to U.S. national security.
Where a CFIUS investigation might come into play would be if, say, China’s Baowu Steel Group (the largest steelmaker in the world, at nearly three times the size of Nippon Steel) tried to acquire U.S. Steel. That would certainly raise national security questions on a variety of levels.
But it’s not the case with Japan. Japan and the United States are not at odds and have one of the closest economic, political, and military relationships in the world.
Keep Pittsburgh the capital
Most importantly, and what many critics seem to ignore, is that the offer to purchase U.S. Steel includes binding commitments by Nippon Steel to relocate its U.S. headquarters from Houston to Pittsburgh, to maintain the historic U.S. Steel branding, and to not close its facilities or move existing production overseas.
I have serious doubts any of the other American steelmakers can (or would) be willing to match this offer. Maintaining jobs in Western Pennsylvania and keeping Pittsburgh the steel capital of America is at stake. It’s time for those who have so vocally criticized the deal to take a second look.