Thursday, July 25

Proposed takeover of US steel tests Biden’s industrial policy

US Steel is an iconic example of the loss of manufacturing strength that President Biden claims his economic policies will bring back to the United States.

But last month, the historic but declining company announced plans to be acquired by a Japanese competitor. This development has put Biden in an awkward situation as he tries to balance attempts to revitalize the nation’s industrial sector with his efforts to rebuild international alliances.

The Biden administration has expressed some unease with the deal and is reviewing its proposed $14.1 billion takeover by Japan’s Nippon Steel. The company offers a strong premium to U.S. Steel, which has struggled to compete against a wave of cheap foreign metal and has been weighing takeover offers for several months.

The proposal quickly became a high-profile example of the difficult policy choices Biden faces in his zeal to revive American industry, a choice that could test the degree to which he is willing to flex presidential power in pursuit of that which is probably his main priority. Economic goal: The creation and maintenance of well-paying unionized manufacturing jobs in the United States.

Biden is under pressure from the United Steelworkers union and populist senators from both parties, including Democrats defending crucial seats in Ohio and Pennsylvania this fall, to cancel the sale on national security grounds. The senators argue that domestically owned steel production is critical to U.S. manufacturing and supply chains. They warned that a foreign owner might be more likely to move U.S. Steel jobs and production overseas.

“This should really be a no-brainer,” Sen. Josh Hawley, Republican of Missouri, said in an interview last week. “I don’t know why it would be difficult to say, my God, that we need to keep steel production in this country, and particularly in a company like this, where there are thousands of workers with great unionized jobs.”

US Steel executives say the deal would benefit workers and give the merged companies “world-leading capabilities” in steel production. Last month they announced that Nippon Steel had agreed to keep the company’s headquarters in Pittsburgh and honor the four-year collective bargaining agreement ratified by the steelworkers union in December 2022.

Other supporters of the takeover bid say blocking the sale risks angering a key American ally. Biden urged Japanese cooperation on a wide range of issues, including efforts to counter Chinese production in clean energy and other emerging technologies, and welcomed Japanese investments in new American manufacturing facilities, including advanced batteries.

Wilbur Ross, a former steel company executive who served as commerce secretary under President Donald J. Trump, wrote last week in the Wall Street Journal that “there is nothing in the agreement from which the United States owes defend oneself. Attacks by Washington cops only create unnecessary geopolitical tensions, and these, not the acquisition itself, could endanger American national security.”

Adding to the cross-pressure on Biden: It’s unclear what would happen to 123-year-old U.S. Steel if the administration scuttled the deal, and whether that would actually provide greater job security for the company’s nearly 15,000 North American employees. .

US Steel has faced challenges for decades due to intensifying foreign competition, particularly from China, which has flooded the global market with cheap, state-subsidized steel. American presidents have spent years trying to strengthen and protect domestic steel producers through a mix of subsidies, import restrictions and so-called Buy America requirements for government purchases.

“No U.S. sector has benefited from protection more than the steel industry,” Scott Lincicome, a trade policy expert at the libertarian think tank Cato Institute, wrote in a 2017 research paper.

In recent years, presidents have further increased those protections. Trump imposed tariffs on imported steel, including from Japan. Biden has partially reduced those taxes in an effort to rebuild alliances. Biden has also included strict Buy America provisions in new laws to invest in infrastructure, clean energy and other advanced manufacturing.

These efforts have not come close to restoring the levels of domestic steel production that the United States enjoyed in the 1970s – or even in recent decades. Crude steel production reached higher levels under Presidents Bill Clinton, George W. Bush and Barack Obama than under Biden or Trump.

Employment in the industry declined steadily through the 1990s and mid-2000s. As of 2022, there were just over 83,000 workers in steel mills in the United States, less than half the number in 1992.

Senators including Sherrod Brown of Ohio and Bob Casey of Pennsylvania, both Democrats, and Hawley and J.D. Vance of Ohio, both Republicans, urged Biden to review the proposed sale of U.S. Steel to avoid the loss of steel production and jobs. Mr. Brown cited Nippon Steel’s failure to notify or consult union leaders before making a bid for the company.

“Tens of thousands of Americans, including many Ohioans, rely on this industry for good-paying, middle-class jobs,” he wrote in a letter to Biden last month. “These workers deserve to work for a company that invests in its employees and not only honors their right to join a union, but respects and partners with its workforce.”

Calls for an administrative review of the deal have focused largely on the Committee on Foreign Investment in the United States, known as CFIUS and led by Janet L. Yellen, the Treasury secretary. The committee reviews possible sales by American companies to foreign companies for possible national security threats, then issues recommendations to the president, who can suspend or block a deal.

Shortly before Christmas, Biden appeared to have accepted the request for a review, but without declaring that he would block it.

Lael Brainard, who chairs the White House National Economic Council, said in a press release that Biden welcomed foreign investment in American manufacturing but “believes that the purchase of this iconic American-owned company by an “foreign entity, even from a close ally – appears to merit serious scrutiny in terms of its potential impact on national security and supply chain reliability.”

The administration, Brainard said, “will be prepared to carefully review the findings of any such investigation and take action as appropriate.”

Steel workers applauded the move. David McCall, president of United Steelworkers International, said in a statement that Biden is “once again demonstrating the president’s unwavering commitment to domestic and industrial workers.”

Independent experts say it is within historical norms for the committee to consider the sale. That will likely include a detailed economic analysis of whether the deal could lead to a decrease in U.S. steelmaking capacity, said Emily Kilcrease, a CFIUS expert and senior fellow at the Center for a New American Security.

But Ms. Kilcrease said that, based on the committee’s past decisions, she expected the review to stop well short of a recommendation to stop the sale. Instead, she said, CFIUS could require an agreement from Nippon Steel to maintain certain levels of employment or production in the United States as a condition of the sale.

“I would be shocked if this deal was blocked,” she said.

Hawley said the choice ultimately fell to Biden and was a testament to his commitment to the industry.

“If the administration wants to block the sale, they absolutely have the grounds to do so, as well as the legal authority,” he said. “So it’s just a question: Do they want it? And will they have the courage to do it?”