Nippon Steel endgame: Resistance or renaissance for the U.S. steel industry

In less than a month, the Committee on Foreign Investment in the United States (CFIUS) is scheduled to issue its findings regarding Nippon Steel’s proposed acquisition of U.S. Steel for nearly $15 billion.

CFIUS’s job is to help the U.S. president determine whether a proposed foreign investment in the United States could harm national security and, if so, what changes to the deal might be necessary or if it should be blocked entirely. While U.S. President Joe Biden has vowed to keep U.S. Steel “domestically owned and operated,” there are multiple ways this promise could be kept. There is also a possibility that incoming President-elect Donald Trump in January will try to revisit Biden’s decision.

Regardless, the endgame for Nippon Steel’s bid appears near and the results could have a significant positive or negative impact on U.S.-Japan relations, depending on the outcome. The next key step belongs to CFIUS in late December.

After spending two November weeks in Washington and Tokyo discussing this case with U.S. and Japanese policy makers and businesspeople, I could not detect any emerging consensus about what CFIUS or Biden will decide in December. To some extent, folks in Tokyo were more optimistic about a favorable outcome for Nippon Steel compared to those in Washington, but that could just be a function of post-election politics fatigue and general cynicism in the American capital.

The United Steelworkers Union has attempted to derail the Nippon Steel bid, preferring instead a much less generous offer by U.S. Steel’s domestic rival, Clevleand-Cliffs, even though this would reduce competition within the United States. Meanwhile, Nippon Steel executives have accused USW of mounting a disinformation campaign and are actively seeking meetings with union leaders to reassure them about management’s long-term commitment to U.S. Steel and its workforce.

Beyond this lobbying battle among USW, U.S. Steel and Nippon Steel are the important economic, national security and political factors being weighed in Washington as the CFIUS deadline approaches.

On point one, the significant economic benefits of Nippon Steel’s investment for the state of Pennsylvania and the broader U.S. economy seem clear. Point two on national security should also be an easy hurdle to overcome, although CFIUS has indicated some concerns about Nippon Steel’s commitment to maintain sufficient U.S. domestic production, or that it might not support U.S. trade actions against foreign competitors in India or Brazil.

It is worth noting that in 2022, Biden added new national security factors for CFIUS to consider when evaluating foreign investments, including the resilience of critical supply chains, so CFIUS might demand some reassurances from Nippon Steel on this point.

The political factors are the most difficult to assess.

To Biden’s promise that U.S. Steel should remain “domestically owned and operated,” Nippon Steel has agreed that U.S. citizens will make up the majority of the board of directors and the core of management for U.S. Steel. U.S. Steel will remain an American company owned by Nippon Steel North America, which has operated domestically for over 50 years and supported U.S. trade actions, most recently in September on imports of corrosion-resistant steel from 10 countries.

Moreover, while USW is trying to apply political pressure on Biden and Trump to block Nippon Steel’s bid, there are political and economic stakeholders in Pennsylvania and beyond who are lobbying for the deal to be approved, so perhaps Tokyo’s optimism is warranted. Biden might decide that the deal’s merits and the trusted alliance with Japan argue for allowing Nippon Steel’s acquisition to go through with only minor adjustments.

However, Biden could alternatively decide that as the self-described “most pro-union president in history,” he should support USW’s request — or at least not go against it. CFIUS is supposed to be a professional review process independent of politics, but we have already seen it postpone a determination once, apparently to avoid angering some union voters before the presidential election. Even if CFIUS cannot find a clear national security reason to reject Nippon Steel’s investment, it could raise doubts or demand new commitments that delay the process into Trump’s term. This would be unnecessary and unfortunate.

Blocking Nippon Steel’s investment would leave the U.S. steel industry more consolidated and less competitive against the Chinese behemoths that produce over half of the world’s steel.

On the other hand, simply allowing this commercial transaction to proceed would bring significant economic benefits to many and help strengthen the U.S. steel industry for decades to come. Nippon Steel’s outreach to USW remains critical, along with its engagement with other U.S. stakeholders and support from the Japanese government.

This acquisition is a great opportunity to solidify the U.S.-Japan relationship for mutual benefit, so it should be approved. Rejecting this deal would shake foreign investors’ faith in the rule of law and a predictable and apolitical business climate in the United States.