There has been all manner of speculation surrounding the announcement that Nippon Steel and U.S. Steel now will have until late June to formally abandon their proposed merger deal that was quashed by President Biden’s executive order of Jan. 3.
Originally, that deadline was to be Feb. 2. They’ll now have until June 18.
Both steelmakers filed lawsuits challenging the merger’s rejection. They allege, among other things, politics, collusion, conspiracy, racketeering, misrepresentation of the facts and who knows what other alleged misdeeds by a rival steelmaker, organized labor and the government.
And it’s more likely than not that the extension was granted – formally by the Committee on Foreign Investment in the United States (CFIUS) – as a modicum of fair play. That, to allow the lawsuits to play out.
Do remember, it was CFIUS that punted on ruling on the Nippon-U.S. Steel merger when its members deadlocked on what to recommend, thus ceding the final decision to Biden. And also remember that it was Biden who erroneously claimed CFIUS had ruled the deal would “threaten supply chains” and, inexplicably, “national security.”
President-elect Donald Trump also opposed the Nippon-U.S. Steel merger. If that was then and now is now remains to be seen. But Trump entertains allegations of rank hypocrisy, if not befuddlement, when, out of one side of his mouth, he’s willing to open the U.S. Treasury’s pocketbook in pursuit of billions of dollars in foreign investment but rejects just that with continued opposition to the Nippon-U.S. Steel merger.
Be all this as it may, speculation now is running rampant that perhaps some behind-the-scenes dealmaking is, or soon will be, afoot. And that’s where some real trouble could come into play.
Although it would be a tall order for Nippon Steel and U.S. Steel to overcome the lies that Biden’s objections are based upon, perhaps there is some further concession Nippon could make to salvage the merger.
That said, if essentially giving the government a say in your production capacity numbers wasn’t enough – as Nippon did before the deal was scuttled – it’s unlikely it can offer up anything, save for agreeing to have the government take over its operations and, no doubt, bankrupt it.
But just as concerning is if the government offers Cleveland-Cliffs, the steel concern, that in concert with the United Steelworkers Union, wore out a dozen or so wah-wah pedals to kill the merger, a treasure trove of subsidies “to better compete” with a Nippon-U.S. Steel combination, essentially exhibiting the same rank behaviors for which they blame foreign steelmakers.
The bottom line remains that should the merger rejection stand, U.S. Steel will, as it has stated, most assuredly shutter the aging Mon Valley steel-making operations it says it cannot afford to upgrade on its own. And it will follow through with its decision to move its headquarters out of Pittsburgh.
Thousands of jobs will be lost. The Mon Valley’s tax base will be critically diminished. This latest chapter in government interventionism will be laid bare for the hubris and recklessness that it represents.
And America’s supply chains and national security will be at risk.
By the way, there were media reports Monday that Cleveland-Cliffs has plans to team with Nucor in yet another attempt to merge with U.S. Steel. But it’s still for a price below what Nippon proposed. And it is rife with anti-trust concerns, given that it would give the new combination company a monopoly on the production of steel used by the American auto industry.
But that’s not the only hurdle. U.S. Steel, even if it was interested and it appears that it is not, would have to wait until its June 18 walkaway with Nippon before it could even consider the offer.
During a Monday news conference, Cleveland-Cliffs’ chief Lourenco Goncalves said he would not comment on the reported Nucor partnership but still vowed, stridently, to buy U.S. Steel, keep that company name, move to Pittsburgh and make much-needed improvements.
All this said, let’s end this where the emphasis must be – on the pols’ rejection of the Nippon-U.S. Steel merger.
As Sarah Bauerle Danzman, a senior fellow in the GeoEconomics Center’s Economic Statecraft Initiative, recently concluded (on The Atlantic Council’s website), the problem with the government’s scuttling of this deal falls into three categories.
First, she says is the risk of national security overreach, “which directly contradicts the administration’s own articulation of national security assessments … and could also lead to other countries engaging in similar reasoning to protect their own industries in ways that disadvantage U.S. commercial interests.”
Second, Danzman says there’s “the risk of politicization of national security tools.”
“[President] Biden’s public statement of opposition to [the Nippon-U.S. Steel] deal from the beginning, before any proper analysis was complete, suggests that his decision to block this deal was not carefully considered but rather made on political grounds.”
And, finally Danzman says there’s “the risk of knee-capping strategic competition with China.”
“(I)t’s hard to fathom that the United States alone can counter Chinese global dominance in steel production,” she says. “Chinese companies account for almost 60 percent of global steel production. U.S. companies account for less than 6 percent. In matters of rebalancing global supply chains out of China, the United States needs partners and allies.”
Continues Danzman:
“By labeling Nippon Steel as a national security threat rather than a national security asset, the United States makes it harder for its allies and partners to trust that it is a reliable partner.
“This will frustrate progress in developing more resilient supply chains around a range of critical items beyond steel, including critical minerals, electric vehicle batteries, semiconductors, and biotechnologies.”
Thus, the damage to U.S. interests in allowing Biden’s decision to stand would be, far and away, worse than allowing the Nippon-U.S. Steel merger to be consummated.
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
