President-elect Donald Trump has reiterated his opposition to Nippon Steel’s purchase of U.S. Steel. As with Joe Biden and Kamala Harris before him, it’s what happens when political pandering is mixed with economic ignorance.
The merger is being reviewed by the Committee on Foreign Investment in the United States (CFIUS). Its decision, once delayed, is expected within the month. And early indications are that the committee will reject the merger on an array of grounds, from supposed supply-chain issues to equally supposed national security concerns.
Nippon agreed to buy the once-venerable Pittsburgh-based steelmaker a year ago for nearly $15 billion. But despite its assurances to invest at least $1 billion in aging Pittsburgh-area facilities and a billion-plus more elsewhere, and its promise to honor existing labor contracts, the hierarchy of the United Steelworkers Union also has steadfastly opposed the merger.
It claims the promises are not ironclad and that U.S. Steel’s subsumption presents that national security danger.
But Nippon officials insist their promises are solid. And as Santanu Kamat notes, writing on the website of the Foundation for Economic Education:
“(I)t is difficult to see how national security could be imperiled by the sale of U.S. Steel to a Japanese firm. After all, Japan is a major non-NATO ally and a key U.S. partner in the Asia-Pacific [sphere].
“One industry executive, reacting to the news [of U.S. executive branch opposition], remarked, ‘Japan is an ally. We need our friends at a time when geopolitical tensions couldn’t be higher.’
Not to mention this kind of major international investment.
Further notes Kamat:
“Moreover, as Scott Linicome and Alfredo Carrillo Obregon of the Cato Institute point out, ‘[t]he Defense Department doesn’t currently buy from U.S. Steel, and the Department of Defense needs just 3 percent of domestic steel production to meet its procurement obligations.’
“Quoting William C. Greenwalt, who previously served in senior Defense Department roles including as deputy undersecretary for industrial policy, they write that ‘the current steel industry—save a couple mills (not owned by U.S. Steel) that produce defense-grade metals—has not only been mostly worthless to national security, it has arguably become detrimental to it’ because of its support for protectionism.”
Ah, the seen and the unseen and the tangled web that has been weaved.
And Trump appears to be hell-bent on exacerbating the problem. From the president-elect’s recent social media posting:
“Through a series of tax incentives and tariffs, we will make U.S. Steel strong and great again, and it will happen FAST! As president, I will block this deal from happening. Buyer beware!!!”
But that kind of rhetoric represents a dangerous industrial policy that is not only sure to fail but likely will continuously tap taxpayers – and consumers — to cover up the lie of the government intervention that fails and fails again.
And at that promised level of market-meddling, it borders on the beginnings of nationalizing an entire U.S. industry. Think of the mess government has made of the computer-chip and automobile industries.
It’s one thing for the USW to cut off its nose to spite its face – and that likely would be a positive thing, given organized labor’s culpability in killing domestic steel – but it’s quite another for the U.S. government to do the same by falling lockstep in line promoting such gross economic ignorance.
Writing a year ago at Forbes.com, Ike Brannon, a former senior economist for the United States Treasury and U.S. Congress, stated the case for the Nippon-U.S. Steel merger better than anything we’ve seen since:
“The steel industry has drastically changed over the last few decades: the prominence of mini-mills and the increased globalization of the market have diminished the importance of the large steel furnaces that once came to define the prowess of U.S. manufacturing.
“A merger between U.S. Steel and Nippon Steel would result in a more efficient steel industry, reducing prices and enhancing the competitiveness of the U.S. industries that depend on steel,” Brannon offered.
“Predicating the government’s economic decisions on a rationale based on how the U.S. economy operated five decades ago is a recipe for disaster,” he concluded.
The American people will rue the day that it allowed for the kind of government-directed industrial suicide that scuttling the Nippon-U.S. Steel deal would be.
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
