US Steel’s xenophobia is exactly how not to compete with China

Last month, I was left scratching my head when President Donald Trump’s former Secretary of Commerce Wilbur Ross felt compelled to strongly support the proposed acquisition of Nippon Steel US Steel in an op-ed in the Wall St. Journal. At the same time, a bipartisan group of outraged U.S. senators denounced the deal.

Ross, a former CEO of a major steel company, presented a convincing fact-based case that there was no economic or national security threat from the merger, and said the attack was an “unnecessary geopolitical move.” “This could only create tensions, not the acquisition itself.” endangering America’s national security. ” Conservative columnist George Will agreed.

U.S. Steel has accepted Nippon Steel’s offer of $14.1 billion. This is reportedly double the amount offered by major US steel producer Cleveland-Cliffs, although Cleveland-Cliffs disputes that valuation.

The agreement with Japan is currently being reviewed by the Committee on Foreign Investment in the United States, an interagency committee that considers national security implications.

what’s happening? Are acquisitions by Japanese companies, perhaps one of the closest and most important U.S. allies, a threat to U.S. security and competitiveness, or a reflection of the growing economic nationalism in Trump/Biden trade and industrial policy? Is it a knee-jerk reaction of xenophobia?

In an election year, the deal has sparked bipartisan backlash.

Republican Sens. J.D. Vance (R-Ohio), Sen. Marco Rubio (R-Fla.), and Sen. Josh Hawley (R-Missouri) sent a letter to Treasury Secretary Janet Yellen saying, They protested the sale to a company that has pledged allegiance to the ”

Democratic Sens. John Fetterman (D-Pennsylvania) and Bob Casey (D-Pennsylvania) also sent letters to Yellen urging their disapproval. Fetterman called the deal “absolutely outrageous.” It is not surprising that the Democratic Party criticized Nippon Steel for not first consulting with the United Steelworkers union. Fair point.

Mr. Biden has talked about strengthening alliances and “friendshoring” supply chains, but he seems skeptical.

White House economic adviser Lael Brainard said in a statement that Biden was concerned about the “potential impact of any acquisition of this iconic U.S.-owned company by a foreign company, even from a close ally.” “We believe that it deserves serious scrutiny from this perspective.” On national security and supply chain reliability. ”

The quasi-populist angst is understandable, since U.S. Steel is an iconic company that literally built America, from the Empire State Building to the planes and ships that fought in World War II. But the cold hard facts suggest that it does not reflect economic reality.

No longer a dominant or technologically leading force, U.S. Steel ranks second among U.S. steel producers behind NUCOR and 27th globally. As a US company, it is ranked 573rd and has fewer than 22,000 employees. Technological innovations have increased productivity, and in 1980 it took him 10.1 working hours to produce one ton of steel; now it takes him 1.5 working hours. 71% of the steel used in the United States comes from American producers.

When it comes to national security, the U.S. military requires only 3% of the steel produced by U.S. manufacturers, none of which U.S. Steel supplies. Regarding the U.S. industrial base, Nippon Steel assured the United Steelworkers that it would fully honor existing collective bargaining agreements and maintain the U.S. Steel name. The company already owns two steel mills in the United States and is a leader in steel technology. Therefore, US Steel, which has lagged behind in technological modernization, is likely to become even more competitive.

The combined strength of Nippon Steel and US Steel will make Nippon Steel the world’s second-largest steel producer, increase U.S. competitiveness against China, foster a more integrated and innovative global steel company, and ensure supply chain security. sex will be strengthened.

Steel is one of the most protected sectors of the US economy, with more than 60% of imports protected by tariffs. While the core of the steel trade issue is caused by China’s heavily subsidized overcapacity, the Trump administration has also imposed 25% tariffs on U.S. allies in Europe, Canada and Japan; was abolished and replaced with quotas.

If the criteria for approval are national security and the safety of the industrial base and supply chain, there will be a persuasive force for moving forward with the agreement. Indeed, the gap between facts and political rejection begs the question “why?”

Fear and resentment appear to be part of a backlash against the excesses of globalization and the hollowing out of American industry. Again, fair enough. But it’s unclear how opposing mergers will strengthen U.S. manufacturing or make the U.S. more competitive with China.

More broadly, America’s reluctance may reflect its difficulty adapting to the spread of wealth from West to East in an increasingly multipolar world. Inward-looking economic nationalism is driving populism in the United States and Western countries.

But it’s not 1991 anymore. The United States’ GDP accounts for 25 percent of the world economy, 5 percent of the world’s population, and 95 percent of its market is elsewhere. Despite the rise in protectionism, global trade remains at roughly the same level as the global economy before the pandemic. But there are unresolved tensions between an America-first industrial policy and building trade and technology networks with like-minded partners.

The Committee on Foreign Investment in the United States may decide to impose conditions on approving the sale to address concerns from labor and Congress.

Rejecting the deal would also raise some thorny issues. Japan is the largest investor in the United States, investing more than $700 billion and employing more than 500,000 American workers. If more reliable and resilient supply chains are a goal of U.S. industrial policy, what message does denying investment from public companies by major U.S. allies send to allies and partners? Or?

And if it is decided that Japanese investment is not acceptable, then from where will foreign investment be welcomed?

Robert A. Manning is a distinguished fellow at the Stimson Center. He previously served as Senior Advisor to the U.S. Under Secretary of State for International Affairs, on the Policy Planning Staff to the U.S. Secretary of State, and as a member of the National Intelligence Council Strategic Futures Group. X/ Follow him on Twitter @Rmanning4.