The announcement that Nippon Steel Corporation intends to acquire U.S. Steel has put the Committee on Foreign Investment in the United States (CFIUS) at the center of a high-profile lobbying campaign by members of Congress.
While the $14.1 billion deal is widely seen as a victory for Americans in the sense Nippon Steel is paying a 40 percent premium over U.S. Steel’s stock price, the acquisition has also drawn criticism from trade restrictionists in Congress.
Critics in the Senate argue that the acquisition should be scrutinized because the sale of “America’s defense industrial base” to “foreigners” would undermine “national security” by exacerbating the country’s trade imbalances.
These Senators are right that the deal has national security implications, but are emphasizing the wrong ones.
The threat emanates not from the U.S. allies that seek to acquire a languishing American company, but rather, from the Chinese market dominance that would continue if the Biden administration rejects the buy-out.
The proposed buy-out is the culmination of a long decline of American leadership in the global steel industry. Six of the top ten steel producers in the world are now Chinese companies, all of which are either state-owned or receive subsidies from the government.
None of the top ten are American.
The U.S. Steel acquisition would help break China’s stranglehold over the global steel market. China’s state-owned Baowu Group would remain on top, but Japanese Nippon Steel would become the third largest global steel producer, just behind ArcelorMittal, which formed in 2006 through a merger between Indian and European steelmakers.
The eclipsing of U.S., Japanese, and Indian steel companies by China is part of a larger pattern in which Beijing has benefited from the failure of Washington, Tokyo, and New Delhi to institutionalize their partnership.
Invigorating the U.S.-Japan-India trilateral relationship became a priority in 2015 after the elections of prime ministers Shinzo Abe and Narendra Modi in Japan and India, respectively. Both campaigned on the need for greater trilateral cooperation to manage China’s rise.
Japan was included in 2015 for the first time as a permanent member in the joint naval Malabar exercise with the United States and India.
On the diplomatic front, the countries’ trilateral dialogue was elevated to the ministerial level. All three powers articulated a broad rationale for the trilateral relationship based on their shared commitments to international security, economic development, and democratic values.
When Chinese encroachments into Indian territory across their shared Himalayan border led to deadly clashes between the two countries’ troops, Japan underscored its support for New Delhi with a $2 billion infrastructure investment in India’s northeast.
Proponents and critics of the trilateral partnership alike assess that the trilateral partnership could evolve into a more formal bloc that preserves a democratic order in the Indo-Pacific.
Beijing routinely goes as far as to accuse the United States, Japan, and India of forming an “Asian NATO.”
More sober analysts raise the prospect that, with the U.S. pivot to Asia, the three countries could institutionalize the partnership if they can find agreement on expanding trade in strategic sectors.
In recent years, however, trade restrictionists in all three countries have thwarted such sales.
Japanese and Indian negotiators proved unable to reach an agreement on Japanese sales of US-2I amphibious planes due to their inability to satisfy the conditions of “Make in India” provisions, which contain onerous requirements to manufacture on Indian soil.
The sale of Soryu submarines encountered opposition within the Japanese political-defense establishment, which was willing to waive restrictions on defense exports to the United States, but not for India.
In the case of steel, Washington initiated a trade war. A 25 percent U.S. tariff on steel under the Trump administration led to a decline by 46 percent of Indian exports to the United States within 12 months.
Against this backdrop, the steel acquisition speaks to the larger question of the United States’ commitment to working with its allies to counter China.
The bipartisan House Select Committee on China issued a report last month urging Congress to add Japan and other U.S. allies to the CFIUS “whitelist” of Excepted Foreign States as a way “to address the PRC threat to U.S. technology.”
Contrary to Chinese accusations, the United States and its allies are not creating a NATO-like alliance in the Indo-Pacific. But Beijing’s fear-mongering in this vein betrays an understanding of American power that eludes some in the U.S. Congress.
Any disadvantage to U.S. security that might accrue from a decline in domestic steel production pales in comparison to the advantages Washington gains from its alliances with the Indo-Pacific democracies.
