Nippon Steel has sought to purchase U.S. Steel in a $15 billion cash-only deal to enhance its U.S. market presence, broaden its portfolio, and leverage shared technology and expertise. This transformative merger will strengthen American jobs, U.S. steel competition, and lead to lower steel prices, but political scrutiny threatens to shut it down.
Despite substantial subsidies, U.S. Steel has struggled to compete in the steel industry. The merger with Nippon Steel, a Japanese firm, carries significant financial gains, offering shareholders, including pension funds and U.S. Steel employees, a 142% premium to U.S. Steel’s stock price on August 11, 2023. The infusion of capital will rejuvenate a company grappling with economic uncertainties, ensuring a more secure future for all stakeholders.
However, the nostalgia for one of the oldest American steel firms together with ill-advised political concerns have stalled the merger. Powerful union leaders have voiced worries regarding union employment, while certain Democratic and Republican senators have raised national security concerns, and environmental groups worry about increased steel pollution. Even the White House released a statement stating that, “the President believes U.S. Steel was an integral part of our arsenal of democracy in WWII and remains a core component of the overall domestic steel production.”
These political concerns are economically unsound.
First, Nippon-Steel’s pledged to maintain the U.S. Steel brand within the United States, along with its headquarters in Pittsburgh and the approximately 1,000 jobs there. The alternative scenario is an acquisition by Ohio-based Cleveland-Cliffs—which offered to buy U.S. Steel for less money. Despite clearly presenting a financially worse outcome for stakeholders, it would also lead to redundant geographic headquarters, which would diminish hiring competition, thus lowering wages for steel workers—the exact opposite union leaders want for their members. Nippon Steel, on the other hand is committed to maintaining existing jobs post-acquisition and honoring all collective bargaining agreements already in place.
Second, increasing investment in the U.S. steel industry will increase domestic steel production. As a result, this merger actually decreases national security risk as it will become easier for firms to buy U.S.-made steel. It is clear that blocking the deal would disrupt the trajectory of U.S. Steel's recovery, but it would also send a chilling message to global investors about America's openness to foreign investment. It is also in stark contrast to “friendshoring” policy objectives from the American government who has sought to cultivate closer investment connections with geopolitical allies. Fostering a conducive political environment for business investment is paramount to a strong economy.
Third, the concerns of environmental groups would seem justified, given the steel industry’s historical high greenhouse emissions, except Nippon Steel has pledged to become carbon neutral by 2050. While this is a promise, the merging of technologies between Nippon Steel and U.S. Steel would only increase the chances of decarbonization, whereas in absence of this merger it is unlikely that U.S. Steel will be able to achieve this goal on its own.
Lastly, avoiding a scenario where one company (a Cleveland-Cliffs-U.S. Steel merger) controls up to 95% of U.S. iron ore production mitigates risks of monopolistic practices that will ultimately increase steel prices. Higher steel prices incentivize firms to use cheaper steel from offshore sources—the very problem the Biden Administration is worried about as six of the ten largest steel producers are Chinese companies. Higher steel prices that would occur in this alternative scenario have also drawn significant pushback from the auto industry, which has already experienced a 20% rise in new vehicle prices since 2021.
Nippon Steel's acquisition of U.S. Steel would represent a significant milestone in American manufacturing. It will ensure stability of steel jobs, competitiveness in the U.S. steel industry, and growth for both the company and the communities it serves.
Despite the economic benefits it offers, political challenges jeopardize the completion of this merger. It is imperative that we prioritize sound economic reasoning over misguided political concerns to pave the way for a prosperous future in the steel industry.
