Former President Biden’s veto of the proposed merger between Nippon Steel and United States Steel was a distressing example of twisted logic and misleading propaganda to justify a baldly political action that, if not reversed, would result in long-lasting harm to our economic well-being and national security. President Trump should undo his mistake and permit the merger to go through.
Biden claimed that “a committee of national security and trade experts across the executive branch determined this acquisition would place one of America’s largest steel producers under foreign control and create risk for our national security and our critical supply chains,” effectively implying--falsely--that the Committee on Foreign Investment in the United States (CFIUS), had recommended that he veto the merger.
The only legal basis for any presidential intervention is if CIFUS finds a credible threat to national security, something the committee did not do. The committee report included only a hypothetical reference to a future scenario in which Nippon might choose to shutter some currently operating U.S. Steel plants and that the resulting reduction in domestic steel production capacity might impinge defense production needs. Nippon’s plan actually involves increasing U.S. output.
The statute that grants the federal government the authority to regulate foreign investment requires that the President (and CFIUS) back up assertions of possible national security impacts of foreign investments with a “thorough” data analysis showing that the proposed merger would actually impinge on that capacity. This requirement was not done, but a brief look at available data shows that Biden’s claim of possible adverse impact was simply not credible.
Biden’s far-fetched hypothetical of national security risk ran counter to the entire motivation for the proposed merger, which entails a $3 billion investment to upgrade and expand existing U.S. Steel Corporation blast furnace plants at Gary, Indiana, and Mon Valley, Pennsylvania. Nippon’s main motivation for the merger is its desire to obtain and expand U.S. Steel facilities in America to supply the assembly plants of Japanese automobile producers in America with materials more efficiently and at lower cost than by shipping components from across the Pacific Ocean.
In truth, the merger would enhance national security by increasing the domestic capacity to produce steel for defense purposes.
U.S. Steel is struggling to keep its legacy integrated mills profitable, but without an investment partner such as Nippon, the company faces the prospect of continual decline and mill closures that would reduce domestic steel production capacity within a few years. Alternatively, much of the company could fall into the control of its larger domestic competitor, Cleveland-Cliffs, which would then have monopoly control over integrated mill steel production.
In either event, the result would be reduced domestic output and higher steel prices, which would make it more costly to produce ships, airplanes, tanks, and weapons in the U.S. Higher steel prices would increase the cost of automobiles and other consumer goods as well.
The harm of Biden’s decision would go far beyond the damage it would do to the domestic steel industry. The precedent that he set by effectively politicizing the power granted the president under the Defense Production Act may have a chilling effect on future foreign investment in the United States. In 2023, foreign entities accounted for almost twenty percent of U.S. private investment. Without this investment, productivity growth and--concomitantly--wage growth will slow, reducing our standard of living.
Pretending that preventing any partnership between U.S. Steel and Nippon Steel will somehow be beneficial for the working man is little more than political sophistry. President Trump has the opportunity to reverse Biden’s false pretense and protect the economic interests of voters who elected him by allowing a partnership between the two companies to go forward. His support for Nippon Steel's investment in U.S. Steel seems a good start.
