“in the face of increasingly tough competition both domestic and foreign, US Steel started to look for a buyer. Late last year it found one in Nippon Steel, the largest steel manufacturer in Japan, which offered $14.9 billion for the company.
In many ways, it seemed like a natural fit. The world’s current leading steel producer, by a wide margin, is China, and just as a US-Japan alliance is the linchpin of efforts to contain China militarily, a US-Japan corporate merger could be a linchpin of efforts to contain China’s efforts to dominate the steel market. Letting a military rival control the production of such a crucial material (and such an important one for defense applications like warships and warplanes) comes with clear risks.
Except the deal now will not go through. President Joe Biden, who came out in opposition to the deal in March, announced on Friday he would block the sale on the grounds that the deal represented a threat to national security.
“It is my solemn responsibility as president to ensure that, now and long into the future, America has a strong domestically owned and operated steel industry that can continue to power our national sources of strength at home and abroad,” Biden said in a statement. “And it is a fulfillment of that responsibility to block foreign ownership of this vital American company.”
The decision comes after the Committee on Foreign Investment in the United States (CFIUS, an interagency council controlled by Biden’s Cabinet and other appointees) decided not to formally recommend whether the takeover should go forward, though it did express reservations about the deal in letters to Nippon Steel and US Steel. CFIUS has the power to vote mergers and acquisitions it deems dangerous to national security.
National security, though, is not necessarily the reason why Biden made the highly unusual decision to block the deal, even though US Steel is threatening to shut down multiple mills should the deal not go through, which could put thousands out of work. His administration’s diplomats had reportedly told Japanese officials they need to kill the merger so Democrats would win Pennsylvania last November. (Even though Kamala Harris also came out against the deal on the campaign trail, she still lost Pennsylvania by over 100,000 votes.) Donald Trump also signaled opposition to the acquisition.
Why did this deal become so unpopular? Some of it surely is the symbolism of “US Steel” being sold to “Nippon Steel,” which if included as a plot point in a late ’80s/early ’90s movie about the unstoppable economic rise of Japan, would come across as a little too on the nose. Unsurprisingly, Trump, whose form of nationalism has a distinct 1980s vintage, explained his opposition as motivated by a desire not to sell out to “Japan.”
But the bigger reason politicians lined up against the deal is that the leadership of the United Steelworkers union (USW), which includes most of US Steel’s workforce among its 60,000 steelmaking members, strongly opposed it, though many members dissented. Sen. John Fetterman (D-PA) candidly stated he’ll oppose the deal as long as the union does.”
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“One can hardly blame the United Steelworkers union for being skeptical of minimills, given how the spread of the business model has decimated its membership. The problem is not just that minimills require fewer workers, but that they tend to be located in southern, anti-union states, with non-union labor.
There are a total of eight operational integrated steel mills in the US, all owned by US Steel or Cleveland-Cliffs; three are in Indiana, two in Ohio, one in Michigan, and one in Pennsylvania. The eighth, in Granite City, Illinois, idled its blast furnaces indefinitely late last year, though it continues to roll and finish steel slabs produced elsewhere. All eight of these facilities are unionized, six by the United Steelworkers.
By comparison, there are 88 electric arc furnace facilities in the US. While it’s hard to know what share are unionized, most are not; only about 23 percent of iron and steelworkers in the US overall are covered by a union contract, down from over half in 1983. Given that almost all workers in integrated mills are covered, it’s reasonable to surmise that the large majority of minimill workers aren’t in a union, making steel a majority non-union industry overall.
There are always exceptions, like a US Steel electric arc furnace facility in Alabama where workers are USW members, but for the most part, big integrated mills mean union power, and minimills with electric arc furnaces mean union decline. Nucor, the largest steel company in the US with over 25 million tons sold last year to US Steel’s 15.5 million, both pioneered minimills and is famously non-union. Even US Steel, long a center of union strength, acquired an Arkansas non-union electric arc furnace mill in 2021.”
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“How did this tie into the Nippon Steel bid? Essentially, the steelworkers saw Nippon as threatening to move US Steel toward minimill-type production and away from the conventional blast furnace/basic oxygen furnace integrated mills where the union is strongest.”
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““The reality is that there are certain crucial products that simply cannot be made without blast furnaces, including those used in automotive, energy, and national security applications,” the union insisted. They have a point. We can’t run the world economy on recycled scrap metal alone, and advanced high-strength steel (AHSS), needed for car manufacturing among other uses, tends to be made with blast furnaces, not electric arc furnaces, in part because scrap of high enough quality to make AHSS is rare. EAFs running on iron produced through direct reduction, not blast furnaces, may be able to make inroads here, but right now we need blast furnaces for cars.
There are other union concerns as well. The acquisition was announced without giving the union prior notice, which it claims violates the collective bargaining agreement reached between the union and US Steel.
Moreover, the union had another buyer in mind: Cleveland Cliffs, the No. 2 steel company in the US and the only other operator of traditional integrated mills. The company committed to the union that no union member would lose their job upon acquisition, and would continue to operate blast furnaces. Once again, the USW position emphasizes keeping traditional mills, with large union workforces, going.
However, Cleveland Cliffs only offered $7.3 billion, about half of Nippon’s $14.9 billion, for US Steel. It reportedly offered much more than that privately in response to the Nippon bid, but even then it didn’t match the Nippon offer. A Cleveland Cliffs purchase would have also raised major antitrust issues that would presumably bother the unusually antitrust-focused Biden administration. The Alliance for Automotive Innovation, the US auto manufacturers’ lobby, wrote to policymakers to express concern over one firm controlling 100 percent of US blast furnaces, and 65 to 90 percent of the steel used in vehicle manufacturing.
Industry press coverage of Cliffs notes quite candidly their strategy of trying to dominate blast furnace production so they can charge a higher price. In other contexts, that’s a kind of monopoly-oriented strategy that Biden appointees like Federal Trade Commission chair Lina Khan or Department of Justice antitrust chief Jonathan Kanter would normally object to.”
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“Some environmental groups criticized the deal on the grounds that Nippon is committed to keeping high-emissions blast furnaces running — precisely the opposite conclusion of the steelworkers’ union. If the steelworkers were right, that probably would have been good news for Nippon and US Steel’s carbon footprint.
As it stands, electric arc furnaces are far cleaner than blast furnace/basic oxygen steel production.”
“The Committee on Foreign Investment in the United States (CFIUS) was unable to reach a consensus on Japan’s Nippon Steel’s $15 billion acquisition of U.S. Steel. The very committee that is responsible for safeguarding the U.S. from compromising foreign investments doesn’t recommend blocking the merger”
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“CFIUS’s inability to recommend blocking the merger on national security grounds is not surprising: Japan is not an enemy of the U.S., but a close ally. The U.S. has been formally allied with Japan since the signing of the U.S.-Japan Security Treaty in 1951. In April, Biden and former Japanese Prime Minister Fumio Kishida issued a joint statement celebrating “a new era” of bilateral security cooperation and announcing “several new strategic initiatives to strengthen our defense and security cooperation [and] bolster economic security.”
A section of the joint statement details the two countries’ commitment to economic cooperation under the U.S.-Japan Competitiveness and Resilience (CoRe) Partnership, which the Biden administration announced in April 2021 to advance cooperation “on sensitive supply chains…and on the promotion and protection of critical technologies.” The statement also celebrates mutual investment, pointing to Microsoft’s $2.9 billion investment in AI and cloud infrastructure in Japan and Toyota’s $8 billion battery production investment in North Carolina—a mere 1 percent of Japan’s $800 billion in foreign direct investment in the U.S.
If mutual investment in critical industries like semiconductors and batteries doesn’t compromise national security, the burden of proof is on those opposing Japanese investment in American steel production to explain why it does. CFIUS could not meet this burden and refrained from issuing a recommendation accordingly.”
“Japan’s destroyer-turned-aircraft carrier just completed sea trials off the coast of California on Friday, the country’s navy said.
The JS Kaga was refitted with a flight deck that allowed crews “to conduct fixed-wing aircraft operations,” the US Defense Department said in a statement last month.
The Kaga is the first aircraft carrier to be operated by the Japanese navy since World War II as the country overhauls its maritime forces amid tensions in the Indo-Pacific. Central to the light carrier’s power is the short take-off and landing version of the F-35 stealth fighter.”
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“Converting the ship to accommodate fighter jets goes against post-war Japan’s pacifist beliefs, so its navy designated the Kaga as a “multi-purpose destroyer” rather than an aircraft carrier. Nonetheless, the Kaga is not expected to be deployed like a traditional carrier.
“Given its history, it’s significant that Japan has come this far, and they have the capability now that looks like an aircraft carrier … once it’s reconfigured,” Jeffrey Hornung, a political scientist specializing in Japanese security and foreign policy, told Time in 2019.
He added: “But, then again, they’re not [aircraft carriers]. They don’t have any of the infrastructure for it to be deployed as such. They don’t have the strike capability. They don’t have any sort of intention to go further than what it is right now.””
“For Washington, the question that really matters is Ishiba’s approach to the military relationship with America.
Here Ishiba has sounded more disruptive than either the Japanese or U.S. establishment would like. He approached one third rail by calling for the revision of the agreement on the deployment of U.S. forces here. He went for another in wanting to amend the constitutional provisions on Japanese pacifism. He has talked about an Asian version of NATO, which would take Japan from a security vassal of the U.S. to a peer, though still a close ally.
“He could be a problem for the U.S.,” says Gerry Curtis, the retired Columbia scholar of Japan who lives much of the year here. “He thinks the deal with the U.S. is outdated, has an occupation stink to it.” Ishiba is, as one of the preeminent Japan watchers in Washington Ken Weinstein texted me, “hardest for Americans to read of the major candidates.”
So what’s going on? A Japanese official who knows Ishiba offered the 60/40 theory over lunch the day after Ishiba’s victory. Every other similar status of forces agreement with the U.S., from Germany to South Korea to Italy, was revised in the last half century. Japan’s dates to 1960. Ishiba wants a deal to allow Japanese forces to base and train in the U.S. — in effect to become even more like a normal army than a self defense force. Abe took Japan down this road, and Kishida continued by boosting spending (Japan’s defense budget is the third-biggest in the world). But neither of Ishiba’s predecessors put the status agreement explicitly on the table the way Ishiba has. So 60 percent of Ishiba’s motivation is “to enhance deterrence and strengthen the alliance,” this official said. The other 40 percent? That’s about “restoring Japanese sovereignty,” and that’s the bit that makes Washington nervous.
Speaking after this victory, Ishiba said the time wasn’t right to raise any of these security questions. This will be a topic of discussion with the next U.S. president and shouldn’t even be mentioned before Election Day in November.
The other topic that will test bilateral relations is America’s more protectionist trade policies under both Trump and Biden administrations and the high cost to Japanese manufacturers of enforcing the U.S.-inspired restrictions on technology transfers to China. “Japan is hurting right now because of American policies,” says Koll.
The new Japanese prime minister is “a realist,” says Hiro Akita, the Japanese business daily Nikkei’s foreign affairs specialist, who knows him. Ishiba thinks that Japan has to adjust to a changing world, he says. The next prime minister is no Japanese Charles de Gaulle who’ll seek to push America back as the old French leader did there half a century ago, he adds.
But still, this at first undramatic leadership change in Tokyo does potentially bring chop to the waters of the Japanese-American relationship that have been especially placid of late.”
“the four most prominent politicians in the country (sorry, Tim Walz) agree: U.S. Steel, a private company, should not be allowed to conduct a transaction with another private company unless the federal government agrees.
This is absurd—particularly because the deal is obviously in the best interest of U.S. Steel.
“We’ll admit that the competition for the dumbest economic policy is fierce these days—with prices controls on food, a 10% across-the-board tariff, and national rent control on the table,” opined The Wall Street Journal’s editorial board this week. “But opposition to the Nippon deal deserves careful consideration for this distinct dishonor given the deal’s manifest benefits and nonexistent harm.”
Indeed, Nippon’s plan to buy U.S. Steel gives the legacy steelmaker something that Trump’s tariffs and Biden’s blather about blue-collar jobs never could: A chance to actually become more competitive in the global marketplace. Among other things, Nippon has promised to invest $2.7 billion in revamping U.S. Steel’s plants.”
China Is Beating the U.S. in the Battle for Influence in Asia Susannah Patton. 2022 6 6. Lowy Institute. https://www.lowyinstitute.org/publications/china-beating-us-battle-influence-asia Trade, investment, China influence in East and SouthEast asia is surpassing that of the USA. Persistent Chinese diplomacy. Strategic investments. China Has
“Japan’s total population marked the 15th straight year of decline”
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“Births in Japan hit a record low of 730,000 last year. The 1.58 million deaths last year were also a record high. Japan’s population was 124.9 million as of Jan. 1.”
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“The government earmarked 5.3 trillion yen ($34 billion) as part of the 2024 budget to fund incentives for young couples to have more children, such as increasing subsidies for childcare and education, and is expected to spend 3.6 trillion yen ($23 billion) in tax money annually over the next three years.
Experts say the measures are largely meant for married couples who plan to have or who already have children, and don’t address the growing number of young people reluctant to get married.
Japan’s population is projected to fall by about 30%, to 87 million by 2070, when four out of every 10 people will be 65 years of age or older.”