Almost as soon as President Joe Biden announced he would block Nippon Steel’s acquisition of U.S. Steel, the caterwauling began. The U.S. Steel CEO and some economists complained that Biden’s decision was based on political loyalty to American workers and unions, not the country’s broader economic and security interests. In a joint statement, the two companies argued there was not “any credible evidence of a national security issue” with the merger.
The critics’ focus on politics reflects that they are flat wrong on the merits. If the merger went through, it could leave the U.S. without ready access to sufficient volumes of specific critical steel products and the ores to make them that are necessary for our national defense and domestic infrastructure.
Nippon Steel — or any foreign steel firm — would be welcome to invest in the United States to create new steel or ore mining production capacity.
Why does it matter that the U.S. maintains domestic steel production capacity? The U.S. Department of Homeland Security has defined 16 sectors that are critical to the nation’s security, economic stability, and public health or safety. Iron and steel mills are not only listed on their own merits but because they are considered essential to other sectors, including energy, transportation and the defense industrial base. The sector’s importance has only grown since the Infrastructure Investment and Jobs Act and the Inflation Reduction Act significantly increased domestic demand for steel.
Nippon Steel — or any foreign steel company — would be welcome to invest in the United States to create new steel or ore mining production capacity. But Nippon wanted to acquire existing U.S. facilities that currently produce essential products we need to repair bridges and roads, ensure military readiness and produce the inputs for the solar, EV and other manufacturing we are scaling up to make domestically.
Nippon’s interests are not the same as those of the U.S. government. The world’s fourth-largest steelmaker seeks only to maximize its global market share and profits. And that could mean cutting back on U.S. steel production. A December report from the Committee on Foreign Investment in the United States, a group of U.S. Cabinet officials that conducts security reviews of sensitive foreign purchases of American land and businesses, warned that Nippon acquiring U.S. Steel could reduce domestic steel output, which would represent a “national security risk.”
Nippon already produces the same products made by U.S. Steel at facilities in the United States at its plants in other countries, including in China. And it has undermined U.S. domestic production by “dumping” some of those products here, in violation of fair-trade rules. Just six weeks ago, the Commerce Department issued an anti-dumping order against Nippon Steel, imposing 29% penalty tariffs on the company for selling its hot-rolled steel below market value. In the last decade, Nippon has faced charges of dumping in at least 10 cases.
Nippon Steel already gave away the game, in fact, in its original September 2023 offer to U.S. Steel. Nippon initially bid $9.2 billion to purchase only U.S. Steel’s Keetac iron ore mine in Minnesota and a mini-mill operation employing electric arc furnace technology in Arkansas. Nippon wasn’t interested in the entire company, only offering to purchase everything after U.S. Steel’s management insisted.
Though U.S. Steel’s integrated blast furnace steel mills are three of the last six in the United States, Nippon only marginally increased the offer, first to $9.5 billion and then eventually $10.6 billion. showing how little value it places on these mills and U.S. Steel’s other facilities.
It is not just that domestic milling capacity that would be put at risk by the deal.
Worse still, blast furnace mills generally require annual investment, and some of U.S. Steel’s need to be updated. Nippon’s later pledge of an additional $2.7 billion for improvements at mills may sound substantial, but is insufficient given how capital-intensive steelmaking is. Plus, the promised improvements came with back-out clauses, suggesting the corporation’s future business plans include maintaining these integrated mills, much less expanding them.
And it is not just that domestic milling capacity that would be put at risk by the deal. U.S. Steel produces almost half of the country’s entire strategic iron ore supply. Making steel requires ore and scrap. Integrated mills use mostly ore and only a small portion of scrap. There is not a reliable and affordable supply of scrap to ensure a resilient supply chain for U.S.-made steel. The U.S. Steel mines generated 22.1 million net tons of iron ore pellets in 2023 and, as of that year, contained 449 million net tons of reserves. Worldwide, Nippon Steel needs about 55 million tons of iron ore annually and acquires nearly 80% of its raw materials from third parties. If Nippon Steel acquired U.S. Steel’s mines, it would be free to divert a substantial percentage of the U.S. iron ore supply to its worldwide operations.
As if all this wasn’t enough to sour almost anyone on this deal, Nippon officials have also directly indicated that the firm is likely to shut down or not adequately invest in integrated blast furnace operations. Takahiro Mori, Nippon Steel’s head of global business development, confirmed on a U.S. Steel analyst briefing that the company planned to boost production only at the Arkansas mini-mill, while cutting at other facilities. Not only would this reduce physical capacity for steel production in the U.S. but thousands of skilled workers whose knowledge and experience are necessary to that production would almost certainly be sacked.
The pandemic period highlighted the risks of having essential goods made mainly outside of the United States, as well as why we need multiple producers. Biden is right to prevent existing U.S. steel production capacity from being acquired by a global firm that does not share the U.S. national interest in ensuring robust domestic steel production capacity.
The Trump White House should now consider what combination of low-interest loans, tax credits and other assistance it can condition on steelmakers sustaining and expanding their U.S. production capacity, just as the Biden administration did for microchips, solar and other critical goods. And the incoming administration should also ensure that the heavy tsunami of subsidized steel imports does not crush U.S. producers. What Biden wrote in one of his first Executive Orders remains true today: “[t]he United States needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security.”
Lori Wallach
Lori Wallach is the director of the Rethink Trade program at American Economic Liberties Project. Wallach is a 30-year veteran of international and U.S. congressional trade debates starting with the 1990s fights over NAFTA and WTO.