Nippon Steel purchase of U.S. Steel could be beneficial
Manufacturing matters in the Biden White House. The idea of Americans making things drives many of the president’s leading achievements, from investing in roads, bridges and other public works to spurring the domestic semiconductor industry, here in Ohio and elsewhere.
This priority also finds expression in the president’s opposition to the proposed sale of the iconic U.S. Steel to Nippon Steel of Japan. He sees a threat to American manufacturing, and he is not alone.
Ohio’s two U.S. senators, Sherrod Brown and J.D. Vance, Democrat and Republican, agree. So do Emilia Sykes, Shontel Brown and Marcy Kaptur, three Ohio Democrats in the U.S. House. All are joined by the United Steelworkers.
When Horizon Advisory, a consulting firm that assists businesses and others with strategy and analyses, issued a report in March inviting questions about the deal, Sherrod Brown dispatched a letter to the president, alerting him to the concerns raised. Yet it turns out the report serves as something of a cautionary tale — about pushing your argument too far, perhaps getting things wrong.
Would Nippon Steel purchasing U.S. Steel truly result in harm?
At first, Horizon Advisory indicated yes. It described Nippon Steel as “fundamentally intertwined with China’s steel industry.” It argued that Nippon Steel had ties to the Chinese military and gave priority to the state-controlled Chinese steel market. It even linked the steelmaker to the brutal treatment of Uighurs and, thus, potentially, to violations of American law.
All of this added up to an “obvious national security risk,” according to Horizon Advisory.
You can see why critics jumped to highlight the report. It is hard to suggest nefarious doings by Japan, a longtime economic partner and close strategic ally. China makes for an easy villain. Tie Nippon Steel to the Chinese government, and the deal becomes more difficult to defend.
Then, Nippon Steel responded, insisting the report suffered from inaccuracies, misrepresentations and falsehoods. The steelmaker noted that its operations in China amounted to less than 5% of its global output, and not even 1% of overall Chinese steel capacity. It added that it didn’t make crude steel, or conduct research and development, or use advanced technology in China.
Soon, Horizon Advisory released an amended report. This version backs away from linking Nippon Steel to the Chinese military and manufacturing companies. It no longer cites Nippon Steel as a “core” contributor to the Chinese steel sector, let alone key to China’s state-run industrial policy or dependent on the Chinese market.
Removed, too, is the suggestion that Nippon Steel has a part in the abuses of Uighurs.
Michael Douglas:Proposed US Steel sale merits close attention for potential value
The national security risk has gone from “obvious” to “potential risks that seem yet to be incorporated into broader assessments.” Not exactly precise.
As it is, Nippon Steel performed as many companies did, including the likes of General Motors and International Harvester. The steelmaker was part of a rush to do business in a surging Chinese economy. Now, Nippon Steel sees a Chinese steel market afflicted by overcapacity and overproduction.
The company hardly aims to prioritize China. More logically, it wants expanded access to the American market, prompted by those big investments advanced by the White House and Congress.
Nippon Steel has pledged to keep the U.S. Steel name and the headquarters in Pittsburgh. More important, it presents a chance to break a troubling pattern.
For decades, U.S. Steel has struggled to compete, largely due to a lack of investment in its operations. On many occasions, it has received government protection as a result. Nippon Steel appears ready to launch the necessary capital infusion, along the lines of the $1.2 trillion modernization plan that U.S. Steel lately abandoned.
It hardly takes a great leap to see how such a course would benefit steel production here, and help in maintaining and creating jobs. Foreign investment long has been an engine of prosperity, with the United States a leading destination, Japan plowing the largest share of the $5.25 trillion in all at the end of 2022.
The political headwinds against the deal remain strong, especially in this election year. The Committee on Foreign Investment in the United States, led by the Treasury Department, will generate an assessment. As conceived in the 1970s, the committee has the task of weighing the potential harm to national security. Yet, over time, politics have increasingly intruded.
There are other complications. Nippon Steel would do well to improve its relationship with the steelworkers. Environmental groups ask fair questions about the commitment of the merged company to reducing greenhouse emissions.
At bottom, this is a matter of the big picture. Do the likely benefits to American manufacturing and its workers exceed the potential costs? The answer becomes easier to see when the debate begins to separate substance from distraction.
Michael Douglas was the Beacon Journal editorial page editor from 1999 to 2019. He can be reached at mddouglasmm@gmail.com.
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