Would Japanese Ownership of US Steel Really be a National Security Threat?
BU experts say they don’t buy President Biden’s expressed concern
President Biden has raised national security objections to Japanese ownership of US Steel, but BU experts say the concern is overwrought. Photo by AP Photo/Gene J. Puskar, File
Would Japanese Ownership of US Steel Really Be a National Security Threat?
BU experts say they don’t buy President Biden’s expressed concern
Is Nippon Steel Corporation’s proposed takeover of US Steel a potential threat to national security, as President Joe Biden has suggested, even though Japan, home to Nippon, is our ally?
Or has the deal become a football in US politics, with the White House playing to the United Steelworkers union, which fears offshoring steel jobs if the merger goes through?
In a presidential election season, the only certainty is that a $14 billion business deal was never going to slip through quietly.
Biden extended a security review of Nippon’s purchase—likely until after the November election—but has advocated continued American ownership of US Steel, and he’s reportedly mulling deep-sixing the merger.
The United Steelworkers oppose Nippon’s purchase unless the Japanese firm agrees to guarantee US workers’ jobs. Supporters counter that the progeny of the merger would be a bigger, stronger company that would be better able to take on China in making and selling steel. They also object to the security review by the Committee on Foreign Investment in the United States (CFIUS), a federal watchdog that typically chews over business matters involving the nation’s enemies, not its allies.
Amidst that backdrop, BU Today asked two University experts to dissect the deal: William Grimes, a professor of international relations and of political science at the Pardee School of Global Studies, who teaches East Asian political economy and international relations, and Michael Salinger, the Jacqueline and Arthur Bahr Professor in Markets, Public Policy, and Law at the Questrom School of Business and former director of the Bureau of Economics at the Federal Trade Commission.
Q&A
with Michael Salinger and William Grimes
BU Today: In your view, should the merger of US Steel and Nippon Steel be approved?
Salinger: From an antitrust perspective, it should be approved. Given that US Steel is far from a dominant producer of steel in the United States, that the United States already imports a substantial amount of steel from a variety of friendly countries, and that Japan is a friendly country, the national security concern is certainly not obvious.
Grimes: The merger should certainly be approved. It poses no national security threat, nor is it likely to disadvantage US Steel’s unionized labor force. Nippon Steel’s support makes it more likely that US Steel will return to financial health, continue to produce steel in the United States, and provide quality jobs.
BU Today: Why isn’t it a security threat? Is this a replay of the 1980s, when we worried, needlessly, about Japan buying Rockefeller Center and other US assets?
Salinger: It’s not a replay of the 1980s. The fears that Japan would dominate the world economy have turned out to be way overblown.
Grimes: There is no defensible case that the proposed takeover is a national security threat to the United States, for two reasons. First, Japan is a US ally, and the days of US-Japan trade frictions are long behind us. Many Japanese companies operate in the United States and have contributed to local and regional economies. Japanese companies are not just competitors, but in many cases, operate in intricate supply chains and cooperative relations with companies in the United States and globally. Japan offers no security threat to the United States; in fact, it is the linchpin of US security and diplomatic strategy in East Asia, and it is hard to think of a country outside of North America whose interests are more closely intertwined with those of the United States.
Second, the whole premise that friendly control over the steel industry is a national security threat is flawed. Steel production was a good indicator of military capacity for many years, but it’s hard to make the case that it is of central importance for modern warfare. I can’t imagine a war-fighting scenario in which the United States would be severely hampered by lack of domestically produced steel. The first modern president to make the national security case for domestic steel production was Donald Trump, when he imposed tariffs based on Section 232. It was clearly an attempt to get around the need for Congressional approval, but even though that effort was misguided, it at least made sense in terms of supporting domestic production. The current political opposition by members of both parties to Nippon Steel does not make much sense, even if you accept that domestic steel production is a national security issue—in fact, Nippon Steel is more likely to sustain or increase production at US Steel than if there is no takeover.
There is no defensible case that the proposed takeover is a national security threat to the United States.
BU Today: Unions are worried about the loss of jobs for their members. Are those concerns justified, and could they be addressed if the merger were to go through?
Salinger: If the pay scale at unionized facilities makes it cheaper to produce elsewhere, they are probably right to be worried.
Grimes: It is certainly the case that the debate is driven by union politics. Steel has traditionally been an industry that politicians have cared a lot about, even after the decline in the US steel industry that dates back to the 1970s. It employs a lot of unionized labor in well-paying jobs, and it is concentrated in states like Pennsylvania that have become swing states in presidential elections. Even free trade–oriented presidents like George W. Bush have acted to protect US steel producers through trade policy, due to election concerns. It’s not surprising that Biden, Harris, Trump, and others are responding to such concerns.
The irony in this case is that it is not at all clear that Nippon Steel would be more likely to cut the number of workers or their compensation than existing management or any likely US acquirer. In fact, Nippon Steel has been reaching out to the unions to try to reassure them of its good intentions, but they have been suspicious. From my perspective, that’s what has really jeopardized the deal. If Nippon Steel and the unions had come to an understanding, politicians from the region would not have raised the same concerns that they have, and it is very unlikely that the Biden administration would have referred it to CFIUS.
The loss of manufacturing jobs is bad for the regions that lose them, and you can make a case for the importance of retaining a skilled labor base. But it’s hard to make a national security case in this instance. A far better case can be made in industries like shipbuilding, where the United States has lost a lot of capacity and would be at a big, quantitative disadvantage if it came to a conflict with China. Plus, Nippon Steel is not going to reduce worker numbers any more than US Steel would (and probably less).
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