The Biden Administration’s recent announcement of tariffs, and other protectionist measures aimed at China, is the latest increase of economic tensions and search for political momentum.
The White House moves may have increased the saliency of trade as an issue, but the ignition was the December announcement of U.S. Steel’s agreement to be acquired by another publicly traded company, Japanese-based Nippon Steel.
Aside of what strategic approach toward China is best, the U.S. Steel acquisition agreement illustrates how protectionist rhetoric, including the supposed defense of jobs, does not match economic reality. Similarly, the national security rationale is a thin smokescreen meant to scare Americans with borderline jingoism rather than facts.
U.S. Steel is well-known in the American business consciousness because of its history and role in manufacturing 100 years ago. But today, the reality is it is just a medium sized company, employing roughly the same number of people as restaurant chain Dave & Buster’s. U.S. Steel’s peak employment came during World War II and its peak output was some 50 years ago. Currently, it is just the third largest American producer of steel and the 27th largest worldwide.
Still, if the supposed concern is ensuring that steel industry jobs remain in the U.S., then details matter. Good news, then, that the signs are positive—although they do not favor the deal’s opponents.
Nippon Steel’s offer handily beat other competitors, offering $5 billion above U.S. Steel's market capitalization—an all-cash bid with more than 100 percent premium paid. A major upside is accessing a market that has, ironically, been stifled by decades of protectionist policy. Even American manufacturers that use steel—that is, current and potential customers for U.S. Steel—welcomed the news.
The announced plans for improving U.S. Steel’s prospects include using cutting edge processes in the Pennsylvania facilities. The company would manufacture American-made high-grade steel products like electrical steel and automotive flat steel for U.S. and North American customers, which avoids importing these types of steel from China. Breakthrough technologies, including hydrogen injection into blast furnaces, high grade steel production in large size electric arc furnaces, and hydrogen use in the direct iron reduction process, will modernize and help advance U. S. Steel. The goal is to grow the company into a strong steelmaker what will reinforce domestic production of American-made steel products. So, yes, the jobs will stay in the United States. Even U.S. Steel’s historic name will go unchanged.
National security arguments against the deal also fall flat. First, the Pentagon isn’t even a U.S. Steel customer. Second, a memo from the Department of Defense itself states that “the U.S. military requirements for steel and aluminum each only represent about three percent of U.S. production.” As writer Dominic Pino points out, “[e]ven if the military goes on a building spree that triples the amount of steel it needs, it would still be a single-digit percentage of total U.S. production.” Furthermore, in case of a true national emergency, “The Defense Production Act already gives the military the ability to jump to the head of the line for steel if it’s absolutely necessary.”
One might expect President Biden to rely on protectionism as he curries favor with union bosses, who would prefer to see their own power grow via a sale to another unionized company, even if that risks the competitiveness—and thus overall career prospects—of the workers they claim to represent.
It is just as displeasing, then, to see Republican Senators echo Biden’s statist and deficient rhetoric. Even election-year politics did deter Sens. J.D. Vance (R-OH), Josh Hawley (R-MO) and Marco Rubio (R-FL) from parroting President Biden’s rhetoric in a letter to Treasury Secretary Janet Yellen, in which they offer mere platitudes about domestic manufacturing and national security, imploring her to block the deal. The Senators even insinuate that a publicly traded global company like Nippon Steel would do the bidding of a “foreign state.” Missing, however, are any details of how the proposed acquisition would damage American steel production.
Opposition to this deal also needlessly invites additional economic problems by risking a trade war with Japan. Theoretically, it might be one thing to invite pain on American consumers by implementing tariffs and other protectionist policies on a country like China, with whom relations are increasingly tense. But Japan is a longstanding ally, and according to the International Trade Administration, “is one of the United States’ most important trade and investment partners.” Trade between the nations in 2022, “was worth $309 billion.”
Japanese corporations and individuals have invested more than any other nation in the U.S. economy—to Americans’ benefit. The Bureau of Economic Analysis reported that Japan accounted for $712 billion in investment in the U.S. economy in 2022. This number has been consistent over the years.
And geopolitically, Japan has been a concerned witness to Chinese aggression. The U.S. relationship with Japan is critical, and their interests are largely aligned when it comes to reaction toward China’s increasingly adversarial activity in the region.
Additionally, successful opposition will disincentivize businesses from across the globe that would otherwise want to start or continue investment in the United States. Even just within the steel industry, killing the deal will make it harder to improve domestic manufacturing, because many investors would look elsewhere to invest in steel.
The alternatives for U.S. Steel are a much less lucrative partnership that its ownership has considered and rejected, or bankruptcy and the resulting loss of American jobs. Weakening America’s ability to attract foreign investment is counterproductive, especially when the domestic benefits are a major source of strength and an advantage over countries like China.
Whether they are fueled by a wistful sentimentalism, a commitment to unsuccessful economic models, or a political desire to cater to union bosses, the arguments against revitalizing U.S. Steel’s prospects by allowing its acquisition and modernization—and thus improving its competitiveness—make little sense. That those arguments all have fearmongering as a cornerstone, reveals the lack of substance behind statist protectionist policies.
Mario H. Lopez is president of the Hispanic Leadership Fund, a public policy advocacy organization that promotes liberty, opportunity, and prosperity for all Americans.