Does Nippon Steel’s bid to buy US Steel threaten national security?

President Biden’s decision to block Nippon Steel’s proposed acquisition of US Steel for $14 billion was based on national security concerns—a rationale that has sparked pushback.

Biden announced the decision on Friday after the Committee on Foreign Investment in the United States (CFIUS) deferred the decision to the president after it failed to reach consensus in its review. The president’s order cited “credible evidence” that Nippon Steel “may take actions that threaten to impair the national security of the United States” — though the order did not elaborate on those concerns.

In a supporting statement, Biden explained that “a strong domestically owned and operated steel industry represents a critical national security priority” and added that he will “never hesitate to act to protect the security of this nation and its infrastructure as well as the durability of it. supply chains.”

US Steel and Nippon Steel released a statement condemning the decision to block the deal as “illegal” and said the commitments made by Nippon Steel would have strengthened national security. The companies indicated that they were proposing to ban the transfer of any production and jobs outside the US, as well as giving CFIUS the ability to veto any reduction in production at US Steel facilities in the next 10 years to ease concerns about steel supplies and their impact. on national security.

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However, they said that CFIUS “did not give due consideration to a single mitigation proposal that was proposed…as evidenced by the absence of any written feedback to the four robust national security agreements that the Parties proactively proposed over 100 days.” The companies added that “the CFIUS process was deeply tainted by politics, and the outcome was predetermined, without investigation on the merits, but to satisfy the political objectives of the Biden White House.”

Nippon Steel also pledged to invest at least $2.7 billion to modernize US Steel’s Mon Valley Works near Pittsburgh and Gary Works in Indiana to enable those steel mills to better compete with international rivals. US Steel CEO David Burritt previously said The Wall Street Journal that the company would not be able to do that if the deal fails because, “I don’t have the money.”

The two companies said in a statement on Friday that they continue to believe the deal “is the best way to ensure that US Steel, and particularly its facilities represented by PDC, will be able to compete and thrive well into the future.” US Steel and Nippon Steel added that they will “take all appropriate steps to protect our legal rights and ensure that future.”

Ticket	Security	Last	Change	Change %
X	UNIT STATES STEEL CORP.	32.95	+2.48	+8.14%
NPSCY	NIPPON STEEL CORP.	6.82	-0.10	-1.40%

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The White House’s decision drew praise from the United Steelworkers (USSW) union. PDC International President David McCall said Nippon is a “serial trade cheat who has worked for decades to undermine our domestic industry by dumping its products into our market.”

He added that the purchase would have allowed Nippon to “destabilize our trade system from within” while undermining “our ability to meet our own national security and critical infrastructure needs.”

“It is clear from US Steel’s recent financial performance that it can easily remain a strong and resilient company. We are now calling on US Steel’s board of directors to take the necessary steps to allow it to further thrive and remain profitable,” McCall said. .

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Scott Lincicome, VP of general economics and the Cato Institute’s Stiefel Trade Policy Center, noted in a blog post that the deal was supported by an independent arbitration panel selected by US Steel and PDC, as well as 98% of US Steel shareholders when the deal was awarded to vote.

Lincicome noted that the Treasury, State and Defense Departments concluded that the deal posed no security risks, and that many independent experts in national security and foreign policy viewed the deal as a way of promoting national security and relations with a close ally in Japan.

He added that while the companies may ultimately prevail in a legal challenge against Biden’s decision to allow the deal to go forward, the president’s action “risks damaging the US investment review process; relations between the United States and Japan; the view of the United States as a welcoming place for foreign investment; the general rule of nations against using ‘national security’ as a form for political favoritism and economic protectionism; and the US economy itself, unfortunately, will not be able to reverse any of that.”

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Alexis Early, a partner at Jenner & Block whose practice includes a focus on CFIUS issues, said in a statement that the “decision appears political, related to economic security, and is not supported by serious national security concerns or can be resolved.”

He also noted that the decision could weaken efforts to strengthen ties with a close ally needed to help counter China’s growing influence. Japan is part of a joint defense treaty with the United States, and has been a vital partner on economic and defense initiatives.

“Low-risk foreign investors will think twice before voluntarily putting themselves through such an arbitrary and unaccountable process,” he added. “As the daughter of a Pennsylvania steelworker and a CFIUS lawyer, I have watched this deal very closely. CFIUS deviated from its core national security responsibility by focusing on a subset of economic criticism.”

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Jason Furman, professor of economic policy at Harvard who chaired the Council of Economic Advisers during many of President Obama second term, also disagreed with the Biden administration’s decision to block the deal.

“President Biden’s claim that Japan’s investment in an American steel company is a threat to national security is a pathetic and greedy cave-in to special interests that will make America less prosperous and safe,” Furman wrote in a post on X. “He I’m sorry to see him betray our allies while abusing the law.”