Concerns Arise Over Nippon Steel's Bid for U.S. Steel on National Security Grounds
The U.S. administration, led by President Joe Biden, is reportedly poised to block Nippon Steel Corp.'s $14.1 billion acquisition of United States Steel Corp. due to potential national security risks. This move is informed by an August letter from the Treasury Department.
The Treasury's correspondence, acting for the Committee on Foreign Investment in the United States (CFIUS), delineates the rationale against the deal, emphasizing concerns beyond conventional espionage or technology theft. Instead, the focus shifts to the Japanese company's impact on a vital industry integral to both military production and infrastructure development.
Should President Biden veto this acquisition citing these grounds, it would signify a broadened interpretation of national security that includes economic threats. Such a precedent may enhance CFIUS's jurisdiction but could also subject it to accusations of political bias.
According to a report by Bloomberg News, Biden's formal opposition is anticipated once the proposal is returned to him later this month. Following this news, U.S. Steel's stock dropped nearly 10%, falling beneath Nippon Steel's $55-per-share offer.
While the Treasury Department has refrained from commenting, the White House has stated that CFIUS's process is still ongoing.
The letter dated August 31 cites national security issues related to the acquisition, particularly any decisions by Nippon Steel that may reduce domestic steel production capacity.
In forming this assessment, the committee drew on an analysis from the Commerce Department, underscoring the essential nature of a robust steel market for national security. The analysis incorporated both classified and unclassified materials, including insights from Commerce experts, media reports, and inputs from the companies involved. CFIUS's stance aligns with a previous investigation that informed the steel tariffs imposed under the Trump administration in 2018.
The findings state that "no domestic alternative exists to replace the lost production capacity and variety of steel products produced at scale in the near term."
The committee raises concerns that U.S. steel producers alone cannot satisfy critical infrastructure and commercial demands domestically, potentially increasing reliance on imports. This situation could lead to scenarios where U.S. consumers lose access to necessary steel due to shipping disruptions and lack of domestic production.
As noted in the letter, "A continued loss of viable commercial production capabilities and related skilled workforce will jeopardize the U.S. steel industry's ability to meet the full spectrum of national security requirements."
The committee also highlights Nippon Steel's significant production capacity in India, where lower labor costs make production roughly 20% cheaper than in the U.S. This economic advantage further concerns U.S. officials, as India is one of Nippon Steel's leading production markets outside China.
Rather expensive are the logistics of shipping vast quantities of steel across the globe.
David Plotinsky, a partner at Morgan Lewis, commented, "Although it's not unreasonable to connect a robust commercial steel market to U.S. national security, it's hard for the government to say with a straight face that this transaction would in fact weaken the commercial steel market."
Additionally, the letter addresses Nippon Steel's operations in China, comprising 5% of its worldwide production, which remains a concern for the U.S. government.
Nippon Steel rebutted any claims suggesting it might shut down U.S. Steel's American production in favor of its Indian or other international operations, labeling such allegations as unfounded.
Highlighting the American industry's needs, the committee underlined the importance of traditional blast furnaces for producing certain infrastructure-critical products, citing that there is currently no domestic replacement for integrated mills' capacity. In wartime, foreign steel might not be accessible, reinforcing the necessity for domestic production.
The letter also pointed out that a vibrant U.S. steel market is vital for end users involved in "national security critical industries," including the highway system, bridges, and ports.
The committee warned of possible conflicts a U.S. Steel acquisition might bring to trade disputes, suggesting that Nippon Steel's commercial interests could influence anti-dumping and countervailing duty cases.
In a statement issued in September, Nippon Steel assured it would not meddle in U.S. Steel's trade decisions, proposing a "trade committee" composed of U.S. citizens to provide input to the U.S. Steel board.
With the CFIUS review of the proposed acquisition continuing for much of the year, a decision is expected to be referred to President Biden by December 22 or 23, according to sources familiar with the situation.