Pennsylvania-based US Steel recently agreed to be purchased by Tokyo-based publicly traded Nippon Steel. This deal makes sense to economists. It will encourage other foreign companies to invest in the United States, creating wealth and new job opportunities and further supporting the U.S. economy, particularly amid concerns about inflation. More importantly, this deal makes sense for the owners of US Steel.
Yet, in our age of government having its finger in everything, President Joe Biden has announced that he will oppose this purchase for confusing and misleading reasons. Former President Donald Trump agrees, proving once again that when it comes to trade there is little difference between the two presidents.
Such government meddling is what American steelmakers get for clamoring for decades – often successfully – that they need protection from foreign competition. Trump’s steel tariffs are the latest expression of this attitude. But one stupid political move doesn’t justify a second one. As soon as the announcement of Nippon’s $14.1 billion deal with US Steel was made public, supporters of protectionism and industrial policy, including prominent politicians, flocked to explain why the government should be able to able to ignore, or at least modify, the decision of the legitimate owners of a company to sell their company to a specific buyer.
Claims about dangers to “national security” are used to scare Americans into thinking that a good deal for investors, employees, and the American economy will somehow make America less secure militarily. That does not make sense.
Japan has been a strong ally of the United States for more than 60 years. In a recent article, Scott Lincicome and Alfredo Carrillo Obregon of the Cato Institute remind us that “the Department of Defense does not currently purchase from US Steel, and DOD needs only 3% of domestic steel production to meet its procurement obligations “. Additionally, US Steel, despite its historical importance, is no longer a major player in the steel industry and could benefit from Nippon Steel’s investments and technological improvements. Additionally, foreign investment, including from Japan, is generally beneficial to the domestic economy and workforce, as well as the millions of Americans who hold company stocks in retirement portfolios.
According to alarmists, Nippon Steel, being a Japanese company, perhaps hides secret plans to spend $5 billion above US Steel’s market capitalization to shut it down. Obviously, this is complete nonsense. It should be obvious that investors don’t buy companies and then exit those companies’ profitable operations. Yet it must be said, as this is one of the main fears about the acquisition. The fact is that Nippon, by bailing out US Steel and increasing domestic steel production, will strengthen our national security. Opponents of the agreement ignore this reality. Once again, the facts do not seem to matter to those who use nationalist rhetoric to oppose Americans’ peaceful trade relationships with non-Americans, in this case even with a crucial, decades-old ally.
The business practice of acquisitions is not inherently bad. Nippon Steel will save US Steel and improve it through new ownership. John Tamny wrote to Forbes of March 4 that “neither bankruptcy nor acquisitions signal the disappearance of companies so much as they signal a happy scenario, favorable to employees and businesses, in which physical and human capital is transferred into the hands of more capable administrators”. Tamny is right, and US Steel is in a good position if another successful company sees value in buying the company to make it more efficient and productive. Despite all the protectionist complaints, you would think that politicians would recognize that this acquisition will save the company from possible bankruptcy without the deal and could secure the jobs of US workers.
The merged company will be able to meet the massive demand for high-quality steel in the United States, demand that is exploding largely due to the increase in domestic production of electric vehicle engines. It makes economic sense for Nippon Steel to invest in this Pennsylvania-based company to meet the growing demand for steel in the United States
Nippon Steel has the potential, and the incentive, to restore US Steel to being a strong, leading steel producer once again, unless the US government and hordes of economic nationalists get in the way. As successful corporate meddling increases, the American economy will suffer the creeping statism that has hobbled so many European economies, where invasive government control stymies private enterprise.
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