At a campaign event last month in Pennsylvania, the nation’s steel manufacturing center, President Biden made it clear that he did not want Japan’s Nippon Steel to buy US Steel.
“We will finally ensure that United States Steel remains United States Steel,” Biden said. “It doesn’t make anyone else’s steel.”
How that promise will be kept remains to be determined. U.S. Steel said in its first-quarter earnings call this week that it expects the deal to close in the second half of this year, but the timing is subject to regulatory approval.
Nippon Steel announced Friday that it was pushing back the timeline for closing the deal from mid-year to the end of 2024 after being asked to provide more information about the deal to the Justice Department. We are reviewing the transaction.
Increased scrutiny of the deal has raised hopes that the $15 billion takeover plan could ultimately be blocked by the Biden administration. It also alerted the Committee on Foreign Investment in the United States, a secretive interagency committee that could be the ultimate arbiter of the merger.
With the presidential election six months away and opposition to the deal strong among union members and some Senate Democrats, an opaque panel says deals involving companies from key U.S. allies threaten national security. is facing pressure to conclude that
The commission, known as Cfius, was established in the 1970s to review international mergers and acquisitions due to national security concerns. Over the years, the definition of national security has expanded, and the committee’s work is often consumed by political considerations, often focused on keeping Chinese investment out of the United States. It’s dark.
However, the scrutiny of Nippon Steel’s acquisition of U.S. Steel comes after recent developments involving companies such as China’s ByteDance and Singapore’s Broadcom, which former President Donald J. Trump blocked in 2018 from acquiring U.S. chipmaker Qualcomm. This is different from trading.
Rather, it seems that the 1980s, when concerns about trade with Japan were heightened, are returning.
In 1983, another metals merger, also involving Nippon Steel, collapsed due to the threat of Cfius intervention. At the time, Japan wanted to buy the specialty metals division of Pittsburgh-based Allegheny International. America’s metals business was struggling due to a downturn in the airline industry, one of its major markets, and Japan was interested in gaining a foothold and factories in the United States.
But the Reagan administration had other ideas, and at the request of the Pentagon, the deal was reviewed by Fius. The Pentagon, concerned that Allegheny technology would be leaked to the Soviet Union, classified it as critical to national security because the metal produced by the American company was used to make military aircraft. Faced with this complex situation, Japan reluctantly withdrew its offer.
“In 1983, there were real concerns about technology leaking to the former Soviet Union,” said Mario Mancuso, head of the international trade and national security practice at law firm Kirkland & Ellis.
Mancuso noted that the situation 40 years ago is very different from the situation today, as it is difficult to argue that Nippon Steel’s bid could somehow benefit adversaries like Russia or China. .
“Right now, no one is arguing that U.S. Steel’s technology is going to China because U.S. Steel and Nippon Steel want to compete with China,” he said.
According to the Congressional Research Service, the Investment Review Board was established in 1975 by President Gerald R. Ford’s executive order amid concerns about investments that members of the Organization of the Petroleum Exporting Countries were making in U.S. portfolio assets. .
Led by the Secretary of the Treasury and comprised of employees from federal agencies, Cfius’ scope has expanded in recent decades to include what the United States deems threats to national security. Today, technologies such as semiconductors and quantum computing are considered national security issues, with concerns primarily about access to U.S. innovations that can be used to manufacture traditional military equipment such as tanks and airplanes. It’s different from the early days.
Over the years, Cfius’ powers and the types of transactions it can review have been expanded by Congress as political crosswinds have shifted or intensified.
After a political firestorm erupted in 2006 when Dubai’s state-owned company DP World tried to take control of some terminal operations at six U.S. ports, Congress intervened to block the deal. It also urged Cfius to be more transparent and rigorously screen international transactions.
Amid growing concerns about Chinese investment, Congress passed a bill in 2018 giving the commission more time to scrutinize deals and giving it authority to review land purchases near military installations.
Cfius will review more than 400 transactions through 2022, with 20 abandoned because the committee raised national security concerns that could not be mitigated, according to the committee’s latest report to Congress. . In cases that require a full investigation, the commission makes recommendations to the president, who has the final say on whether to block the transaction on national security grounds.
Buying U.S. Steel would be particularly difficult because Japan is a close ally — Mr. Biden invited Japanese Prime Minister Fumio Kishida to a state dinner last month.
But the Biden administration has made supply chain resiliency a priority after the pandemic, when it became clear that shortages of products such as semiconductors left the United States dependent on foreign sources for critical materials. The committee could argue that there are national security concerns related to the United States losing control over its domestic steel supply. The committee could also require Japan to agree to safeguards to protect U.S. jobs and ensure adequate levels of steel supply.
Treasury Secretary Janet L. Yellen declined to confirm at a news conference last week whether Cepheus was considering a U.S. Steel deal, citing the sensitive nature of that work. However, she acknowledged concerns about the company’s ownership.
“I certainly accept the president’s view that businesses should remain in American hands,” Yellen said. “He didn’t specifically say this was a national security issue, but it was an issue that was in the interests of workers and the country.”
Following Biden’s remarks in April, Nippon Steel issued a statement pushing back against suggestions that the agreement posed a threat. The company promised that jobs would be protected and that it planned to invest in Pennsylvania.
“There will be no plant closures, and production and jobs will remain in the U.S.,” the company said.
The timing of the results remains an open question. That could depend on whether Japan wants to see the process through to its conclusion and whether Mr. Biden wants to take action before the election to ensure U.S. Steel remains an American company.
For some experts, the potential collapse of such an agreement involving close U.S. allies is a case of politics overshadowing policy.
“This is an election year, and the idea of a foreign company buying an iconic American brand in a battleground state just invites contrived political reactions,” said the firm, which specializes in cross-border deals. said John Cavearo, a Washington-based lawyer.