On December 18, Nippon Steel Corporation (NSC) announced plans to acquire United States Steel Corporation (U.S. Steel).
A small handful of U.S. politicians immediately attempted to throw cold water on the deal. The White House stated that President Biden viewed the purchase by a “close ally” as one that nevertheless merits scrutiny on national security grounds. Republican Senators Josh Hawley (R-MO), J.D. Vance (R-OH), and Marco Rubio (R-FL) alleged the transaction has “dire implications for the industrial base of the United States.” Democratic Senators John Fetterman (D-PA) and Bob Casey (D-PA) and Representative Chris Deluzio (D-PA) called the deal “a step backwards” in our commitment to national security.
These objections are flawed.
The economic benefits of foreign direct investment (FDI) like the proposed NSC deal for U.S. manufacturing are massive. Nearly one-fourth of U.S. manufacturing workers (24 percent) are employed by subsidiaries of foreign-headquartered companies. Average compensation for these workers is $96,651 per year. These 2.9 million workers may have a more realistic perspective on the proposed NSC-U.S. Steel deal’s impact than any U.S. politician or federal bureaucrat.
Foreign investment in the United States is a sign of U.S. economic strength. In the words of President Donald Trump: “To every business looking for a place where they are free to invest, build, thrive, innovate, and succeed, there is no better place on Earth than the United States.”
The 2019 National Defense Authorization Act, which included the Foreign Investment Risk Review Modernization Act, passed the Senate by a vote of 87 to 10 and the House of Representatives by a vote of 359 to 54. According to that legislation: “It is the sense of Congress that…it should continue to be the policy of the United States to enthusiastically welcome and support foreign investment.”
Major foreign investors in the United States include companies based in Europe, Japan, and Canada. These countries can hardly be viewed as threats to U.S. security. When they invest in the United States, they become stakeholders in our economic success.
U.S. security policy should be designed to strengthen ties with these allies. As a recent report from the House Select Committee on the Chinese Communist Party advised: “By fostering stronger integration among allied economies … the United States and its allies can collectively boost their economic resilience and reduce their vulnerability to the PRC’s predatory economic practices.”
The reverse also holds true. When politicians demonize our allies as national security threats, they fuel the PRC’s predatory practices. That may explain why the Department of Defense has expressed concern about the impact of protectionist steel and aluminum policies on our key allies.
An additional threat resulting from efforts to block the deal is the erosion of private property rights. Critics of the acquisition, echoing the language of communists and socialists across the globe, warn of an alleged foreign takeover of “our” company.
Fortunately, this is not the People’s Republic of China or the Bolivarian Republic of Venezuela. Under the Bill of Rights, if you own 100 shares of U.S. Steel, those are your shares, not “ours.” Restrictions on foreign purchases of those shares are limited to clearly defined national security concerns, not broad-based political grandstanding based on socialist economic reasoning.
The deal’s critics allege that because NSC has “dumped” steel in the United States at unfairly low prices in the past, it should not be allowed to purchase U.S. Steel.
If that’s the case, protectionists should love the acquisition. If NSC acquires U.S. Steel then it will have no reason to dump Japanese-made steel in the United States, since doing so would undercut its own U.S. production.
Opponents of the acquisition are also guilty of pitting American investors against one another. Cleveland-Cliffs, another potential suitor for U.S. Steel, has a market cap of $9.1 billion. But Americans own $21.7 billion worth of Japan-based NSC. Principal shareholders in NSC include JPMorgan Chase Bank and Boston-based State Street Bank. The federal government should not prioritize the interests of one smaller group of investors at the expense of Americans who own shares of NSC.
The proposed NSC acquisition of U.S. Steel will be subject to a full national security review by the Committee on Foreign Investment in the United States, as requested by both companies. President Biden should not allow politically motivated scare tactics to delay the review. In the meantime, Congress should pursue policies designed to make the United States the best place in the world to do business, attracting even more job-supporting investment from across the globe.