AP – By blocking a Japanese company’s takeover of United States (US) Steel, President Joe Biden said he was protecting good jobs in the American heartland. He may be putting them at risk instead.
In making its nearly USD15 billion bid for the storied Pittsburgh-based steelmaker, Nippon Steel had promised to invest USD2.7 billion in US Steel’s ageing blast furnace operations in Gary, Indiana, and Pennsylvania’s Mon Valley.
It also vowed not to reduce production capacity in the US over the next decade without first getting US government approval.
“They were going to invest in the Valley,’’ said operating technician and vice president of the United Steelworkers union local at a US Steel plant in the Mon Valley Jason Zugai.
“They committed to 10 years of no layoffs. We won’t have those commitments from anybody.’’
Zugai and some other Mon Valley steelworkers supported the Nippon deal in defiance of the union’s national leadership, which pressured the Biden administration to kill it.
Losing the Nippon-US Steel deal “will be a disaster for Pennsylvania”, said Gordon Johnson, who follows US Steel stock on Wall Street as founder of GLJ Research.
“I really don’t understand. This is not in the interest of the workers. It’s not in the interest of the shareholders of US Steel.”
On Friday, Biden said he was stopping the Nippon takeover – after federal regulators deadlocked on whether to approve it – because “a strong domestically owned and operated steel industry represents an essential national security priority… without domestic steel production and domestic steel workers, our nation is less strong and less secure”.
US Steel stock dropped 6.5 per cent on the news on Friday.
The decision, announced less than three weeks before the president leaves the White House, reflects a growing bipartisan shift away from free trade and open investment.
President-elect Donald Trump had already come out against the Nippon takeover. “As President,” he wrote last month on his Truth Social platform, “I will block this deal from happening. Buyer Beware!!!”
In a joint statement, Nippon and US Steel called Biden’s decision “a clear violation of due process and the law” and suggested they would sue to salvage their deal: “We are left with no choice but to take all appropriate action to protect our legal rights.”
US Steel was founded in 1901 in a merger that involved American business titans JP Morgan and Andrew Carnegie and instantly created the largest company in the world. As the US grew to world dominance in the 20th Century, US Steel grew with it. In 1943, at the height of the World War II manufacturing boom, US Steel employed 340,000 people.
But foreign competition – from Japan in the 1970s and ‘80s and later from China – gradually eroded US Steel’s position and forced it to close plants and lay off workers. The company now employs fewer than 22,000 in an industry dominated by the Chinese.
The US government has sought over the years to protect US Steel and other American steelmakers by imposing taxes on imported steel. During his first term, Trump slapped 25 per cent tariffs on foreign steel, and Biden kept them or converted them into import quotas.
Either way, the trade barriers kept the price of American steel artificially high, giving US Steel and others a financial boost.
US Steel is profitable and is sitting on USD1.8 billion in cash, though that is down from USD2.9 billion at the end of 2023.
United Steelworkers President David McCall declared on Friday that US Steel had the financial resources to do it alone. “It can easily remain a strong and resilient company,” he told reporters.
But US Steel has said it needs the cash from Nippon Steel to keep investing in blast furnaces like the ones in Pennsylvania and Indiana.
“Without the Nippon Steel transaction, US Steel will largely pivot away from its blast furnace facilities, putting thousands of good-paying union jobs at risk, negatively impacting numerous communities across the locations where its facilities exist,” US Steel warned in September. The company also threatened to move its headquarters out of Pittsburgh.
On its own, US Steel seems poised to focus on newer electric arc furnaces, such as its Big River plant in Arkansas, which can make high-quality steel products more efficiently and at lower prices compared to blast furnaces, said Pennsylvania-based head of steel Americas analysis for commodity researcher CRU Josh Spoores.
“I don’t know if they don’t have the will, but they seem to have seen that it’s a much better investment, a much better rate of return if they look to invest in an electric arc furnace rather than a blast furnace,” Spoores said. He noted that no steelmaker has built a blast furnace in North America for decades.
One possibility is that another company will step in and make a bid for US Steel.
In 2023, arch-rival Cleveland-Cliffs offered to buy US Steel for USD7 billion.
US Steel turned the offer down and ended up accepting the nearly USD15 billion all-cash offer from Nippon Steel, which is the deal that Biden nixed on Friday. Perhaps, analysts said, Cleveland-Cliffs will try again.
In a statement, Pennsylvania Governor Josh Shapiro warned US Steel management against “threatening the jobs and livelihoods of the Pennsylvanians who work at the Mon Valley Works and at US Steel HQ and their families”.
Shapiro also said companies that put in bids to buy US Steel in the future must make the same commitments to “capital investment and protecting and growing Pennsylvania jobs that Nippon Steel placed on the table”.
