Let them Merge: Foreign Acquisition of US Steel

  • December 21, 2023
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Economic nationalists are once again fawning over Democratic US senator John Fetterman from Pennsylvania. First it was for his opposition to Chinese-owned US farmland. Now he is opposing the acquisition of United States Steel Corporation (US Steel) by a Japanese company. This acquisition, however, should not be blocked. It should be embraced. The justifications for government intervention are not convincing.

News broke Monday, December 18, that Japanese steel producer Nippon Steel would acquire US Steel for $14.9 billion. As US Steel has a presence in Pittsburgh, this news predictably upset Pennsylvanian politicians, who seized the opportunity to virtue signal to Pennsylvanian steelworkers and voters. John Fetterman stated, “It’s absolutely outrageous that they have sold themselves to a foreign nation.”

First, Nippon is a private company. Fetterman is essentially trying to make it seem like an adversary is buying US Steel, but this is contrary to reality. Japan and the US have a strong relationship, and to think that a Japanese company would threaten that is nothing but wild and unrealistic speculation.

More importantly, Fetterman cites national security concerns, stating, “Steel is always about security—both our national security and the economic security of our steel communities.”

Again, suggesting that a Japanese company would undermine US defensive capabilities is nonsense. The US military provides Japan with national defense, so any diminution in US military capabilities will be felt on the side of Japan as well. But it is more important to ask, “Against whom are we defending?” Russia? They have not been able to take even Ukraine in the nearly two years since the beginning of their full-scale invasion of the country. China? The threat of China is entirely fake; they are plagued with many of their own problems that would make any kind of military assault on the US a laughable suggestion.

Furthermore, with 1.4 million active duty personnel, a defensive budget of around $800 billion, and a geography with significant national security advantages, it is hard to imagine this acquisition would at all affect the US’s capacity to defend itself. Additionally, the provision of security should be completely privatized like most other goods. Consequently, if this acquisition does pose a security threat, the consumer, not the government, should make a judgment as to whether the benefits of the merger are worth it or not and act accordingly to compensate for any loss in security.

As for economic security, Nippon is purchasing US Steel because they think that is a better way to serve consumer demands than the next best alternative use for their capital. This means that they are better serving global steel consumers. US Steel is making the same judgment as well. The owners/shareholders of US Steel would not transfer ownership to Nippon if they thought they could get a higher rate of return by retaining ownership.

The joint productive capacities of the two companies would be roughly equivalent to 58.56 million metric tons, which would be a step toward challenging China’s present dominance in the global steel industry, a goal that one would think the economic nationalist, specifically the Chinese hawks, would favor.

As for the concerns over its impact on the American worker, Nippon has already committed to maintaining US Steel headquarters in Pittsburgh, and given the recent news of the United Auto Workers signing contracts with Ford, General Motors, and Stellantis, steel production would likely be kept in the US to make transportation of steel to these auto plants less costly. There are also plenty of nontransportable assets, such as workers, factories, supply chains, and local contracts, making it costly to outsource production. Steel is likely not going anywhere.

There is an additional economic reason to support this deal: increased foreign investment. Washington will gladly send foreign aid across the globe with the goal of helping the disadvantaged and downtrodden, but they oppose a foreign company investing in the US on the grounds that it would be harmful to Americans. So, which is it? Is foreign investment beneficial or harmful? An economic nationalist would be hard-pressed to demonstrate that foreign investment is harmful in light of what has already been stated and the increased development of domestic production and infrastructure. Private and voluntary foreign investment is beneficial to steel consumers, which includes private and public entities. Foreign investment should be embraced, not rejected.

US Steel shareholders will vote on the deal in March, 2024, but there is reason to think that the deal might falter, and if not, it will face political hurdles. US politicians are not keen on this potential merger, and this will definitely factor into the decision to merge. Following the announcement of the acquisition, shares in US Steel rose to fifty dollars (well below the price offered by Nippon of fifty-five dollars), and Nippon’s share value sank 5 percent. This perhaps signals investor uncertainty over the potential of the deal to be approved by US authorities, and there is good reason for this doubt.

As has already been mentioned, John Fetterman opposes this acquisition, but the opposition is bipartisan. Even Republican politicians favored by Libertarians, such as J.D. Vance and Blake Masters, oppose this deal (another admission of their strong nationalist tendencies). Masters stated in a tweet, “It would be nice if the Biden administration did anything besides sit on its hands.” And they very well might do something.

The Biden administration has been eager to challenge mergers and acquisitions, having challenged mergers at record pace, and unfortunately, they show no signs of stopping. The Nippon–US Steel merger will likely be challenged, if not by the Biden administration then by Congress.

Despite nationalist opposition, this merger has nothing troubling in store for Americans, and in fact, it should be embraced for the numerous potential benefits outlined above. If this acquisition turns out to be a poor business decision by Nippon, then they will liquidate the company and perhaps it can be transitioned into American hands once again. If that is a risk, it should not be cause for concern because business failure, like business success, is a feature, not an indictment, of the free-market system that helps transition resources from less to more valuable uses.

The nationalist justifications for opposing this merger are empty, and any opposition should be flatly rejected as economic nonsense. Every defender of the free market should be in favor of freedom of acquiring and merging companies. When exceptions are made for vague national security concerns, the integrity of the free-market system is threatened.