Growing government concerns over potential takeover of US Steel

One of the world’s largest steel producers, Japanese company Nippon Steel, is trying to buy the American company US Steel, but is facing resistance from the US government due to concerns about the potential impact of the takeover on the economy. US Steel was once the world’s leading steel conglomerate, but it is no longer among the top ten steel companies. As a result, the company has sought foreign bailouts, but regulators and politicians in the United States are expressing concerns.

The deal, first announced last year, will see Nippon acquire U.S. Steel for $14.9 billion if approved by regulatory agencies. But there have been concerns that the purchase would not only create the aforementioned economic problems but also open the United States to additional national security threats. Still, the two companies are trying to go full steam ahead and sign the deal.

The Biden administration, as well as the Harris and Trump campaigns, have opposed the deal over economic and security concerns. With a potential closure looming, President Joe Biden is “preparing to announce that he will formally block” the takeover, The Washington Post told The Washington Post. Biden’s blocking of the takeover is “a stunning move to kill a deal involving a corporation from Japan, a close U.S. ally,” the Post said.

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Biden could not officially halt the deal until he received a recommendation to do so from the Committee on Foreign Investment in the United States (CFIUS). However, that recommendation appears to be in the works, as the committee believes the deal “will create national security risks because it could harm supplies of steel needed for key transportation, construction and agricultural projects,” Reuters said. CFIUS “also cited a global glut of cheap Chinese steel and said that under Nippon, a Japanese company, U.S. Steel would be less likely to seek tariffs on foreign steel importers.”

The White House “has previously described the proposed takeover of Nippon as a security risk that many foreign policy experts and some administration officials have privately ridiculed,” the Financial Times reported. Much of that ridicule stems from the fact that Japan is “the most important U.S. ally in the Indo-Pacific region and has been working closely with Washington on countering China.” But concerns about the deal’s impact on China remain: “China’s persistent use of market-distorting government interventions has allowed it to unfairly dominate the global steel market because it exports huge surpluses of steel that artificially depress international prices,” Reuters reported.

Both Nippon Steel and U.S. Steel have rejected claims that the deal would cause economic hardship or a national security risk, with the latter saying that blocking the deal would cost many jobs and could lead to U.S. Steel abandoning its Pittsburgh headquarters. Without the deal, U.S. Steel “will largely abandon its blast furnace operations, putting thousands of well-paying union jobs at risk, negatively impacting many communities where its plants are located, and depriving the U.S. steel industry of the ability to better compete internationally,” the company said in a statement.

Despite the controversy, the U.S. steel industry “will be on a much stronger footing with Nippon Steel’s investment in U.S. Steel,” a Nippon Steel spokesperson told Fox Business. But questions remain about the deal because “while the resilience of domestic U.S. steel capacity is clearly in the national interest, it’s not clear how ownership of a company based in a major treaty ally could fundamentally jeopardize that,” Sarah Bauerle Danzman, a professor of international studies at Indiana University, told CNBC.

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Why is the government concerned about the takeover?