In a recent move, President Joe Biden intervened to halt Japanese firm Nippon Steel’s nearly $15 billion acquisition of U.S. Steel, asserting that this decision aimed to safeguard employment opportunities in the heartland of America. However, this action could potentially endanger those jobs instead.
Nippon Steel had pledged to invest $2.7 billion to enhance U.S. Steel’s older blast furnace operations located in Gary, Indiana, and Pennsylvania’s Mon Valley. Additionally, the company committed to maintaining production levels in the U.S. for the next ten years without seeking government approval for any capacity reductions.
According to Jason Zugai, an operating technician and vice president of the United Steelworkers union local at a U.S. Steel facility, the Japanese company’s guarantees included significantly supporting the Mon Valley area and ensuring job security. “They were willing to invest in the Valley,” he noted. “They committed to ensuring no layoffs for a decade. Those kinds of commitments are unlikely to come from anyone else.”
Despite the national union leadership urging the Biden administration against the deal, several workers in the Mon Valley expressed their support for the Nippon acquisition. Gordon Johnson, who tracks U.S. Steel’s stock as the founder of GLJ Research, labeled the cancellation as a potential calamity for Pennsylvania. “I really don’t get it. This isn’t beneficial for the workers or for U.S. Steel’s shareholders,” he stated.
On the announcement date, President Biden attributed his decision to the need for a robust domestically-owned steel industry as a matter of national security, emphasizing that the country’s strength and safety relies on domestic steel production and workers. Following his statement, U.S. Steel’s stock fell 6.5%.
This decision marks a notable shift in U.S. economic policy, moving away from traditional free trade principles, a trend noted among various political leaders. President-elect Donald Trump had previously voiced his disapproval of the Nippon purchase, vowing to obstruct it once in office, stating in a recent social media post, “Buyer Beware!!!”
Nippon Steel and U.S. Steel released a joint statement contending that Biden’s action was a “clear violation of due process and the law,” suggesting they may pursue legal measures to defend their deal, accusing the government of leaving them with no choice but to protect their legal interests.
Founded in 1901 through the merger of notable American businessmen including J.P. Morgan and Andrew Carnegie, U.S. Steel once stood as the most considerable company globally, thriving alongside the U.S.’s ascent in world dominance during the 20th century. However, as international competition intensified, particularly from Japan in earlier decades and later from China, U.S. Steel faced significant contraction, resulting in workforce reductions from a peak of 340,000 employees during WWII to fewer than 22,000 currently.
Over the years, the U.S. government has sought to shield domestic steel producers. Tariffs imposed by Trump and maintained or transitioned into import quotas under Biden are examples of trade protective measures that have kept domestic steel prices elevated, consequently providing U.S. Steel with a financial cushion.
Though U.S. Steel is profitable and maintains approximately $1.8 billion in cash, down from $2.9 billion last year, President of United Steelworkers David McCall affirmed that the company could remain resilient independently. “It can easily maintain its strength,” he stated to the press.
Yet, U.S. Steel argues that without the influx of cash from Nippon Steel, it will need to pivot from traditional blast furnace operations, putting thousands of well-paying union jobs at risk. The company has even indicated the possibility of relocating its headquarters away from Pittsburgh.
In the absence of the Nippon transaction, U.S. Steel appears inclined to invest in newer technologies such as electric arc furnaces, which offer efficiency in producing high-quality steel products. Josh Spoores from CRU noted that no new blast furnaces have been constructed in North America for several decades, which suggests a strategic shift toward more modern production methods.
Market analysts speculate another company might attempt to take over U.S. Steel. Earlier this year, rival Cleveland-Cliffs proposed a $7 billion acquisition, which was declined by U.S. Steel in favor of Nippon Steel’s superior cash offer. Experts predict that Cleveland-Cliffs may approach U.S. Steel again.
Pennsylvania Governor Josh Shapiro cautioned U.S. Steel’s management against jeopardizing the jobs of Pennsylvania residents employed in Mon Valley and at U.S. Steel’s headquarters. He asserted that future bidders must commit to substantial capital investments and job security for Pennsylvania workers, similar to the commitments offered by Nippon Steel.
