President Joe Biden made the decision to block the $15 billion purchase of U.S. Steel by Japan’s Nippon Steel this past Friday, a move he had promised since March. This action follows the inability of the Committee on Foreign Investment in the United States (CFIUS) to reach an agreement regarding potential national security concerns surrounding the acquisition last month.
U.S. Steel, an iconic American firm, has a remarkable history that aligns with the United States’ rise on the global stage. Established in the late 19th century, the company is known for producing steel that has been integral to constructing everything from bridges and skyscrapers to military tanks and battleships.
To understand how U.S. Steel became a manufacturing powerhouse, one must look back to its origins. The company was formed through the efforts of J.P. Morgan and others who financed the merger of Andrew Carnegie’s Carnegie Steel Co. with Federal Steel at the beginning of the 20th century. This merger resulted in the creation of the first corporation to be valued at $1 billion. In 1907, U.S. Steel further expanded by absorbing its largest competitor, drawing criticism from then-President Theodore Roosevelt, who felt this action violated the Sherman Anti-Trust Act.
Despite attempts by the U.S. government in 1911 to dismantle the company, these efforts were unsuccessful. U.S. Steel became a leader in vertical integration, which involves controlling every aspect of production—from coal and iron ore extraction to operating railroads and ships, and even venturing into oil production.
The 1930s saw the company modernizing its operations, resulting in an increase in steel production to meet the demands of a burgeoning middle class needing steel for household goods, automobiles, and extensive construction projects. This period marked significant growth for the Pittsburgh-based firm.
By mid-century, with World War II escalating, U.S. Steel played a crucial role in supplying materials for various wartime needs, from cots to armored vehicles and ships. The company doubled its production capabilities and, by 1943, had a workforce of about 340,000 employees. By 1955, thanks to advancements in technology, the U.S. had become responsible for approximately 40% of the global steel production.
However, over the subsequent decades, steel demand started to decline, leading to increased competition for the U.S. steel industry. By the mid-1980s, U.S. production accounted for roughly 11% of global steel output, largely due to slowing economic growth in developed nations. At this point, over 25% of the steel used in the U.S. was being imported.
From its inception, U.S. Steel prioritized the control of its resources to keep costs down. Along with constructing steel mills, the company invested in the iron ore and coal mines essential for their operations, as well as developing transportation through ships and railroads. In the wake of the 1970s energy crisis, the company ventured into the energy sector, acquiring Marathon Oil Co. in 1982 and ultimately rebranding itself as USX Corp. in 1986, signifying a major restructuring.
Nonetheless, the changes were not sustainable. The U.S. steel industry was increasingly pressured by rising import restrictions in the 1960s and 1970s, emphasizing a need for modernization to reclaim market share. By the 1970s, U.S. steel production was losing its competitive edge, with operating costs approximately 40% higher than Japanese manufacturers.
Various factors have been suggested for the struggles faced by the U.S. steel sector, such as rising labor costs and inadequate investment in technological advancements. In 2001, stockholders voted to reorganize USX Corp., which led to a split into two independent entities, one concentrating on steel production—and renamed United States Steel Corporation—and the other focused on Marathon Oil.
As profits diminished, the steel industry in the United States began consolidating amid an influx of cheaper imports. U.S. Steel acquired the assets of National Steel Corp. in 2003, which not only added iron ore reserves but also increased its production capacity, moving the company from the 11th to the fifth largest steel producer worldwide at that time.
In more recent developments, U.S. Steel found itself as a target for acquisition in an industry facing ongoing contraction. In 2023, rival company Cleveland-Cliffs made an offer of over $7 billion to acquire U.S. Steel, aiming to create one of the top ten steel manufacturers globally. However, U.S. Steel turned down this offer, indicating it was investigating other strategic options, including unsolicited buyout proposals. By late 2023, it accepted a cash offer of $14.1 billion from Nippon Steel, which has now been blocked.
Biden stated in a recent announcement, “We need major U.S. companies representing the major share of US steelmaking capacity to keep leading the fight on behalf of America’s national interests.” Despite its valuation dropping to approximately $7 billion, U.S. Steel is currently focused on modernizing its operations with goals of achieving net-zero carbon emissions by 2050, alongside the development of its verdeX sustainable steel product, which is designed to contain up to 90% recycled materials.
