US Steel xenophobia is precisely how not to compete with China

I was puzzled last month when President Donald Trump’s former Secretary of Commerce Wilbur Ross felt compelled to strongly support Nippon Steel’s proposed acquisition of U.S. Steel. Wall Street Journal feature article.At the same time, a bipartisan group of outraged U.S. senators condemned the transaction.

Ross, a former CEO of a major steel company, presented a convincing fact-based case that there was no economic or national security threat from the merger, and said the attack was an “unnecessary geopolitical move.” “This could only create tensions, not the acquisition itself.” endangering America’s national security. ” Conservative columnist George Will I repeated this.

U.S. Steel has accepted Nippon Steel’s $14.1 billion offer – reports say double the offer It is manufactured by Cleveland-Cliffs, a major American steel producer, but Cleveland-Cliffs challenging its evaluation.

The contract with Japan is currently under consideration By the Committee on Foreign Investment in the United States, an interagency committee that examines the impact of national security on national security.

what’s happening? Are acquisitions by Japanese companies, perhaps one of the closest and most important U.S. allies, a threat to U.S. security and competitiveness, or a reflection of the growing economic nationalism in Trump/Biden trade and industrial policy? Is it a knee-jerk reaction of xenophobia?

In an election year, the deal has sparked bipartisan backlash.

Republican Sens. J.D. Vance (R-Ohio), Marco Rubio (R-Florida), and Josh Hawley (R-Missouri) sent a letter He appealed to Treasury Secretary Janet Yellen against the sale to companies with “foreign allegiance.”

Democratic Sens. John Fetterman (D-Pa.) and Bob Casey (D-Pa.) also sent a letter He urged Yellen to disapprove. Fetterman called the deal “absolutely outrageous.” It is not surprising that the Democratic Party criticized Nippon Steel for not first consulting with the United Steelworkers union. Fair point.

Mr. Biden has talked about strengthening alliances and “friendshoring” supply chains, but he seems skeptical.

in statementWhite House economic adviser Lael Brainard said Biden believes that “the acquisition of this iconic American-owned company by a foreign company, even from a close ally, has national security potential.” “We believe it deserves serious scrutiny in terms of its potential impact.” and supply chain reliability. ”

U.S. Steel is an iconic company that literally built America. Empire State Building to Airplanes and ships that were active in World War II, the pseudo-populist fears are understandable. But the cold hard facts suggest that it does not reflect economic reality.

U.S. Steel is no longer the dominant or technologically leading company. Second to NUCOR Among U.S. steel producers, it ranks 27th in the world. The ranked ones are 573rd largest with an American company Less than 22,000 employees. Due to changes in technology, Improved productivity In 1980, it took 10.1 labor hours to produce one ton of steel; today it takes 1.5 labor hours. 71 percent were Steel materials used in America. It comes from an American producer.

Regarding national security, US military needs only 3% Some of the steel is manufactured by U.S. manufacturers, but none is supplied by US Steel. Regarding the U.S. industrial base, Nippon Steel assured the United Steelworkers that it would fully honor existing collective bargaining agreements and maintain the U.S. Steel name. The company already owns two steel mills in the United States and is a leader in steel technology. Therefore, US Steel, which has lagged behind in technological modernization, is likely to become even more competitive.

If you combine Nippon Steel and US Steel, Nippon Steel will become a global company. Second largest steel producing countryincrease U.S. competitiveness against China, foster more integrated and innovative global steel companies, and strengthen supply chain security.

Steel is one of the most important protected sector More than 60% of imported goods are protected by customs duties. The steel trade issue is at the heart of China’s heavily subsidized overproduction, but the Trump administration has also imposed 25% tariffs on U.S. allies such as Europe, Canada and Japan; I responded. removed and replaced by quota.

If the criteria for approval are national security and the safety of the industrial base and supply chain, there will be a persuasive force for moving forward with the agreement. Indeed, the gap between facts and political rejection begs the question “why?”

Fear and resentment appear to be part of a backlash against the excesses of globalization and the hollowing out of American industry. Again, fair enough. But it’s unclear how opposing mergers will strengthen U.S. manufacturing or make the U.S. more competitive with China.

More broadly, America’s reluctance may reflect its difficulty adapting to the spread of wealth from West to East in an increasingly multipolar world. Inward-looking economic nationalism is driving populism in the United States and Western countries.

But it’s not 1991 anymore. US GDP is 25% In the global economy, we represent 5 percent of the world’s population and 95 percent of our market is elsewhere. Despite the rise in protectionism, global trade remains at roughly the same level as the global economy before the pandemic. But there are unresolved tensions between an America-first industrial policy and building trade and technology networks with like-minded partners.

The Committee on Foreign Investment in the United States may decide to impose conditions on approving the sale to address concerns from labor and Congress.

Rejecting the deal would also raise some thorny issues. Japan is the largest investor in the United States; Over $700 billion It employs more than 500,000 U.S. workers. If more reliable and resilient supply chains are a goal of U.S. industrial policy, what message does denying investment from public companies by major U.S. allies send to allies and partners? Or?

And if it is decided that Japanese investment is not acceptable, then from where will foreign investment be welcomed?

Robert A. Manning is a distinguished fellow at the Stimson Center. He previously served as Senior Advisor to the U.S. Under Secretary of State for International Affairs, on the Policy Planning Staff to the U.S. Secretary of State, and as a member of the National Intelligence Council Strategic Futures Group. X/ Follow him on Twitter @Rmanning4.