Nippon Steel logo is displayed at the company's headquarters in Tokyo, Japan April 1. The Tokyo-based steel maker won a bidding war for U.S. Steel by promising to invest US$2.7-billion in its new American partner.Issei Kato/Reuters
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
After a year of crafting an almost flawless plan to acquire U.S. Steel X-N based on sound industrial logic, the Japanese giant Nippon Steel is bumping up against the one roadblock even the best deal maker can’t clear: political payback.
The deal now hangs in a sort of patriotic – maybe even jingoistic – twilight zone, its hopes pinned to an outgoing U.S. president who has said repeatedly he opposes the acquisition and an incoming president who feels the same way.
Nippon has made all the right moves. The Tokyo-based steel maker won a bidding war for U.S. Steel by offering nearly US$15-billion, double that of its nearest rival, and promising to invest US$2.7-billion in its new American partner.
Nippon garnered support from the Pittsburgh-based steelmaker’s board and executive team, who have seen their company’s prospects shrink as the domestic steel market has softened in the last couple of years.
Nippon has made a compelling case that the combined entity, which would constitute the world’s third-largest steel maker, is essential to take on cheap Chinese steel that is reshaping the dynamics of the global market.
Last week, Nippon even took its case to the grassroots PR level, collecting testimonials supporting the deal from more than a dozen communities where U.S. Steel has operations.
The only vocal opposition has come from the steelworkers’ union, which has said it doesn’t believe Nippon’s US$2.7-billion pledge will be used to keep jobs at unionized plants, pay for the worker benefits agreed to during collective bargaining, or protect U.S. steel production from cheap foreign imports, particularly from China.
There have even been suggestions by the union that Nippon would use U.S. Steel, which would operate as a wholly owned subsidiary, as a conduit to spirit steel made in Japan into the U.S. market.
And this is where the political payback plays a hand that could scotch the deal. Despite the fact that only about 10 per cent of U.S. workers are unionized, organized labour still carries significant influence.
Earlier last week, the U.S. Committee on Foreign Investment failed to reach consensus on whether the deal constituted a national-security threat. The committee kicked the decision to President Joe Biden, who has voiced his opposition to the deal in the name of protecting U.S. jobs.
Mr. Biden’s stand is no surprise. As a Democrat, he is avowedly pro-union and understands the historical bond between the unions and his party.
President-elect Donald Trump has a similar view. He has said he does not support the acquisition and instead will use tax breaks and other incentives to make U.S. Steel great again.
Despite the traditional view of Republicans as anti-union, Mr. Trump is a pragmatist. He is acutely aware that he carried Pennsylvania in last month’s presidential election in large part because he curried union support with his America First platform that puts protecting domestic jobs ahead of everything else.
There’s also a purely patriotic thread at play here. It’s not a stretch to think that neither president wants to be the guy who sees an American icon founded by two of the country’s celebrated industrialists – J.P. Morgan and Andrew Carnegie – slip into foreign hands on his watch, no matter how strong the business case may be.
When bitter political rivals such as Mr. Biden and Mr. Trump agree on anything, it is remarkable. But when they oppose a deal built on what appears to be common business sense, it transcends the laws of commerce. That makes it very difficult to sell on its business merits.
And that’s the sad reality for this deal. Without the lifeline from Nippon, U.S. Steel faces a tough road ahead. Even though it is profitable, it is a much smaller enterprise than it was only a couple of years ago. And the prospects are not rosy for it to return to its former stature as an industrial powerhouse by itself.
That means the steel worker jobs Mr. Biden and Mr. Trump seek to protect are at risk anyway. And tax breaks and other financial incentives rarely solve problems rooted in changing market dynamics, as is the case here.
The deal that should be approved probably won’t be. That’s too bad. It’s also a cautionary tale for foreign interests seeking footholds in the United States. America First will win the day every day, even when it doesn’t make good business sense.