How steelworkers are gambling on politics to block — or improve — the Nippon-US Steel deal
It seems self-defeating. Unionized steelworkers are effectively blocking the purchase of US Steel by Japan’s Nippon Steel, leaving a shrunken icon of the American heartland with no good options. US Steel CEO David Burritt says without the buyout, his company will have to close unionized factories and relocate from Pittsburgh to a non-union Southern state.
The whole matter, however, is distorted by election year politics, and there’s still a way for the deal to happen if Nippon doesn’t lose patience with American idiosyncrasies. President Joe Biden, Vice President Kamala Harris, and Republican presidential nominee Donald Trump all say they oppose the deal, but that could change once the election is over and the political ramifications subside.
Last year, US Steel began looking for ways to scale up or streamline in a market that’s now dominated by giant Chinese producers. Domestic firm Cleveland-Cliffs offered $7.4 billion for the firm, but a few months later, Nippon offered $14.9 billion, with the premium indicating a strong interest in entering the US market. US Steel accepted the superior Nippon offer and said it expected the deal to close in 2024.
The steelworkers union, however, favored the Cleveland-Cliffs deal, believing that it would provide better protection for union jobs and trashing the Nippon offer as a token commitment to jobs that still leaves room for layoffs and plant closures.
Biden, who calls himself the “most pro-union president in American history,” put his thumb on the scale in March when he said US Steel should remain American-owned. The president can’t block a merger just because he wants to, though. And antitrust measures don’t really apply when a US firm mashes up with a foreign one. But the president does control an arcane body known as the Committee on Foreign Investment in the United States (CFIUS) that decides if foreign buyouts pose a national security threat. That’s the mechanism Biden is now poised to exploit in order to block the Nippon deal.
US Steel's stock jumped on the news last December that Nippon wanted to buy the company for twice the Cleveland-Cliffs offer. Then the stock dove in March, when Biden suggested his opposition. The stock gyrated after that, falling even further in late August when news leaks suggested CFIUS was planning to block the deal.
Japan is a close US ally, and the premise that it could somehow threaten the supply of domestic steel in an emergency is flimsy at best. But CFIUS, run by Treasury Secretary Janet Yellen and several other Cabinet secretaries, is an opaque decision-making body that can gin up a national security rationale if the president wants one for political reasons.
And Biden, and Harris, almost certainly do. US Steel employs about 3,000 steelworkers in Pennsylvania, and the broader steel industry may account for more than 100,000 Pennsylvania jobs. That may not sound like a lot. But from an electoral perspective, it could be crucial.
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Harris, now the Democratic presidential nominee, most likely needs to win Pennsylvania and its 19 electoral votes to make it to the White House. Biden won the state in 2020 by 81,660 votes, and by some measures Trump is doing better in Pennsylvania in 2024 than he was four years ago. That means Democrats hoping to hold the White House are going to give Pennsylvania steelworkers whatever they ask for and hope to win their votes in return.
After the election, however, the steelworkers’ leverage will diminish, which could create a new pathway for the Nippon purchase to go forward. And there’s plenty of precedent for foreign buyouts that stumble at first but ultimately go through.
“With CFIUS, what happens a lot is the government will look at a case and say, 'Why don’t you withdraw your application and we can talk and see if we can work out the problem?'” explains William Reinsch, a senior adviser at the Center for Strategic and International Studies and former Undersecretary of Commerce. “But the only way this goes through is if the union is happy and it says so.”
That kind of dealmaking with foreign purchasers, known as a “mitigation agreement,” normally happens behind the scenes with little or no public attention. In the Nippon case, public posturing in the service of electoral politics has added a new layer of complexity.
If Nippon wants to stay in the hunt, it would probably have to offer new assurances that it will protect union jobs, without the exit clauses the union complained about before. Nippon recently said it would invest $1 billion in US Steel’s Pennsylvania plant and $300 million in its Indiana plant, which could be a down payment on further sweeteners.
Nippon may also need a Harris victory in November to get the deal done. If Harris wins, Nippon makes concessions, and the steelworkers union gets on board, Biden’s CFIUS could finagle some fig leaf change in the deal that satisfies its national security concerns and approve the buyout during the lame-duck period following the election. Or a newly constituted CFIUS under the Harris administration could basically do the same thing.
Trump, by contrast, seems firmly opposed to the deal with no wiggle room to change his mind. Trump’s “America First” agenda has an ideological bias against foreign involvement in the US economy, and he routinely singles out steelworkers as iconic American laborers who should never serve a foreign master. Case closed.
The Cleveland-Cliffs offer may not be a fallback, either. In July, Cleveland-Cliffs announced plans to buy Canadian steelmaker Stelco for $2.8 billion — with the union’s blessing. That may satisfy its interest in consolidation for the time being.
If Nippon tires of American machinations and gives up its quest for US Steel, that may test Burritt’s threat to relocate and deunionize. That's clearly a risk the union is taking. But the shrewd move for all sides may be waiting a couple of months and seeing what changes once the election’s over.
Clarification: This story originally said US Steel began looking for a buyer last year. Looking for a buyer was just one of several strategic options it was considering.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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