Nippon Steel and the Closing of America’s Economic Growth
President Joe Biden shocked the financial markets, his own national security leadership and America’s alliance partners with a ham-fisted decision to block Nippon Steel’s takeover of U.S. Steel last Friday. Nippon’s bid has been on ice since it was announced last year, held up by the vagaries of a presidential election that largely centered on pocketbook issues for voters.
Such electoral machinations were always going to be present in the Japanese acquisition of a dying yet iconic American steelmaker. Indeed, both Biden and returning President Trump had said they would scuttle the deal, offering the kind of populist rhetoric one would expect from the bully pulpit where Pennsylvania jobs were on the line in the all-important swing state.
Yet, Biden is no longer running, nor is he ever expected to return to public life. During this lame duck period, he could have secured a legacy of putting country ahead of politics and economic prudence over populist cosplay. He could have demonstrated that America is open to business – especially with our most important allies, and particularly in industries like steelmaking that are critically important for domestic security and yet underfunded and uncompetitive in global markets.
It was a perfect crucible for a post-election candidate finalizing his legacy, and he failed. If today’s multipolar world requires the sophisticated playing of three-dimensional chess, Biden has shown in the twilight of his administration that he can play tic-tac-toe – and remarkably puts an X where an O would have secured victory.
Biden’s decision on Nippon Steel is unlikely to be reversed by Trump, but the greater question is whether America can unlearn decades of deindustrialization and come to terms with today’s reality: we need all the help we can get – even in our most sensitive industries – if we are going to rebuild and reindustrialize for a more abundant, prosperous, and secure future.
Deindustrialization has been the industrial policy of choice for America and much of the West since the 1970s. By offshoring low-value manufacturing to places like East Asia where labor was cheap and environmental regulations were lax, America could instead focus on higher-value activities from product design to capital allocation, improving margins and therefore multiplying the valuations of its industry-leading companies. It was a policy enacted in Washington, slung by investment bankers, management consultants, and efficiency-seeking CEOs, and back-stopped by academic economists.
They weren’t wrong: deindustrialization has been an extraordinary boon for America’s aggregate wealth. America now hosts seven of the top 10 global companies by market cap, with the two largest, Apple and Nvidia, demonstrating the perfect marriage of American engineering ingenuity with extremely productive manufacturing in countries like China and South Korea.
Yet, the flaws of deindustrialization have become increasingly glaring. Yawning inequality has offered great riches to the venture capitalists and technologists like me, who have been able to grow on the back of America’s most dynamic industry. For millions of others though, America’s strategy has meant a large-scale demotion from productive manufacturing jobs to low-end service professions with limited income potential or career growth. The gleam of the high-tech office park is mirrored in the fentanyl-fueled decay of former manufacturing hubs like Youngstown.
America’s complex and distended supply chains also mean that thousands of critical products ranging from semiconductors and biologics to aerospace parts and rare-earth minerals are no longer produced domestically at globally competitive scale. With the era of free trade closing and a new era of national economic sovereignty arriving, America is at risk of trading with an empty bag.
The solution is to reverse the osmosis of American manufacturing out and instead import ingenuity back in. Companies headquartered in America’s allies like South Korea, Taiwan, and Japan are interested in building out and acquiring manufacturing plants in the United States under the right conditions, hopeful of securing market expansion, improving resilience of supply chains, and minimizing political risk.
Which leads us back to U.S. Steel. America is now the fourth-largest steelmaker in the world, producing an estimated 81.3 million tons and trailing China at 1.02 billion, India at 140.7 million, and Japan at 87 million tons, according to figures from the World Steel Association. U.S. Steel itself represents about a fifth of the American market, and it is the second-largest company after Nucor. Yet, U.S. Steel is no longer internationally competitive, selling steel at significantly higher prices and forcing the U.S. government to put in place steep trade tariffs backed by both Biden and Trump previously just to keep the company viable. Such tariffs directly raise the cost of everything that uses steel, from new buildings to heavy machinery.
Nippon Steel’s takeover offer wasn’t just a financial lifeline for a struggling company, but also an opportunity to import technical know-how and competitive strategies from a business that – so far – has been able to successfully navigate global markets. A stronger, more global and more competitive U.S. Steel is in the obvious best interest of the United States.
Yet, in his statement, Biden said that “We need major U.S. companies representing the major share of U.S. steelmaking capacity to keep leading the fight on behalf of America’s national interests.” Biden is channeling a hubristic, go-it-alone industrial strategy that no longer meets the demands of the twenty-first century. In a choice between no industry and an industry underpinned by Japanese capital and experience, we apparently would prefer to go without.
We can no longer afford Biden and his ilk’s nostalgia in the global race for prosperity. America’s strengths remain what they have always been: openness to new ideas and technologies as well as a peerless belief in the power of market competition to discipline companies to pursue their own profitable advantages. In scuttling the takeover of U.S. Steel last week, Biden has made clear that America is neither open nor secure enough to allow one of our most important allies to have a foothold in domestic steelmaking. It’s time to move on and open America’s mind so that we can reindustrialize once again.
