The downsides of stopping Nippon Steel’s proposed acquisition of U.S. Steel

See Hurt Pennsylvania’s Workers to Win Pennsylvania’s Votes? by Michael R. Strain.

"Have populist politics gotten so out of control that politicians believe they need to hurt Pennsylvania’s workers in order to win Pennsylvania’s electoral votes?

Yesterday, the Washington Post reported:

President Joe Biden is preparing to announce that he will formally block Nippon Steel’s proposed $14.9 billion acquisition of U.S. Steel, according to three people with knowledge of the matter, who spoke on the condition of anonymity to describe a decision not yet made public.

The stunning move to kill a deal featuring a corporation from Japan, a close U.S. ally, comes as Vice President Kamala Harris battles former president Donald Trump for support from union members across the industrial Midwest.

Also troubling: President Biden, Vice President Harris, President Trump, and Senator Vance all oppose Nippon Steel’s acquisition of U.S. Steel.

The economics here are straightforward. From my March column in the Financial Times:

Nippon’s acquisition of US Steel would benefit the economy broadly and the working class specifically. The company intends to inject much-needed technology and capital into US Steel. This would raise the productivity of its workers, putting upward pressure on their wages and incomes, and potentially increasing employment opportunities and steel output.

There may be downstream benefits, as well. As productivity increased and US Steel prices fell, the incentive facing domestic manufacturers to import steel from abroad would reduce. This could allow domestic manufacturers to cut their costs and become more competitive. In the US, for every job in steel production, there are around 14 jobs in industries that use steel intensively.

U.S. Steel seems to agree. From the Post‘s article:

U.S. Steel CEO David Burritt warned that the deal’s collapse would put at risk “thousands of good-paying union jobs” and raise “serious questions” about the likelihood that the company would remain headquartered in Pittsburgh.

The national-security argument here seems equally straightforward: Japan is one of the U.S.’s staunchest allies. How is national security threatened by a major ally investing in a U.S. manufacturing company?

In the FT, I described four broader issues at stake:

First, this episode casts doubt on the degree to which talk about “resilience” and the need for “friendshoring” is based on legitimate concerns about national security. Japan is America’s friend, so Biden’s opposition to the deal suggests that “resilience” rhetoric is often little more than a fig leaf for rank protectionism.

Second, this might have a chilling effect on the willingness of other foreign companies to invest in the US. But foreign investment is a sign of the strength of the American economy, and Biden should be doing all he can to welcome more of it. The more than $5tn in foreign direct investment in the US is increasing the productivity of American workers and building up the country’s industrial base and services economy.

Third, Japan is an increasingly important Pacific ally as the US’s relationship with China becomes more adversarial. Biden should be using economic policy to strengthen this partnership, not to weaken it by treating a Japanese company as a security threat.

Finally, the president’s unusual intervention in a single deal is itself a threat to economic liberty. In a free society, the government should not attempt to blow up voluntary transactions between private parties. America’s long-term prosperity rests on the responsible use of government power, including the president’s bully pulpit. Because this deal clearly does not threaten national security, blocking it on those grounds would also weaken the rule of law. Biden is further eroding foundational norms weakened by Trump."