At the Democratic National Convention in Chicago last month, Vice President Kamala Harris did not say much about China. But we did hear her say she intended to ensure “that America, not China, wins the competition for the 21st century and that we strengthen, not abdicate, our global leadership.”
So why, we wonder, is the administration in which Harris serves planning to block the merger of U.S. Steel with Japan’s Nippon Steel?
Here would appear to be an easy way to follow through on what Harris promised in her acceptance speech. Nippon Steel is interested in this deal not least because it wants to strengthen itself against cheap Chinese imports glutting the market.
“Glutting” may not convey the full force of the flood: China produces more than half of the world’s steel including a whole lot for which it currently has no domestic use. It has shown it does not care much about the impact on the steel industry beyond its borders.
We don’t necessarily buy the rhetoric that Japan and the U.S. should use this deal as some kind of tacit pseudo-military alliance against Beijing’s trade practices. But we do think that Nippon Steel was well advised to look for ways to strengthen its hand and that the U.S. Steel board of directors was free to approve the $14.9 billion acquisition offer, as they did in April. Nippon has argued that the investment will revitalize American steel manufacturing and pay dividends in further industrial cooperation, and most economists, liberal and conservative, agree.
Let’s be clear on something else. Japan is a staunch U.S. ally, making very weak tea of whatever national security argument has been dreamed up here, unless you interpret national security as meaning protecting domestic industry from fair foreign competition, which leads to isolationism and protectionism and is against long-standing U.S. policy. This is not a matter of letting Chinese spies into the mills: Japan is a member of the Group of 7 nations (G7), and national security issues are (supposedly) shared concerns.
As the Japan Times recently noted, pointedly, Japan was the largest source of foreign direct investment in the U.S. in 2023, thanks in no small part to the Japanese auto brands. And as China continues to do what China does, the cooperative U.S.-Japan relationship will only grow in importance. Anyone with a clue can see that. So what is going on here?
It’s pretty simple. Both the Democrats and Donald J. Trump’s protectionist Republicans are terrified of losing Pennsylvania, a vital state come November. That means they fear the political might of the United Steelworkers union, even though many employees of U.S. Steel are in favor of the merger with Nippon. The union has a preferred alternative buyer and some of the rhetoric on the blocking side, which likely includes the Biden administration, smacks to us not just of protectionism but jingoism.
Furthermore, U.S. Steel is not just of interest to Pennsylvanians, even though it’s headquartered in Pittsburgh. The company’s largest domestic operation is Gary Works, a familiar sight on the Indiana shore of Lake Michigan since 1908, and the company also has plants in East Chicago and Portage in Lake County, Indiana.
The Gary South Shore RailCats play their baseball at U.S. Steel Yard; heck, Gary was founded as a company town and named after the chairman of this very company. To say that U.S. Steel remains a vital economic anchor is to understate the dependency.
Metropolitan Chicago and the state of Indiana both have a big stake in the fate of U.S. Steel. Nippon Steel has promised major new investments in these Midwest facilities, including $300 million for Gary Works alone.
Gary’s long-term economic distress hardly needs further detailing; that community is in serious need of the kind of support Nippon has offered. If the deal falls through, U.S. Steel President David Burritt has said, jobs in the older facilities in Gary may go. Investment priorities will shift away from old-line mills like the ones in Gary in favor of newer facilities elsewhere in the country.
Sure, such threats are routine parts of these controversies. But this one has some bite. Nippon Steel has deep pockets, and it’s hard to see the same level of Gary-specific investment coming from elsewhere.
As we see it, Gary is not well positioned to take that kind of risk. There are more than 4,000 workers employed by U.S. Steel in Gary and their well-paying jobs impact the city’s tax base.
Indiana is not a swing state, of course. But that should have no relevance here.
— Chicago Tribune