Proposed Takeover of U.S. Steel Raises National Security Concerns

By Alexandra Alper

WASHINGTON (Reuters) – Nippon Steel’s proposed $14.9 billion takeover of U.S. Steel presents potential national security risks, particularly concerning the supply of steel required for essential transportation, construction, and agriculture projects, as indicated in a letter sent to the companies, which was reviewed by Reuters.

The letter also highlighted a global oversupply of inexpensive Chinese steel and suggested that under Nippon’s ownership, U.S. Steel would be less inclined to pursue tariffs against foreign steel imports.

The Committee on Foreign Investment in the U.S. (CFIUS) outlined its concerns in a 17-page letter sent to Nippon Steel and U.S. Steel. The committee indicated that Nippon’s decisions could result in decreased domestic steel production capacity.

CIUIS further noted, “While U.S. Steel frequently petitions for trade relief, Nippon Steel is often seen as a foreign respondent that opposes such relief for the U.S. domestic steel sector.”

This letter signals potential reasons the Biden administration might use to block the merger, despite the companies and several industry specialists questioning the validity of these concerns.

Michael Leiter, a CFIUS attorney not involved in the case, remarked, “By almost any measure, the issues identified by the committee align more with nationalistic trade protectionism and electoral politics, rather than national security.”

Leiter suggested that if the government truly aimed to ensure a steady steel supply in the U.S., it should encourage rather than obstruct the deal, stressing the importance of Nippon Steel’s investment.

The acquisition has become politically charged with lawmakers from both parties opposing it. Vice President and Democratic presidential candidate Kamala Harris expressed her desire for U.S. Steel to remain “American owned and operated” during a recent rally in Pennsylvania, while her Republican counterpart Donald Trump vowed to oppose the deal if elected.

China’s influence looms over trade issues referenced by CFIUS. The committee noted that China has manipulated the market through government interventions, enabling it to dominate the global steel landscape by exporting surplus steel that lowers international prices. According to data from 2022, China accounted for approximately 54% of total global crude steel production and was the largest exporter.

In a 100-page response letter that was also reviewed by Reuters and sent on Tuesday, Nippon Steel committed to investing billions of dollars to sustain and enhance U.S. Steel facilities facing shutdown. They asserted that this investment would not only maintain but could potentially increase domestic steel production capacity in the U.S.

Nippon also reiterated its promise to keep all U.S. Steel production and jobs in America and pledged not to disrupt U.S. Steel’s decisions about trade, including actions related to unfair trade practices.

The company emphasized that the merger would enable the formation of a stronger competitor to China, benefiting from the close ties between the U.S. and Japan.

To address CFIUS concerns, Nippon proposed a national security agreement that includes commitments for a majority of U.S. Steel’s board of directors to be non-dual U.S. citizens, along with three independent directors approved by CFIUS to oversee compliance with this agreement.

Nicholas Klein, a CFIUS attorney, remarked, “Nippon is providing a financial lifeline to U.S. Steel while ensuring it remains managed by U.S. individuals under governmental oversight. I believe CFIUS can mitigate the risks of reduced steel production through supply assurances and other common mitigation methods.”

Additionally, the committee identified risks arising from Nippon’s expanding presence in India, where production costs are significantly lower compared to the U.S.

In response, the companies asserted, “Nippon Steel has no economic incentive to import Indian-origin steel into the United States that would undermine U.S. Steel, which would contradict the rationale for Nippon’s multi-billion dollar investment.”