We’re Stealing From Ourselves if We Block This Japanese Deal | Opinion

Times are tough for traditional manufacturing in the United States, especially heavy industry like steel. During an election year, there is not a breathing politician who is going to argue to reduce import tariffs or welcome foreign investors. “American-owned and American-operated” is a winning political slogan.
The problem is, it’s not always the most practical, economic, realistic, or best long-term strategy. Sometimes, it can undermine U.S. national security. For example, evidence now suggests that tariffs imposed in 2018 to reduce steel imports did little to stimulate domestic production but left downstream consumers with higher prices.
Nonetheless, when U.S. Steel shareholders welcomed a $14.1 billion merger with Nippon Steel last spring, opposition was fierce on both sides of the political aisle. United Steelworkers opposed the deal, citing mistrust in both companies to support domestic production and workers’ rights. Republican politicians, including former President Donald Trump, supported an American buyer, mostly for national security reasons. After the Committee on Foreign Investment in the United States, or CFIUS, reviewed the national security implications of the sale, the Biden administration deferred a decision until after the election.
The truth is, after losing revenue for nine of the last 15 years, in a market where oversupply and price wars made foreign steel more attractive (now 25 percent of U.S. domestic consumption), the deal was a lifeline for U.S. Steel. That lifeline is now fraying on a misguided attempt to assign national security risks to a deal that has none. In fact, U.S. national security is likely to be strengthened by this merger.
For CFIUS, risk “is a function of the interaction between threat and vulnerability.” The threat posed by foreign control can center on the identity of foreign ownership, the potential for foreign government control, and the intentions of the foreign owner. For some reason, CFIUS gives a free pass to investors from Australia, Canada, the UK and New Zealand—the “excepted foreign states” under CFIUS regulations. Scrutinizing investors from countries of “special concern”—say, China or Iran—or those with murky government connections makes sense. But Japan, one of our two closest allies in Asia, should be included on that short list of excepted foreign states, particularly for national security reasons. Industrial mergers with Japanese companies can strengthen our defense cooperation and thereby enhance, not diminish, our national security. Critics of the deal have cited concerns about the intentions of Nippon Steel regarding continuing domestic production, particularly in blast furnaces. In response, Nippon Steel has promised to support that production, from which U.S. Steel had been struggling to divest itself.
CFIUS is also tasked with assessing the vulnerabilities of a particular company, technology or industry. U.S. Steel has no contracts with the Department of Defense (DoD) and does not produce what the DoD considers to be strategic and critical. In 2021, in a White House review of supply chains, the Department of Defense identified two strategic and critical steel products as subject to foreign market dominance: 1080-grade ultra-high-strength cable tire cord (used in vehicle tires) and grain oriented electrical steel that has applications in transformers and electric motors. U.S. Steel provides neither, but Nippon Steel makes the latter.
In fact, steel is not any of the things DoD typically worries about: critical technologies, infrastructure, energy assets, or critical materials. As a dual-use commodity, it has important military applications but also many other uses. There is no bottleneck in production, but rather a glut of supply worldwide. In the United States, military consumption of steel only accounts for 3 percent of total domestic production.
Supply chain vulnerability has become a particularly sensitive issue at a time when U.S. allies are involved in wars. Domestic production offers an additional assurance because such manufacturers can be commandeered under the 1950 Defense Production Act to supply items in a time of war. But when domestic production is anemic or expensive, there are other avenues to ensure supply, such as stockpiling or diversifying foreign sources. For example, the United States has managed to rely on foreign sources of uranium for nuclear energy for decades without national security risks. Foreign-owned companies (and U.S. subsidiaries thereof) operate enrichment plants and mine uranium in the United States, all with CFIUS approval. In fact, some industry experts have argued to overturn long-standing restrictions on no foreign ownership, control, or domination even of nuclear power reactors, which provide 20 percent of U.S. electricity.
Tellingly, when the Biden administration banned imports of Russian enriched uranium earlier this year as a long-awaited protest of Russia’s invasion of Ukraine, it included a waiver for nuclear power plants with fuel-supply shortages. Supply vulnerability in certain cases can be significant.
For steel, the case for supply vulnerability is much harder to make. Even so, if the CFIUS review has identified specific national security risks attached to the U.S. Steel-Nippon Steel merger that cannot be shared publicly, there may be workarounds that could avoid a collapse of the deal. In fact, there are many precedents for such mitigating measures in past CFIUS cases.
When it comes to steel, the real threats to U.S. national security lie in Chinese domination (over 50 percent) of worldwide production and aging U.S. infrastructure. This merger strikes a blow against both those vulnerabilities. Acquiring U.S. Steel allows Nippon to scale up to challenge Chinese firms and Nippon has already agreed to invest more than $1 billion in upgrading U.S. facilities. Shaping this into an opportunity to help the steel industry modernize and reduce its carbon footprint will also help not just national security, but international security.
Sharon Squassoni is a research professor at the Elliott School of International Affairs at The George Washington University.
The views expressed in this article are the writer’s own.