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Japan’s largest steelmaker’s bid to buy US Steel puts Biden on the political spot

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US President Joe Biden’s March 2024 statement opposing Nippon Steel’s purchase of US Steel — saying ‘it is vital for it to remain an American steel company that is domestically owned’ — may help his uphill drive for re-election. Indeed, a week later, the United Steelworkers (USW) union endorsed his re-election. But Biden’s remarks by no means preclude the merger.

On the contrary, Nippon Steel and the union are still negotiating whether Nippon Steel can agree to conditions that the United Steelworkers deem necessary to get its acceptance. The negotiations are arduous and the outcome is uncertain. But, according to informed observers, both sides are serious and both see the urgency of reaching a deal before the November election.

If they do, Biden would be politically free to support the merger. Hence, the government’s Committee on Foreign Investment in the United States (CFIUS) would then approve it, just as it has approved every other Japanese purchase of a US company.

This is the outcome that Biden would prefer. When the merger was first announced, the White House made a show of saying CFIUS would scrutinise the deal for any national security problems. Yet the White House knows that disapproval would damage US–Japan relations and undermine security throughout East Asia.

If the union and Nippon Steel fail to reach agreement and Biden blocks the merger, the White House would likely tell itself that blocking one deal causes less harm to US–Japan relations than a return of Donald Trump to the Oval Office. The Fumio Kishida administration has meanwhile studiously avoided comment so as not to heighten tensions.

The good news is that Nippon Steel and the United Steelworkers are still talking despite Biden’s statement.

On 12 March, union chief David McCall and Nippon Steel Executive Vice President Takahiro Mori, who would be in charge of US Steel, met for the first time. While the United Steelworkers criticised the meeting, informed observers say their response is typical of their negotiating style. Nippon Steel sent the union a letter on 27 March, hoping to provide reassurances, and, while the union harshly dismissed it as ‘empty promises’ in public, it ended its private response by saying that it is ‘open to meeting with Nippon Steel officials…in the coming weeks’.

There is no other US firm that can buy US Steel. If Nippon’s bid fails, the US Steel will remain independent. This outcome is not good for the United Steelworkers, given their complete distrust of US Steel management. Workers are likely to benefit from a merger that would strengthen US Steel’s finances and upgrade its bonds, which are now rated ‘junk’ and carry high interest rates. In addition, Nippon Steel has pledged to invest in modernisation and decarbonisation, though some environmentalists charge that Nippon Steel is a laggard on decarbonisation.

The merger is caught in the crossfire of election year politics. When the merger was first announced in December 2023, United Steelworkers denounced the notion of a foreign company buying US Steel, as did all four senators in the key electoral states of Pennsylvania — the headquarters of US Steel — and Ohio. If elected in November, Trump vowed to instantaneously block what he called a ‘horrible’ merger.

Biden will likely lose the presidential election if he loses Pennsylvania. Unless Democratic Senator Sherrod Brown wins re-election in Ohio, the Democrats will likely lose control of the Senate.

Biden has not said he would use CFIUS to block the merger. Yet, CFIUS is a political process, not a strictly legal one. Even if CFIUS technical staffers find no national security threat, the President could still forbid the deal. CFIUS does not disclose the staff’s findings.

There is no bandwagon in Congress against Nippon Steel. Only seven senators and 53 members of the House of Representatives have denounced the merger. Most voters do not care, but in a close election in certain states, any issue can tip the balance.

The union’s chief complaints are eminently solvable and revenue gains in the US market would make it highly profitable for Nippon Steel to do what it takes to solve them.

The first is fear by the union that, like US Steel’s management, Nippon Steel would seek to shut down the unionised blast furnaces. Instead, it would rely on electric arc furnaces located in non-union states. Nippon Steel has promised the United Steelworkers that it would not shut down any blast furnaces but would instead invest in them.

The United Steelworkers also want absolute, legally enforceable agreements from Nippon Steel that it will continue all existing agreements with the union on layoffs, pensions and other issues. Though Nippon Steel has pledged that it will do so, the union says it has not provided real guarantees — a claim that Nippon Steel disputes.

Reaching a deal before the election will not be easy, but both sides know that if Trump takes office before an agreement is reached, the merger is unlikely to be done.

Richard Katz is the author of The Contest for Japan’s Economic Future: Entrepreneurs Vs. Corporate Giants.

A version of this article was first published here.

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The post Japan’s largest steelmaker’s bid to buy US Steel puts Biden on the political spot first appeared on East Asia Forum.

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