Why Biden Wants to Block the Nippon-U.S. Steel Deal

The pending sale of U.S. Steel, a century-old icon of American industry, to its Japanese rival Nippon Steel has presented a challenge to President Joe Biden's “friendshoring” foreign policy. Biden's opposition to the deal risks undercutting his administration’s efforts to strengthen U.S. alliances and supply chains, experts say. 

What are the merits of the deal?

At the end of 2023, Nippon Steel agreed to buy Pittsburgh-based U.S. Steel for $14.1 billion, a 40 percent premium on its December stock price. U.S. Steel’s shareholders approved the sale in April 2024, but the transaction’s closing has been delayed amid regulatory scrutiny and opposition from lawmakers and the United Steelworkers Union (USW).

Analysts say the deal could revitalize U.S. Steel, once the world’s largest steel producer—and corporation. The company began to decline along with the broader American steel industry in the 1970s as foreign firms, including Nippon, began to produce the material at a far lower cost. Between 1970 and 1987, American steel production declined 35 percent, while global steel production grew 21 percent.

If the Nippon acquisition proceeds, the combined firm would become the third-largest steel-producing company in the world, giving it more control over the crucial input in industries that Washington is seeking to bolster, such as electric vehicle manufacturing. (Nippon is currently fourth; U.S. Steel is twenty-seventh.) 

The deal could result in lower prices for U.S. buyers, and serve as an example of friendshoring, a strategy that involves building supply chains with allies. Nippon executives argue that the deal would create a firm more equipped to compete with Chinese companies, which dominate steel production.

What’s the opposition?

The deal faces resistance from the politically influential steelworkers union, as well as Biden, former President Donald Trump, and a bevy of other lawmakers. 

USW President David McCall, whose union represents half of U.S. Steel employees, opposes the deal because he says Nippon could enact significant layoffs for union workers. “They haven’t indicated in any way that they’re interested in working with us to assure us that our members and our members’ futures, their employment security, their economic security, and their retirement security is guaranteed,” he told Bloomberg in March. In a factsheet released in December, U.S. Steel said Nippon “has the financial wherewithal and desire to honor all existing agreements with the USW.”

Analysts say that union members’ votes will play a pivotal role in battleground states during the 2024 election. Trump narrowly won Pennsylvania in 2016, and Biden won the state similarly in 2020. Both presidential candidates have voiced opposition to the deal. Biden has thrown his support behind the USW and said that U.S. Steel should remain “American-owned.” Trump has said he would halt the deal “instantaneously,” citing the need to protect the U.S. steel industry. 

Meanwhile, a bipartisan group of lawmakers has raised concerns that Nippon Steel’s operations in China make the acquisition a threat to U.S. national security. Led by senators from steel-producing states in the Midwest, these lawmakers point to Nippon’s partnerships with firms linked to the Chinese Communist Party as especially concerning. Senator Sherrod Brown (D-OH), who is running a tight reelection campaign, was among the first lawmakers to publicly oppose the deal. Nippon says that these accusations are based on “significant inaccuracies and misrepresentations,” and argues that the acquisition would strengthen U.S. national security by forming a stronger competitor against Chinese firms.

What role is CFIUS playing?

Nippon and U.S. Steel are seeking review by the Committee on Foreign Investment in the United States (CFIUS), an executive-branch, interagency panel that scrutinizes proposed transactions involving U.S. and foreign businesses ​​to see whether they raise national security concerns. 

CFIUS reviews can take months. They culminate in a recommendation to the president, who has sole authority in preventing transactions. To do so, the president must conclude that there is “credible evidence” of a national security threat. Between the creation of CFIUS in 1975 and 2018, presidents blocked foreign-investment transactions just five times. However, in many other cases, companies have agreed to scrap or alter merger plans after CFIUS alerted them that it would likely recommend a block. (This includes Nippon, which in 1983 abandoned plans to buy the metals unit of another Pittsburgh-based company, Allegheny International, over concerns about potential CFIUS intervention).

Skeptics of the threat posed by the deal, including CFR Senior Fellow Edward Alden, argue that the acquisition of a U.S. firm by a close ally does not raise obvious security risks. “Under the committee’s statutory analytical framework, Nippon Steel’s acquisition of U.S. Steel poses no national-security risk to the U.S.,” writes Thomas P. Feddo, a lawyer who ran the CFIUS process under Trump. Other observers point out that the lawmakers leading the anti-deal charge benefit from union support and face tough reelection contests.

Both companies expect to close the transaction in the fourth quarter of this year, potentially after the November election. The CFIUS review of the deal could extend into 2025; however, the president is authorized to unwind completed mergers if they were not previously approved by CFIUS.

How is the challenge at odds with Biden’s other stated goals?

Biden has sought to elevate economic relationships with U.S. allies, particularly fellow Group of Seven (G7) member Japan and other countries in East Asia. Critics argue that his opposition to a merger with a Japanese firm raises questions about Washington’s commitment to allies and its openness to foreign investment.  “If Washington won’t allow this transaction—involving a buyer from a G7 country—then what foreign buyer would it see as a permissible owner?” asks Sarah Bauerle Danzman, a senior fellow at the Atlantic Council. 

Some experts note that blocking the transaction would represent a major departure from CFIUS’s typical remit, which has historically focused more narrowly on national security.