The Debate

Nippon Steel’s Acquisition of U.S. Steel Would Serve U.S. Interests

Recent Features

The Debate | Opinion

Nippon Steel’s Acquisition of U.S. Steel Would Serve U.S. Interests

The deal could revive the moribund American steel industry at a crucial juncture for both nations.

Nippon Steel’s Acquisition of U.S. Steel Would Serve U.S. Interests
Credit: Photo 190614022 © Pavel Kapysh |

Since the news broke in December 2023 of the sale of U.S. Steel to the Japan-based Nippon Steel Company (NSC), the deal, which is still in the works, has attracted considerable controversy. Among the critics was none other than President Joe Biden, who said in a statement that U.S. Steel “has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated.” On the surface, Biden’s reaction is understandable, but it overlooks the potential upsides to Washington’s strategy in the Indo-Pacific.

In addition to President Biden’s objection, prolific members of Congress, namely Senators J.D. Vance (R-OH), Josh Hawley (R-MO), and Marco Rubio (R-FL), pushed back on the deal by sending a letter to Treasury Secretary Janet Yellen stating the sale “has dire implications for the industrial base of the United States.”

Yet U.S. Steel has long been inefficient and uncompetitive internationally. As Scott Lincicome of the Cato Institute mentions, the company has been subject to decades of poor management and stagnation and employs only 20,000 people, less than the number of manufacturing jobs the U.S. economy gained in November 2023 alone. While more protectionist policies and government intervention are not going to save U.S. Steel, NSC is poised to make significant improvements in its production processes. The company currently has a global crude steel production capacity of approximately 66 million tons compared to the 22.4 million tons that U.S. Steel produced in 2022. Additionally, NSC has pledged not to outsource jobs and will honor existing contracts.

Moreover, in a recent interview with Semafor, a Nippon Steel executive explained that blocking his company’s takeover of U.S. Steel would be a “nightmare” for unionized workers. “The biggest risk in the steel industry today is an oversupply from China,” he said. A leaner and more financially efficient U.S. Steel “under the control of the U.S. and Japan” will be more competitive against Beijing, he added. Additionally, NSC’s president, Hashimoto Eiji, justified the deal by stating that one of the reasons for the acquisition was to “create a free-world champion in an industry dominated by China.”

The market shows that the deal is likely heading in the right direction. In June, Cleveland Cliffs (CC), North America’s largest flat-rolled steel producer, had its stock double downgraded by J.P. Morgan analyst Bill Peterson. After the announcement, CC’s stock fell about 3 percent to $15.18 in premarket trading. Peterson’s two main reasons for the downgrade are lower steel prices and more spending on its operations, both of which have diverted cash away from shareholders. On top of Peterson’s analysis, GLJ Research analyst Gordon Johnson downgraded Cliffs stock to Sell from Buy, citing a slowing economy and more new steel capacity that threatens to upset the industry supply/demand balance.

Rather than lambasting the sale of U.S. Steel, national security practitioners and free-marketeers alike should be celebrating the fact that a key U.S. ally, which largely shares Washington’s security concerns in the Indo-Pacific, can use its technological capabilities to bolster the country’s defense-related manufacturing, thus serving U.S. interests. Japan, the world’s third-largest steel producer, serves as an essential partner in Washington’s eventual “pivot to Asia” and its attempts to deter a Chinese invasion of Taiwan.

The acquisition has the potential to bolster Japan’s defense sector in myriad ways, but shipbuilding is the most apparent. China has an enormous advantage in shipbuilding capacity over the United States. Consequently, the U.S. Navy is seeking Japanese and South Korean assistance in building new warships. The U.S. Department of Defense and Japan’s Ministry of Defense have signed bilateral Technology and Security of Supply Arrangements, while Japan massively increases its defense budget, focusing on shipbuilding, etc.

Japanese Prime Minister Kishida Fumio’s April visit to the White House made Japan the first outside country to work with the AUKUS trilateral framework since its inception in 2021. Japan and the United States also ended 2023 by opening another door for defense-industrial cooperation. This more open policy will allow the Japanese government to ease its defense equipment export regulations, allowing for integrated logistics between the two allies. Most importantly, Japan’s shipbuilding prowess will stand to benefit AUKUS, which includes the United States, the United Kingdom, and Australia.

Australia has likewise signaled that increased defense cooperation with Japan is on the table. Australian Defense Minister Richard Marles stated in an interview in February that Canberra wants to “work more closely with Japan” on technological developments, acknowledging that the Asian nation is a “place of innovation” and is “at the cutting edge of technology.” Despite continued reluctance to include Japan as a member of AUKUS, Tokyo could be a valued partner for the evolving Pillar Two of the AUKUS framework.

Pillar Two aims to “develop a range of advanced capabilities to share technology and increase interoperability” among members. Still, there have been suggestions of expanding AUKUS Pillar Two activities on an ad hoc basis to countries like Japan. With an enhanced steel sector and industrial base, especially after the eventual acquisition of U.S. Steel, Japan has the potential to contribute significantly to Pillar Two.

A robust Japanese steel industry will be critical for Tokyo’s allies, as China’s steel industry outproduces its competitors by a wide margin due to its price-competitive materials, and growing steel demand serves as a strong basis for Chinese exports. In the past, there have been concerns that both the United States and Europe could become dependent on China for stainless steel, given China’s dominant share of global production. Therefore, strengthened friend-shoring with Japan, a country with a history of efficiency in the steel industry, can help its partners hedge their bets against China.

Especially considering the name of the American steel manufacturer, the sale of U.S. Steel could be seen as a painful loss and a signal of decline in U.S. industrial capacity. Yet Americans should not feel discouraged, as the future is not entirely bleak for the country’s steel industry. Propping up U.S. Steel through artificial protectionist means is bound to fail. Instead, Americans should appreciate how the Japanese acquisition stands to benefit the U.S. in the long term.