In a last-minute move, US President Joe Biden elected to block Nippon Steel’s $15 billion takeover of US Steel last week. The decision came in clutch, only weeks ahead of Donald Trump taking over the White House, although Trump had himself said he would scutter the deal.
Deals fall through all the time, but this one was different. Instead of collapsing over objections from the Federal Trade Commission or difficulties inherent to the acquisition, the deal was blocked for supposedly posing a national security threat to the US. Even in the Democratic circles, the criticism is rife. Jason Furman, President Obama’s Economic Advisor, put it bluntly, calling Biden’s actions “a pathetic and craven cave to special interests that will make America less prosperous and safe.”
Japanese officials, who had expected pushback on the deal, are reportedly nonplussed at being labelled a security threat by the Biden administration. The country is one of the US’s closest allies and is highly strategic as US-China tensions rise. Biden was also supposed to mend international relations after the tumultuous Trump years. His latest actions hardly cement that legacy.
Internally, the deal was a contentious one from the start, with steelworker unions in the US strongly opposing it. It was proposed in a global environment where China dominates steel production with almost 60% market share, and US producers have failed to keep up with rivals.
Its failure is an ill omen of how the US will likely act towards partners in the coming years. In facing up to China, rerouting value chains was supposed to include allies in what was termed friendshoring. Instead of relying on Chinese companies to deliver critical inputs, countries were supposed to take on production themselves or leave it to trusted partners.
This would include foreign direct investment. US Steel was seemingly a struggling company, and Nippon Steel had promised to invest heavily in its US assets. If successful, the deal could have been a showcase of how allies worked together to keep valuable manufacturing capacity in friendly hands.
Instead, it emphasizes the protectionist trajectory the US has been on for years, even before Trump enters the picture again.
For the EU, the steel saga should be a stark reminder of how unpredictable an ally the US has become and a further warning of the fraught four years to come. It should temper hopes of working closely with the US on economic security, although hopes probably weren’t high to begin with.
As Sarah Bauerle Danzman of the Atlantic Council has argued, this sets the precedent that foreign ownership of critical US supply chains, even by close allies, is an unacceptable security risk. Where would that leave trans-Atlantic cooperation on semiconductors, energy or clean technologies? All critical areas where the US-EU partnership is vital if one is to stand up to Chinese manufacturing dominance.
The Nippon Steel-US Steel deal was rife with contentious politics from the start. Stopping it on national security grounds marks an ominous sign of how the US will treat allies in the years to come.
