U.S. President Donald Trump’s announcement at his recent summit with Japanese Prime Minister Ishiba Shigeru that Nippon Steel will invest in U.S. Steel – instead of taking over the company – may have been premature. It remains unclear whether either company has agreed to such a solution. But Trump’s willingness to seek middle ground is an important development.
Former President Joe Biden’s rejection of the Nippon takeover bid made little sense. The U.S. strategy in Northeast Asia was built on reinvigorating trilateral cooperation with Japan and South Korea to counter the growing threat from China and North Korea. The administration embarked on initiatives ranging from bolstering military cooperation to “unprecedented levels” to greater cooperation on economic security, including protecting critical supply chains.
Moreover, the economic theory of the case for the takeover is strong. Because of booming foreign competition and poor business decisions, U.S. Steel, once the world’s largest producer of steel, ranked 24th by 2023, behind companies in China and Japan. According to one expert, the company would have “gone under years ago,” if not for tariffs imposed by Trump during his first term and the Biden administration. The takeover, however, would have resulted in improvements in the company and in the domestic steel market.
In rejecting the bid, Biden asserted that “there was credible evidence” that the Japanese steelmaker “might take action that threatens to impair the national security of the United States.” It is hard to imagine what that threat is – especially since Biden never pointed to specific evidence and since Japan has been a close ally of the United States for decades.
Observers are right to blame domestic politics for Biden’s move and Trump’s opposition to the merger on the campaign trail. United Steelworkers, which represents 11,000 U.S. Steel employees, has been vocal in opposing the deal, accusing the Japanese company of illegal trade practices and of bad faith in its dealing with the union. The union’s leadership instead supported a merger with an U.S. steel company that was outbid by Nippon, while its rank-and-file members support the Nippon takeover.
While Washington’s rejection of the merger has come under heavy criticism in both the United States and Japan, it has also opened the door for China to launch its own campaign pointing out the downsides of being Washington’s friend. “Being an enemy of the U.S. is potentially dangerous, but being its ally is harmful in actuality,” one Chinese outlet mused. Another made the point that “Friend shoring in America may mean just pain for friends and allies.” One pundit even suggested that Nippon might consider building “state of the art facilities independently in China, similar to Tesla.”
Commentators pointed out that “anything goes in a U.S. election year,” noting that opposition to the merger was meant to cater to voters. Biden’s evidence-free claim that the takeover was a “national security threat” could be applied to scuttle any significant business deal Washington doesn’t like. Moreover, as a Chinese state-owned media outlet observed, the list of national security threats “grows longer and more bizarre,” citing a claim by Republican Senator Rick Scott in 2023 that even Chinese garlic posed a danger.
China has also pointed out that, contrary to its supposed support of free trade, the United States has imposed tariffs to protect its steel industry. In fact, one U.S. analyst noted that U.S. imports of Chinese steel have fallen so significantly that tariffs will not have a significant impact of China’s economy. Despite it all, China’s steel industry is competitive enough that the New York Metropolitan Transit Authority just concluded a $200 million contract to use Chinese steel to rebuild the deck of the Verrazano bridge.
Of course, Beijing has neglected to mention its role in this melodrama. As its own domestic demand for steel decreased, China flooded the global market with inexpensive products. Exports reached 94.5 million tons in 2023, far exceeding the previous three years. Foreign steel companies have not been unable to overcome the oversupply, prompting anti-dumping cases against China from countries around the world. China’s steel dumping also put U.S. Steel’s long-term prospects in doubt.
Solving the challenge facing U.S. Steel will require a president like Trump who is willing to make deals where others aren’t. The administration should pursue two initiatives. First, Washington should follow the playbook for China-U.S. relations that Trump used during his first term.
After imposing more than $300 billion of tariffs on Chinese products, Trump reached an agreement with Beijing in 2020 in which China pledged to open certain markets to foreign companies, better protect technology secrets, and buy U.S. crops and energy.
If Trump uses the same playbook again, he may well follow the 10 percent tariffs imposed on China in February, which he called an “opening salvo,” with another major trade deal. Exactly what the provisions of a new deal might include is open to speculation. If it addresses China’s dumping of products in foreign markets, including steel, U.S. Steel and the broader U.S. steel industry would be allowed to compete on a more level playing field.
But that alone would not restore the industry’s economic health. Nor would Trump’s solution, as stated after his recent summit with Ishiba, of Nippon was dropping its takeover bid and to instead take a minority stake in the U.S. company. As the president of U.S. Steel has observed, only a full takeover would assure that domestic steel production is “mined, melted and made in America.”
An proposed trip by the chairman of Nippon Steel to Washington will provide Trump with an important opportunity to reverse the Biden administration’s decision to oppose the takeover. Ishiba’s pledge to invest another $1 trillion in the United States could easily provide cover for the U.S. president to step aside and let the deal move forward.