President Biden's Blockade: A Move for Politics or Policy?
In an article published last September, Matthew P. Goodman argued that the Biden administration’s decision could end up undermining U.S. interests rather than advancing them, especially in the realms of economic competitiveness, supply-chain resilience, and international relations.
The Economic Backdrop: A Struggling U.S. Steel Industry
U.S. Steel has faced significant financial challenges over the past 15 years, often operating at a loss. Despite the company’s efforts to modernize, it has struggled to remain competitive against global steel giants, particularly China. Nippon Steel’s proposed acquisition of U.S. Steel was seen by many as a critical opportunity to inject much-needed capital into the U.S. steel sector. Nippon Steel promised to invest billions of dollars in modernizing U.S. Steel’s aging plants in Pennsylvania and Indiana. Such an investment would likely save American jobs, boost production efficiency, and help U.S. Steel better compete on the global stage.
However, by blocking this acquisition, the Biden administration risks stifling potential growth in a crucial sector of the economy. The decision may also discourage future foreign investments, which the administration has touted as key to strengthening U.S. economic resilience. With global supply chains increasingly vulnerable and dependent on foreign production, foreign investments in American manufacturing are seen as an essential part of ensuring long-term competitiveness and supply-chain security.
National Security Concerns: A Stretch for Credibility?
A primary justification for blocking the deal is national security, as reviewed by the Committee on Foreign Investment in the United States. CFIUS is tasked with screening foreign investments for potential risks to national security. In this case, the Biden administration claims that the acquisition could pose risks to U.S. defense capabilities and security interests. However, critics argue that these concerns are unfounded. Japan is a close U.S. ally, and Nippon Steel already has significant investments in the U.S., with no evidence suggesting that the deal would pose a genuine threat to U.S. national security.
A former steelworker interviewed during RealEcon’s listening tour expressed skepticism about the national security justification, pointing out that U.S. Steel supplies little to no materials to the U.S. Department of Defense. In fact, the acquisition was expected to strengthen the U.S. steel industry, which could, in turn, benefit national security by providing a more competitive and resilient domestic production base. Critics worry that forcing CFIUS to label the deal as a security risk when it clearly is not could diminish the credibility and usefulness of the national security review process, opening the door for other countries to use similar claims to enact protectionist measures.
The Geopolitical Angle: Straining U.S.-Japan Relations
The decision also threatens to strain one of the U.S.'s most important international alliances. Japan has been a close and reliable partner in addressing global security challenges, including curbing North Korea’s weapons development and countering China and Russia’s territorial ambitions. For Japan’s Prime Minister, Fumio Kishida, the U.S. decision could be viewed as a significant blow to a longstanding partnership. Politically, the move could make it harder for future Japanese governments to align with U.S. policies on economic security and other critical issues.
In particular, the Nippon Steel transaction was seen as a potential example of “friendshoring,” a practice of moving supply chains and production capabilities to trusted allies to reduce reliance on adversarial nations like China. By blocking the deal, the Biden administration risks sending a negative signal to other U.S. allies about the reliability of U.S. economic policy. The decision could make other countries hesitant to invest in the U.S. economy or follow U.S. leadership on global economic security.
The Bigger Picture: Supply Chain Resilience and Future Investments
The Biden administration has repeatedly emphasized the importance of strengthening U.S. supply chains, particularly in critical industries like steel production. However, blocking the Nippon Steel deal could make it harder to achieve this goal. Supply chain resilience depends on access to reliable, high-quality production capabilities, and foreign investments have been instrumental in upgrading and modernizing U.S. manufacturing facilities.
If the administration is serious about enhancing supply-chain resilience, it must create an environment that encourages foreign investment rather than deterring it. By shutting out Nippon Steel, the White House risks setting a precedent that discourages other foreign companies from investing in the U.S. economy. The broader implications of this decision could be felt across multiple industries that rely on foreign capital to remain competitive.
Ultimately, the Biden administration’s decision on the Nippon Steel acquisition highlights the complex trade-offs between politics, policy, and economic strategy. While political considerations may play a significant role in such decisions, it is crucial that the White House weighs the long-term impacts on U.S. economic competitiveness, supply-chain resilience, and international relations. The outcome of this decision may shape U.S. economic policy and foreign relations for years to come.
