Nippon Steel’s purchase of U.S. Steel is a drop in the ocean of foreign investment in the United States.
The acquisition of a medium-sized company usually attracts some attention in trade publications and maybe gets a perfunctory article in the Wall Street Journal. But Nippon Steel’s acquisition of U.S. Steel has a bipartisan group of senators melting down.
John Fetterman (D., Pa.), Sherrod Brown (D., Ohio), J. D. Vance (R., Ohio), Marco Rubio (R., Fla.), and Josh Hawley (R., Mo.) are outraged that what they characterize as a vital part of the U.S. industrial base would be acquired by foreigners. They also invoke the last refuge of a protectionist: national security.
It’s nonsense. U.S. Steel was the world’s largest company over 100 years ago. It got booted from the S&P 500 in 2014. Today, it employs fewer people than Petco.
Even if U.S. Steel totally disappeared, the U.S. would still have production capacity to spare to meet defense needs. Secretary of Defense Jim Mattis estimated defense needs for steel at about 3 percent of total domestic production in 2017. Even a large defense buildup, which the U.S. needs, would be doable without U.S. Steel.
But that’s not what’s happening at all. U.S. Steel isn’t bankrupt, and Nippon Steel isn’t liquidating it. It is joining the throng of companies headquartered in other countries that seek to invest in the United States, employ Americans, and make stuff here.
Combining the know-how and resources of Nippon Steel, the world’s fourth-largest producer, with those of U.S. Steel, the world’s 27th-largest, could even benefit U.S. national security by producing a stronger firm, more able to provide for the military’s needs, and deepening the already strong business and strategic relationship with Japan. The Japanese are among America’s closest allies, especially with respect to the common adversary of China.
The fear of “foreign” ownership is largely boob bait. U.S. Steel and Nippon Steel are both publicly traded companies, which means they are both already owned by Americans and foreigners because anyone in the world can purchase their shares. As of September 30, nearly a quarter of Nippon Steel’s shareholders were from outside Japan. It is true that, as was highlighted during the pandemic, the definition of a “strategic” industry can encompass more than just what supplies our defense sector. But as of mid 2021, 78 percent of the U.S. steel market was supplied domestically (admittedly a share bolstered by steel tariffs). Of steel imports, only about 1 percent came from China. The same year, America’s largest suppliers of steel from abroad (by value) were our Canadian and Mexican neighbors, further reducing the risk of supply-chain disruption.
It’s more or less a fact of life in today’s economy that corporations make acquisitions across national borders. There’s nothing more American than a Slurpee and a roller dog, except that 7-Eleven is owned by a Japanese company. Anheuser-Busch is owned by Belgian firm InBev. Uniroyal, formerly U.S. Rubber, is owned by Michelin from France. USG Corporation, formerly U.S. Gypsum, is owned by the German firm Knauf.
U.S.-based corporations buy foreign-based companies all the time as well. Procter & Gamble bought Thomas Hedley, an English soap company, in 1930. Intel has bought companies from the U.K., Sweden, Israel, Denmark, France, and more. Much to the chagrin of some European racing fans, the company that promotes Formula One was purchased by American firm Liberty Media in 2017. Coca-Cola buys famous beverage brands everywhere in the world, from India’s Thums Up to Peru’s Inca Kola.
It’s often a stated goal of governments in developing countries to encourage foreign investment, because they want to be rich like the developed countries that already have it. The U.S. doesn’t have to go out of its way to attract foreign investment. People the world over want to make and sell stuff in the U.S. and employ Americans to do it.
Our ability to attract foreign investment is a source of strength, and a major economic advantage over China. So long as China is a communist dictatorship without a fair court system, consistently secure property rights, or a balanced demographic profile, businesses will have to be wary about putting their money there. And its economy is currently in deep trouble.
After being far too sanguine in the past, international investors are now fleeing China. Net foreign direct investment in China went negative for the first time in a very long while this year. New foreign investment has hit a four-year low in the aftermath of China’s Covid shutdown and the communist party’s increased involvement in business.
Meanwhile, foreign investment in the United States is greater in size than the entire economy of Germany and grew by over $200 billion last year. Although it is right that some Chinese investment in the U.S. is or should be restricted or banned outright, fearmongering about a Chinese takeover is often just that, as the vast majority of foreign investment in the U.S. is from Europe. Going the other direction, Americans invest more in Latin America than they do in the entire Asia-Pacific region.
Nippon Steel’s purchase of U.S. Steel is a drop in the ocean of foreign investment in the United States. U.S. Steel isn’t an appendage of the U.S., and senators don’t own the company. If both companies’ boards and shareholders approve, the transaction should go through as it would for any other company of similar size: with little fanfare.