'National security' best card to secure Biden's selfish gains

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With their proposed merger thwarted for "national security" concerns, Japan's Nippon Steel and U.S. Steel filed a suit against the Biden administration on Monday in a last-ditch attempt to revive the transaction, accusing Biden and his team of "ignoring the rule of law" to gain political favor.

"As a result of President Biden's undue influence to advance his political agenda, the Committee on Foreign Investment in the U.S. failed to conduct a good faith, national security-focused regulatory review process," claimed Nippon Steel and U.S. Steel.

Why the transaction?

Widely seen as a symbol of American industrial prowess in the old glory days, U.S. Steel has been declining for decades as a result of a myriad of facts including labor costs, a lack of investments and global competition. Unit operating costs for America's steel industry were about "40 percent higher" than those of producers in Japan, according to the Associated Press.

In this context, U.S. Steel had eventually become a takeover target. In December 2023, Japan's largest steel manufacturer Nippon Steel announced its intention to purchase the American company for $14.9 billion in cash – it is a surprisingly generous bid valued at over twice Cleveland-Cliffs' offer of $7 billion.

To allay fears that the deal could threaten the U.S. supply of steel, Nippon Steel promised to keep U.S. Steel American-led by retaining its name and its Pittsburgh headquarters. All members of the company's core senior management team would also be American citizens post-acquisition. The Japanese giant, in a gesture to show its sincerity in the transaction, pledged no layoffs, no plant closures and no cuts to U.S. Steel's output for 10 years.

The combination of Nippon Steel and U.S. Steel, as the Atlantic Council put it, "could unlock efficiency-promoting technology." "A revitalized company producing better products at better prices is a boon to both the U.S. manufacturing sector and to securing national interests," Forbes said in its article, adding that "Rather than an economic drag or a national security threat, Nippon Steel's purchase of U.S. Steel is an opportunity to help revitalize an iconic U.S. company, improve steel manufacturing in the U.S., and grow the economy."

National security as a Master Key

Interestingly, the transaction deal drew instant bipartisan opposition.

"This acquisition would place one of America's largest steel producers under foreign control and create risk for our national security and our critical supply chains," Biden said in a statement on Friday, explaining the motives behind his decision to scuttle the merger. While voicing national security concerns, the Biden administration has so far failed to provide any solid evidence.

Biden's determination was immediately criticized as "illegal." "The presidential order was issued after the Committee on Foreign Investment in the United States (CFIUS) failed to appropriately conduct its review process due to President Biden's illegal political interference," Eiji Hashimoto, chairman and chief executive officer of Nippon Steel, responded to Biden's order.

It is worth noting that even before the CFIUS began reviewing the national security implications of the merger, the Biden administration had clarified its opposition stance on the deal as early as March 2024, claiming that "it is vital for it (U.S. Steel) to remain an American steel company that is domestically owned and operated."

Biden's clear stance, without doubt, is widely seen as prejudicing the CFIUS's decision. Under political pressure, the CFIUS failed to reach a consensus on the transaction, thus leaving Biden an opportunity to block the agreement.

This is not the first time the White House has abused "national security" concerns to contain other countries including allies. For decades, American politicians have demonstrated their unrivalled political wisdom of playing the "national security" card.

In December last year, U.S. Senator Rick Scott blatantly accused Chinese garlic of posing a "major threat" to American food safety and thus urged for the launch of a Section 301 investigation against imports from China. 

Yes, garlic as a national threat. You heard me right. While a Chinese Foreign Ministry spokesperson responded by saying that "it is believed that garlic probably has never imagined it could pose a major threat to the U.S.," provisions of the National Defense Authorization Act for Fiscal Year 2025 go ahead and require U.S. military stores to ban the sale of Chinese garlic; not to mention the Chinese refrigerators, drones, cranes and any other products that Washington regards as globally competitive are all unsurprisingly labelled as "national security risks."

While "national security" concerns were used to block highly sensitive items, "they are now being used regularly to justify trade restrictions on innocuous items such as cocoa beans, alcoholic beverages, animal feed, lighting products, and doorframes," according to an article on the Council on Foreign Relations website.

Allies deserve the same in American politicians' eyes. In the past decades, a slew of companies from G7 countries have been repeatedly targeted and sanctioned by Washington – all with the charge of "national security."

In the 1980s, Japan witnessed the thriving of its semiconductor industry. The country's market share of dynamic random access memory products reached some 80 percent in 1987, according to a 1992 report by the Los Angeles Times. This, apparently, Washington was not happy to accept. And unsurprisingly, Japan's leading chip producer Toshiba became a prime target.

In 1987, the Senate voted overwhelmingly to bar Toshiba from doing business in the U.S. for up to five years, according to media reports. The reason, again, was "national security risk." In 2018, Toshiba sold its chip unit to an American consortium at $18 billion – perhaps the best solution Washington could think of to address its "national security" concerns.

The U.S. applied the same dirty tactic to take over French power company Alstom. In the early 2010s, Washington's repeated harassment against Alstom top managers came as American General Electric (GE) sought to acquire Alstom's energy operation. In his book The American Trap, former Alstom executive Frederic Pierucci detailed how Washington's deliberate crackdown on foreign companies has eventually led to their decline or acquisition by American companies. In 2014, GE successfully purchased Alstom's power and grid businesses.

Who wins?

In Nippon Steel's case, the acquisition means a huge boost to the Japanese tycoon's manufacturing and technology capabilities. As a result of the combination, Nippon Steel's "expected total annual crude steel capacity will reach 86 million tonnes – accelerating progress towards NSC's strategic goal of 100 million tonnes of global crude steel capacity annually," according to a joint press release by Nippon Steel and U.S. Steel.

The bright prospect of the Japanese tycoon explains, although unjustified, the Biden administration's opposition to the deal. But for the White House, the block is more a result of selfish political calculations than the country's overall interests.

To begin with, let's rewind. Debates and discussions over the potential merger happened at a time when Democratic Biden was counting on labor unions as a bulwark against his dropping support rate. Clear about the United Steelworkers (USW)'s strong opposition against the merger, the Biden administration was unlikely to displease its supporters, especially ahead of the general election last November. Promising to kill the deal turned out to be an effective way to woo voters in the swing state of Pennsylvania where U.S. Steel is headquartered.

Biden sought to kill the deal to "curry favor with the USW leadership in Pennsylvania in his bid for reelection," Nippon Steel and U.S. Steel allege in a statement. "He (Biden) gave a political payback to a union boss out of touch with his members while harming our company's future, our workers, and our national security," U.S. Steel's president and chief executive officer David Burritt said.

Biden sought to secure his political interests, but is sacrificing his country's overall interests.

Washington's repeatedly protectionist attempts could warn foreign companies from investing in the United States. "Blocking the deal could be politically popular domestically but could scare away foreign investment in other U.S. companies. It could also starve U.S. Steel of investment it says it needs," CNN put it straightforwardly in an article published last week. The outcome "could have a chilling effect on international investment in America," Bloomberg quoted John Murphy, who leads work on international trade at the U.S. Chamber of Commerce, as saying.

Global competition is vital to revive domestic industries. Shutting the door against rivals has not only denied a world of possibilities but also means a crippled will to innovate. This is suicidal for American industries in the era of global integration.

Moreover, the Biden administration, by scuttling the deal, attempted to save American jobs, but the result could be exactly the opposite. Japan, as the largest source of foreign direct investment in the U.S., supports almost one million American jobs, according to the U.S. Chamber of Commerce. Washington's saying no to the Japanese tycoon means putting these job opportunities at risk. Burritt warned in September that if the merger failed, U.S. Steel may have to move its headquarters away from Pennsylvania where the company supports over 11,000 jobs and generates $3.6 billion in total economic impact a year.

For decades, the U.S. has resorted to protectionism to revive domestic industries, but so far has not prevented the loss of manufacturing jobs. "Rather than creating 'high paying' jobs and increasing economic activity, preventing this purchase will weaken the U.S. manufacturing sector, eliminate potential new high-paying jobs, and thwart efficiency gains in domestic steel manufacturing," Forbes said.

Putting economic woes aside, Biden's block could create a trust crisis between the U.S. and its important ally in the Asia-Pacific. Nippon Steel's lawsuit is the first of its kind by a Japanese company against a U.S. President, according to Japanese media reports. While Tokyo, in the past decades, has been actively dancing to the U.S. tune in exchange for Washington's economic and political support, the Biden administration's stance on the deal is a stark reminder that the world's superpower stands ready to sell its allies for selfish gains. This, without doubt, could impact Japan's stance on issues where the U.S. needs support, particularly in the realm of economic cooperation.

Consequently, the U.S. will become increasingly isolated, both economically and politically, as a result of its rising protectionist tendency. American factories will suffer losses, American people will lose their jobs and American industries will decline as a result of Washington's closed-door policy – costs that American politicians have purposely ignored to secure their selfish political interests, whether successful or not. That is what matters for the White House.

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