Written by Alexandra Alper
WASHINGTON (Reuters) – Nippon Steel Corp.’s proposed $14.9 billion takeover of U.S. Steel would create national security risks because it could hurt steel supplies needed for vital transportation, construction and agricultural projects, the United States said in a letter to the companies seen by Reuters.
The letter pointed to a global glut of cheap Chinese steel and said that under Nippon’s leadership, U.S. Steel would be less inclined to impose tariffs on foreign steel importers.
Nippon’s decisions could “reduce domestic steel production capacity,” the Committee on Foreign Investment in the United States said in a 17-page letter sent Saturday to Nippon Steel and U.S. Steel, first reported by Reuters.
“U.S. Steel’s decisions on (trade) issues will be influenced by Nippon Steel and may take into account Nippon Steel’s commercial interests and competitive position in the global steel market,” CFIUS added.
The letter offered a first glimpse of the national security grounds the Biden administration could use as a basis for its expected move to block the merger, even as companies and many industry experts question the strength of the arguments.
CFIUS appears to be “substantially expanding” its definition of national security risk, said Sarah Bauerle-Danzman, a professor at Indiana University and a fellow at the Atlantic Council.
“While the resilience of domestic steel production capacity in the United States is clearly in the national interest, it is unclear how ownership by a company resident in a major ally would fundamentally threaten that interest,” she said.
Several Republican and Democratic lawmakers have voiced opposition to the deal. Vice President and Democratic presidential candidate Kamala Harris said Monday at a rally in Pennsylvania, the swing state where U.S. Steel is headquartered, that she wants U.S. Steel to remain “American owned and operated.” Her Republican rival Donald Trump has vowed to block the deal if elected.
According to the Committee on Foreign Investment in the United States, China’s “continued use of market-distorting government interventions” has allowed the country to gain unfair dominance in the global steel market, exporting a large surplus of steel that artificially depresses global prices.
She cited 2022 data showing that China produced about 54% of the world’s total crude steel and was the largest exporter.
While U.S. Steel has made strong calls for easing trade restrictions on foreign imports, Nippon Steel has at times opposed U.S. efforts to ease restrictions, the Committee on Foreign Investment in the United States said.
In a 100-page response letter seen by Reuters and sent on Tuesday, Nippon Steel said it would invest billions of dollars to maintain and enhance U.S. Steel facilities that would otherwise remain idle, allowing it to “unquestionably” “maintain and potentially increase U.S. domestic steelmaking capacity.”
In previous statements, Nippon also said it will not move any U.S. Steel production capacity or jobs outside the United States and will not interfere in any of U.S. Steel’s decisions on trade matters, including decisions to pursue trade measures under U.S. law against unfair trade practices.
Nippon has even proposed a national security agreement, aimed at allaying CFIUS concerns. It has also pledged that a majority of U.S. Steel’s board will be non-dual U.S. citizens, including three independent directors approved by CFIUS to oversee compliance with the agreement.
“Nippon is throwing a financial lifeline to U.S. Steel while allowing it to remain under U.S. control and supervision,” said Nicholas Klein, a CFIUS attorney at DLA Piper. “I believe CFIUS could mitigate the risk of reduced steel capacity through supply assurance and other common mitigation measures.”
The committee, which reviews foreign investments for national security threats, also sees risks from Nippon’s growing presence in India, where production costs are much lower than in the United States.
“Nippon Steel has no economic incentive to import Indian or other non-U.S. steel into the United States to compete with or undercut U.S. Steel, which directly contradicts the basis of Nippon Steel’s multibillion-dollar investment,” the companies said in their letter Tuesday.
(Reporting by David Shepardson; Editing by Chris Sanders and David Gregorio)