Trade halted: A converter process of Nippon Steel’s Kimitsu iron mill plant in Tokyo. Nippon Steel offered to give the US government a veto over any reduction in US Steel Corp’s production capacity. — AFP
NEW YORK: Two weeks after the US election, hundreds of allies gathered at the White House to soothe Joe Biden in defeat.
Tracking the closed-door bash for clues was a group rarely interested in the routine preening of Washington: arbitrage traders.
The traders, who buy and sell the stock of companies in the middle of mergers and acquisitions, and investors were hanging on every event for a clue to the fate of the sale of United States Steel Corp, a hallowed but humbled American giant, to Japan-based Nippon Steel Corp.
And the deal’s key opponent, steelworkers union chief David McCall, was at the party. Would McCall meet Biden? Did the party offer an elaborate cover?
One question has swirled among investors and unions, from local mayors to the White House, since Nippon Steel announced its plans in December 2023: whether anyone could persuade Biden to back the sale, or whether McCall would succeed in having it killed.
The split was emblematic of so many shifts in US policy – a test case on how far American officials would go in treating steel as a strategic sector, of Biden’s pledge to build trust with allies, of the race against China, of competing factions within his party and of his fealty to the union.
Ultimately, Biden didn’t budge, finally on Dec 3 announcing his long-telegraphed veto of the sale on national security grounds.
The traders were particularly active, camped out in Pittsburgh and Washington in recent months.
They texted, called and emailed each other about every move by Nippon Steel vice-chairman and executive vice-president Takahiro Mori and McCall, the president of the United Steelworkers union that opposed the deal.
With many millions of dollars at stake, Mori and McCall were widely viewed as the most important figures influencing the proposed US$14.1bil acquisition of US Steel.
Many believed a decision was finally imminent as the bitter presidential contest was wrapping up.
Tracking Mori’s and McCall’s proximity to Biden, many surmised, might offer a clue to the president’s thinking.
The Biden administration signalled its opposition within days of the announcement, though officials were guarded in what they could say publicly. Donald Trump went further, saying in January 2024 that if re-elected he would “block it instantaneously”.
Trump hasn’t commented on Biden’s decision. The conflict created factions within Biden’s orbit.
State secretary Antony Blinken and National Security adviser Jake Sullivan each privately pitched Biden an option to allow the deal with conditions – potentially with so many it would have amounted to a virtual block anyway, according to people familiar with the internal deliberations who spoke on condition of anonymity.
Proponents of the deal have argued publicly it is an affront to ally Japan, and undercuts Biden’s push to reinvigorate alliances and “friend-shore” supply chains to like-minded nations.
The entreaties from the two longtime aides reflected a division that played out in the Committee on Foreign Investment in the United States panel, consisting of many Cabinet figures who were divided on the issue.
The question before them was not whether there was an inherent risk in handing the steel giant to a foreign buyer, but whether that risk could be mitigated.
The deliberations amounted to shades of gray. The departments of State, Defence and Treasury believed mitigation was possible and ultimately that there could be a way for the deal to proceed, people familiar with the Cfius deliberations said.
On the flip side, the United States Trade Representative and the Energy Department each believed the risk was too great, the people said.
Those two offices’ opposition gave the president what he needed.
The Cabinet agencies involved either declined comment or didn’t respond to requests. The committee’s overall position has never been clear.
The Commerce Department’s risk analysis underpinned much of the examination, but ultimately secretary Gina Raimondo – among the most business-friendly members of the administration – left her department’s position ambiguous to the committee, the people said, and stopped short of digging in along with the trade representative and Energy.
This was all playing out around a US presidential election, at that time a rematch between Trump and Biden, and the steel fight was centred in Pennsylvania, the most critical of swing states and Biden’s birthplace, where he says he developed his affinity for union workers.
White House concerns ran deeper than the fear that US jobs would be cut in favour of Japanese imports.
The administration worried about the precedent of other sectors, including autos, where foreign ownership of a domestic giant can upend an industry and leave the goals of its major players misaligned.
Further stoking doubts was a force majeure clause in the conditional mitigation agreement the companies reached with Cfius, were the deal to be approved.
It considered labour actions, including strikes, lockouts, boycotts or picketing, as a potential force majeure that could allow Nippon Steel to void pledged investments.
The union also believed Nippon Steel’s production commitments were simply a promise to keep plants idled at minimum – not necessarily running.
“In every promise that Nippon made, it was always careful to build in opportunities to back out,” McCall said last Saturday in response to a question on the force majeure clause.
“A clause allowing itself the option of picking a dispute with the union in order to justify canceling its weak commitments is in line with its overall approach and its disingenuous public relations barrage.”
The trade representative’s office saw a risk to national security from a scenario in which Nippon Steel would move production off-shore to keep pace with China in a race to source from lower-wage countries, a person familiar with the agency’s thinking said.
The Japanese government’s involvement in lobbying for the deal only fuelled doubts within Biden’s administration about where the company’s loyalties were.
In blocking the deal last Friday, Biden pointed to what he said was “credible evidence” that Nippon Steel’s US$14.1bil bid would “create risk for our national security and our critical supply chains”.
He didn’t say what the evidence was, though he invoked the Defence Production Act, which gives the president power over the economy to ensure the supply of critical goods. While Cabinet members and White House aides held their tongues, Biden did not.
In April, when he was still seeking re-election, Biden told a Pittsburgh rally that US Steel would remain domestically run, “guaranteed”.
In September, after a procedural delay, he said flatly he hadn’t changed his mind.
The administration had gone so far as to loosely schedule an announcement twice – once in September and again in early December, before the full 90-day Cfius review period elapsed, according to a person familiar with the planning.
As the panel deliberated, the company offered more sweeteners – US$1.4bil in capital expenditures to upgrade plants, and later an additional US$1.3bil. But it didn’t sway the union.
Days before Biden’s announcement, Nippon Steel offered to give the US government a veto over any reduction in US Steel Corp’s production capacity. None swayed the president.
The divisions and fears spread from Washington across state politics and Pittsburgh, the cradle of US steelmaking.
Local union officials from area plants favoured the deal, and proponents spent months courting grassroots support.
One major political figure stopped short of joining Biden, Trump and the union in blasting the deal: Pennsylvania governor Josh Shapiro, one of the Democratic Party’s rising stars.
Shapiro avoided a public stance but facilitated talks behind the scenes including what once seemed an impossible task – a sit-down between Mori and McCall.
Mori even attended a game of the Pittsburgh Steelers, the beloved NFL franchise named for the city’s cherished industrial roots. — Bloomberg
