Why Biden cited national security concerns as he blocked a Japanese bid to buy U.S. Steel

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• Amna Nawaz:

  President Biden announced today he would prohibit the sale of one of America's most iconic companies to a Japanese company.

  In a statement, the president said that he would block Nippon Steel's purchase of U.S. Steel because — quote — "a strong domestically owned and operated steel industry represents an essential national security priority and is critical for resilient supply chains."

  But the decision is controversial.

  Nick Schifrin is following the story for us today.

• Nick Schifrin:

  Amna, as you said, U.S. Steel is an iconic American brand founded by legendary business leaders Andrew Carnegie and J.P. Morgan in 1901. Its steel holds up the Empire State Building and San Francisco Bay Bridge, and it helped build the American ships, tanks and aircraft that won World War II.

  In December 2023, Nippon Steel announced it would buy U.S. Steel for more than $14 billion and has recently promised to invest $1 billion into U.S. steel mills. But during the presidential campaign, both candidates opposed the deal. A senior administration official told me today that the committee that reviews foreign investments in the U.S. split, with the Treasury, Defense and State departments in favor of the deal, but the U.S. trade representative opposed, sending the decision to the White House, leading to today's decision.

  For perspective on that decision, we turn to David Wessel, senior fellow in economic studies at the Brookings Institution, and Sheila Smith, fellow for Asia-Pacific studies at the Council on Foreign Relations.

  Thanks very much to both of you. Welcome back to the "News Hour."

  David Wessel, let me start with you.

  As I just said, the committee that reviews investments in the United States, known as CFIUS, split between the national security agencies saying that they approved the deal and the U.S. trade representative saying that it opposed this deal. What does that say about today's decision?

• David Wessel, Brookings Institution:

  Well, it's pretty striking because the only power the president had to block this deal was to say it was a threat to national security. But because the committee split, he essentially overrode the national security apparatus and the Treasury.

  What it says to me is this is a largely political decision. Both President Trump and President Biden have stressed the importance of making it in America. Both of them were courting the steelworkers union in Pennsylvania. And so this seems to me largely a decision made on political grounds, not economic grounds.

  After all, the president said that a domestically owned and operated steel industry is important to national security. But what Nippon Steel was saying is, we're still going to make it in the United States. The owners will just be Japanese, which, last time I checked, was an ally of the United States, not an adversary.

• Nick Schifrin:

  So, Sheila Smith, there has been no official Japanese response to this announcement. But what were the Japanese expecting leading up to this response?

  Sheila Smith, Senior Fellow for Japan Studies, Council on Foreign Relations: Well, Nick, I think this is a drama that has been unfolding, as you said, for over a year.

  And, initially, I think the Japanese government in particular was quite quiet. They didn't want to get into the fray, and they understand that it was a presidential election year. But I think as we're getting — as we got closer to the end of last year, in the last couple of weeks, I think there was an effort to really speak out.

  Prime Minister Ishiba said that he hoped that this would go through, this is in the interest of both countries. The vice minister of the Ministry of External Trade and Industry was a little bit more pointed and said this will affect future Japanese companies who are thinking about investing in the United States.

  So, I think the politics clearly was on the minds of most Japanese observers. I think it's also important to recognize that many Americans don't recognize just how vital foreign direct investment is to the United States, not just from Japan, but from our European friends as well.

  Japan is one of the top countries for inbound foreign direct investment. In fact, it was, I think, in 2023 about $783 billion. And so this inward foreign direct investment is largely in the manufacturing sector, and so is very helpful to the American economy.

• Nick Schifrin:

  David Wessel, you just heard Sheila Smith mention this. Could this impact future foreign investment? And how much of an outlier is this? In general, the U.S. tends to like foreign investment.

• David Wessel:

  Oh, you're right. In general, we seem to want foreign investment. We love it when European car companies build plants in South Carolina or Tennessee, and we're subsidizing a Taiwanese company to make computer chips in the Southwest.

  But I'm concerned that it will discourage foreign investment in the United States. After all, it will be a big hassle. And if you can call the Japanese buying a steel mill a national security threat, you can call almost anything a national security threat.

  And I think it reflects a kind of growing anxiety and hostility to globalization in all its forms. And what's ironic about this is that a combined Nippon-U.S. Steel would have been a formidable competitor to the big Chinese steelmakers. And those are the ones that have been the target of so much animosity, both from U.S. steelmakers and U.S. policymakers.

• Nick Schifrin:

  Sheila Smith, of course, that leads us to the U.S. strategy on China, which has been based largely on creating alliances, enhancing alliances not only between Washington and East Asian countries, including Japan, but between East Asian countries from Japan and South Korea, all the way down to Australia and the Philippines.

  And a senior administration official who works on that strategy told me today — quote — "I am quite troubled by this decision."

  Do you believe this decision challenges the U.S. strategy in Asia?

• Sheila Smith:

  I think it challenges us strategy writ large, but particularly in the Indo-Pacific, where we're watching China really exert its influence across maritime Asia, but also really sort of engage in far more extensive economic coercion against our friends and allies in the region as well.

  So I think there's a tension here, Nick, I think it's important to see in this deal, the specifics of the deal aside.This is a time when the United States is asking its allies, partners, and friends to do more to enhance the competitiveness of those countries that are competing with China.

  This larger strategic competition will define the coming — the last second part of our century. And so we're asking allies to do more to help us. We're asking for friendshoring, which is locating plants and manufacturing capacity in the United States. We're asking them to think about investing in technological innovation along with us to produce the next generation of technologies.

  And we're asking for them to help us end each other with supply chain resilience. So the economic security component of our national security, along with our allies, is critical to the future security of the United States. And yet we see a very traditional definition of national security, I think, in this recent decision.

  It's the old-fashioned, we need steel. We can't really allow a foreign company to determine productive capacity. But there is this broader dimension of the economic security of the United States in which we really do have to partner with our allies and friends, Japan foremost among them.

• Nick Schifrin:

  David Wessel, quickly in the time we have left, what happens next? Could a U.S. buyer come forward? And could that U.S. buyer afford to make the investments that Nippon was promising in U.S. Steel?

• David Wessel:

  Well, I think the first thing we have to watch for is, will Nippon and U.S. Steel sue and say that this is somehow not an accurate — a legal decision, and that that — they — who knows what will happen there.

  The second thing is, as you point out, is Calvert-Cliffs (sic), another U.S. steel company, was a bidder for U.S. Steel. They didn't offer as much money as Nippon, and they don't have the resources that Nippon has. But that is another option here, that a U.S. firm will buy them. And that's clearly what President Biden and president-elect Trump hope will happen.

• Nick Schifrin:

  David Wessel, Sheila Smith, thank you very much to you both.

• David Wessel:

  You're welcome.

• Sheila Smith:

  Thank you.