Do you know the American steel company called US Steel? It was a company with 123 years of history that was popular for a time, but now has a small presence in the steel industry (ranked 24th in the world). Symbolizing both the glory and decline of American manufacturing.I guess you could call it a company that does that.
Last December, the news that Japanese steel company Nippon Steel was acquiring US Steel for $14.9 billion (about 20 trillion won) shocked the industry. Now, even more surprising news is coming. President Biden is expected to block this deal soon. Regarding this, there is a lament (Wall Street Journal editorial) that it is ‘the dumbest economic idea’. It may be economically stupid, but it is a politically smart choice. Opposition to US Steel saleTake a look into it.
*This article is the online version of the Deep Dive newsletter published on the 6th. Subscribe to Deep Dive, the ‘economic news that you’ll get hooked on as you read’ newsletter.
The past and present of the ‘Iron City’
for a long time ‘Steel city’The people of this town, known as the Steelers, have worked in the steel mills for generations and cheered for the Steelers football team. The Edgar Thompson Steel Works, which has been in operation since 1875, is located along the Monongahela River to the south of the city. Pittsburgh, where US Steel is headquarteredno see.
US Steel, once upon a time, was truly enormous. It was the first company in the world to exceed $1 billion in capital (when it was founded in 1901), and it was the company that made Andrew Carnegie, the “steel king,” the richest man in the world. It is no exaggeration to call it the “symbol of American industrialization.”
So, what about now? It ranks 24th in the world in terms of crude steel production. It is a smaller steel company than Hyundai Steel (18th). In the US, it ranks 3rd after Nucor and Cleveland-Cliffs. Compared to the 1970s (2nd in the world, producing 40 million tons per year), its production in the US has been cut by a quarter. This is the result of losing out to competition from Japan, Korea, and China, and neglecting investment in new technologies. Above all, it has lost its utility in the US economy, where manufacturing is no longer the center. “US Steel’s status peaked in 1916. It has been in decline ever since. Its highest production was in the 1970s. Nothing done for decades.” (CNN interview with analyst Charles Bradford)
![“Can’t sell to Japan”… How did the sale of US Steel become so hot?[딥다이브]](https://dimg.donga.com/wps/NEWS/IMAGE/2024/09/06/126885175.1.png "“Can’t sell to Japan”… How did the sale of US Steel become so hot?[딥다이브]")
In the 1980s, when the steel mills that lined the banks of the Monongahela River were closing one after another, Pittsburgh, like other Rust Belt cities, was in a recession. Unemployment was soaring, and young people were leaving the city. U.S. Steel, which once employed 300,000 people, now has about 15,000 employees in the United States, and only about 3,000 of them work in Pittsburgh. So is Pittsburgh now a declining city full of frustrated blue-collar workers?
Not at all. Now Pittsburgh Medical, Education, and Robot CityIt’s called the “Best Place to Live.” Instead of steel mills, hospitals and universities are the main employers. It’s become a place where young people who are attracted to high-tech industries flock. The city is thriving again. Recently, U.S. News & World Report ranked Pittsburgh 36th among the 150 best cities to live in in the United States. That’s higher than popular tourist destinations like Portland (41st) and the capital, Washington, D.C. (44th).
“Can’t sell in Japan”
Pittsburgh is one of the representative cities of Pennsylvania. Pennsylvania is a swing state that determines the outcome of the US presidential election. The most competitive state with 19 electoral votes, the largest number among the seven battleground statesThis is it.
Whoever wins Pennsylvania can become the president of the United States. Pennsylvania played a decisive role in Trump’s victory in the 2016 presidential election. It was the state that gave Biden the victory in the 2020 presidential election. That’s why Trump, Harris, and the two presidential candidates are trying so hard to win Pennsylvania.
Both candidates came to Pennsylvania and told the same story.
“70 years ago, the greatest company in America was U.S. Steel. We will prevent Japan from buying US steel.“(Trump, Republican candidate, August 19)
“US Steel is Must remain an American owned and operated company. We will always protect the American steelworker.” (Harris, Democratic candidate, September 2)
And now President Biden steps in. It will soon be officially announced that Nippon Steel will not approve the acquisition of US Steel.The news is coming. The reason for the refusal is probably ‘national security’. Steel production is essential for national security (we need to make weapons), and such an important industry cannot be carelessly transferred to another country. (However, only 3% of US production is steel needed for military purposes).
How on earth did US Steel become such a big issue ahead of the presidential election? First, let me briefly explain the past story.
US Steel, which had been suffering from long-term management difficulties, was put up for sale last year, and in December of last year, Nippon Steel, the world’s fourth-largest steel company, was selected as the buyer after a competitive bidding. US Steel shareholders overwhelmingly approved the offer to buy at a price 40% higher than the existing stock price (55 dollars per share). However, the United Steelworkers, an industry-wide union, immediately rose up. Why we can’t trust Nippon Steel’s promise to ‘not lay off workers or close factories, and invest in unionized factories’Yes. Local politicians are also in agreement with the union. They continue to argue that the president must block this takeover.
U.S. Steel is furious, asking why they are blocking this good deal. Nippon Steel is planning to invest about $3 billion in the aging steel mill after acquiring U.S. Steel. If the deal falls through, not only will the investment be lost, but the Pittsburgh steel mill will have to close. That means even the jobs that are there now could disappear. CEO David Burrett said in an interview with the Wall Street Journal:We don’t have money. “If that plant (Pittsburgh) can’t survive the next 10 years, why should we stay there?”
The meaning of the name ‘US Steel’
It’s natural for unions to oppose a company being sold, fearing a loss of jobs or working conditions. But I’m a little perplexed. Is this really something so serious that the president and both presidential candidates have to step up and stop it?
First of all, it is unclear what the US loses from this deal (national security? Isn’t Japan an ally of the US?). Also, there are only about 10,000 people working for US Steel or related companies in Pennsylvania (Pennsylvania’s population is about 13 million). Why is keeping U.S. Steel from being sold to Japan so important to winning over Pennsylvania voters? Why would this issue appeal to the vast majority of voters who no longer work in steel mills and who have little interest in the steel industry (and are more concerned about environmental pollution) when virtually every American media outlet and economic pundit is saying that blocking this deal would be economically foolish?
The reason is ’emotion’It’s in. It’s a nostalgia for the past or a regret for things that are disappearing.
Look at the reactions on Reddit.
‘This (the sale of US Steel) Putting a nail in the coffin of the American steel industry‘My two grandfathers both worked for U.S. Steel, and so did their fathers. It’s very sad. They’re going to rise from their graves.’
‘US Steel is As iconic as Ford’s Model T and Boeing’s B-17It is a shame for it to fall into the hands of foreigners.’
The reaction of an 80-year-old retiree from US Steel who was interviewed by the Nihon Keizai Shimbun was similar: “We can’t lose this beautiful history. “The steel mill is like a family. It doesn’t matter whether it’s in Japan or not. What matters is whether it’s in the US or not.”
It doesn’t seem reasonable, but people I can’t accept that US Steel is no longer a US company. Their memories linger somewhere in that era, from the steel magnate Andrew Carnegie in the 1900s to the American football star Terry Bradshaw in the 1970s, even though the glory days of US Steel are nowhere to be found and will never return.
And as long as it’s a matter of emotion rather than logic, no politician is going to go against it, especially two months before a presidential election. “It’s called ‘US Steel,’” Sam DeMarco (R-PA), a city council member, told Barron’s. “If it had been called something else, like Newcore, it would have been different. People It looks like the Washington Monument is up for sale..”
There was a similar reaction in the comments to the New York Times article: “If they had spent a tenth of the attorney fees and rebranded it as something other than US Steel, this nonsense could have been avoided.”
A person who is smiling
And there is someone who is watching all this with joy. It is Laurenco Goncalves, CEO of Cleveland Cliffs (Cliffs for short), the second largest steel company in the United States. Cliffs Last August, it offered to acquire US Steel for $35 per share, but was rejected. Yes. After that, Nippon Steel was decided as the buyer, but he did not give up and continued to criticize. The main argument was that Nippon Steel’s acquisition would be a threat to US national security. He even made a somewhat surprising claim that “Japan is not a friend of the US.” (It is common sense that Japan is one of the closest allies of the US.)
The current situation is going exactly according to the logic he claimed. He has already secured the support of the United Steel Workers (the union has supported Cliffs’ acquisition of US Steel since August of last year). No, if things continue this way, will the acquisition of Nippon Steel be rejected and Cliffs will have another chance? In fact, when an analyst asked CEO Goncalves a while ago whether he was still interested in acquiring US Steel, “It can be traded in the $20 range (per share)”He answered yes. The calculation is that he can strike it down at about half the acquisition price (55 dollars) proposed by Nippon Steel. As expected, he is a persistent person who does not give up, just like his nickname, “Elon Musk of the Steel Industry.”
The stock market is already seeing the acquisition of US Steel by Nippon Steel as a lost cause. On the 4th, US Steel’s stock price plunged 17%. The stock price has returned to the level before the acquisition in December of last year.
Where will the U.S. government’s promise of an open and attractive investment environment and the strategic partnership between the U.S. and Japan go? Perhaps the U.S. political establishment will put all these issues on hold until after the November presidential election. Michael Reiter, who works with law firm Skadden on the Committee on Foreign Investment in the United States (CFIUS), tells CNN, “Given the U.S.-Japan alliance, the history of Nippon Steel, and the weaknesses of the U.S. steel industry, there is no justification for opposing the merger. Identifying national security risks is difficult, but identifying political risks is much easier. And unfortunately, it is precisely the calculus that dominates this issue.” By. Deep Dive
The movement in the United States opposing Nippon Steel’s acquisition of US Steel is often called ‘protectionism.’ I wondered, ‘What exactly are they protecting?’ Because in reality, it seems like there are no interests being protected. But now I understand. They are trying to protect the feelings of the American people from being hurt. Let me summarize the main points.
-The presidential candidates of both parties have come out in opposition to the sale of US Steel, a symbol of American industrialization. They say it cannot be sold to a Japanese company. President Biden also says he will stop the sale for “national security” reasons.
– Isn’t it better to revive a company that has been in decline for decades by receiving investment? It doesn’t make sense to talk about national security when selling to an ally, let alone another country. There is also continued criticism that opposing the sale is “economically foolish.”
– But if you look a little deeper, it’s a matter of emotion, not logic. For those who remember the good old days of American manufacturing, U.S. Steel is a special symbol. That’s why this issue is so important to politicians who need to win over Pennsylvania voters.
*This article is the online version of the Deep Dive newsletter published on the 6th. Subscribe to Deep Dive, the ‘economic news that you’ll get hooked on as you read’ newsletter.
2024-09-07 04:51:51