US Steel Mon Valley Works Clairton Plant and Clairton Coke Works facility in Clairton Pennsylvania. Picture taken on Monday, September 11, 2023.

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Invoking national security against US allies weakens national security


Photo Credit: NurPhoto/Tom O'Neill


In announcing its acquisition by Nippon Steel last December, U.S. Steel declared that it would retain its Pittsburgh headquarters, its contracts with US workers, and its "iconic" name. The United Steelworkers union has condemned the deal as a betrayal of its members. National Economic Advisor Lael Brainard asserted that the deal "appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability." President Joseph R. Biden Jr. stated this month that U.S. Steel must "remain an American steel company that is domestically owned and operated."

But would the purchase of U.S. Steel by an innovative steel producing powerhouse based in a country that is a close US ally damage US national security or disrupt supply chains? Almost certainly not. Unfortunately, the election year furor over the Nippon Steel deal may be a harbinger of misguided national security decision-making in Washington, tarnishing the Biden administration's record of reengaging with allies and reasserting American leadership in the international economic arena. More consequentially, the controversy can weaken, not strengthen, US national security.

US industrial capability falls short; opening and connecting trade and investment among close allies in dual-use defense sectors can strengthen US national security

U.S. Steel and Nippon Steel maintain that the acquisition will create synergy by combining Nippon Steel's plans to invest in new operational efficiencies and innovative technologies with U.S. Steel's strong brand, customer base, and manufacturing tradition. The stated goal is to meet increasing domestic demand for infrastructure and manufacturing in the United States. Whether that goal is achieved remains to be seen. But the uproar over this proposed deal echoes the 1980s controversies when Japanese companies purchased Rockefeller Center, Columbia Pictures, and other American brands.

But no similar concern has been voiced over ownership of a substantial amount of American steel production by a European company, ArcelorMittal, the world's second largest steel producing company (Nippon Steel is the fourth largest). Japan has been a key ally in the Indo-Pacific and beyond, as evidenced by its recent collaboration with the United States to supply Patriot missiles to backfill American stockpiles depleted by transfers to Ukraine. Blocking a deal by such a close ally on no grounds other than national security is inconsistent and self-contradictory, for all the talk of "friend-shoring" and "de-risking."

If the Nippon Steel deal ends up being blocked, for whatever reason, the case may discourage future investment from allies and partners, including investment in the manufacturing sector. Foreign investment has long been a part of the domestic manufacturing base and the development of supply chains in emerging critical sectors, such as semiconductors, electric vehicles, and batteries. According to the Financial Times, a considerable portion of foreign manufacturing investment after the enactment of the Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act has come from close allies such as Korea, Japan, and the European Union—for example, the Honda and LG Energy Solution joint venture battery plant in Ohio and Volkswagen's electric vehicle plant in South Carolina.

As a practical matter, neither the United States nor any other single country can base all of its supply chains at home. The United States needs an international coalition of manufacturing production networks, particularly in key dual-use defense industrial sectors such as steel and shipbuilding. The war in Ukraine has taught Western democracies that in order to win a war, especially a protracted one, they need not only military but also sheer industrial capabilities to ramp up ammunitions and other industrial products rapidly and cost-effectively among allies.

The current US industrial capability falls far short. It has been reported that the amount of artillery shells that the United States produces in a whole year can be fired by the Ukrainian army in roughly a month. South Korea is filling the gap, reportedly more than all European countries combined, by transmitting artillery ammunition through the United States (Korea does not allow supplying arms directly to a country in a war).

The US shipbuilding industry also needs foreign investment. Recently, US Navy Secretary Carlos Del Toro visited shipyards in Korea and Japan, the world's second and third largest shipbuilders respectively, and urged them to invest in dormant US navy shipyards and build ships in America to help meet production needs. Given the considerable security risks originating from the distant maritime theater of the Indo-Pacific, including the Taiwan Strait and North Korea, the ability to repair and rebuild damaged ships as quickly and cheaply as possible is needed. A Congressional Research Service study found that in terms of gross tons, the United States builds only 0.2 percent of the world's tonnage, while China, Korea, and Japan build over 90 percent. The Wall Street Journal has reported that one shipyard in China can build more civilian vessels and nuclear submarines annually than all the ships the United States has launched since 2014.

These facts add up to the imperative that the United States and allies co-invest and co-build industrial capabilities to ramp up supplies of steel, ammunition, shipbuilding, and other dual-use production that could be mobilized promptly in case of any possible contingencies. US national security can be strengthened by opening and connecting trade and investment among close allies.

The process for determining the threat to national security is lengthy and should be streamlined for close allies

No US government official has declared explicitly that the Nippon Steel–U.S. Steel deal is a threat to national security—only that the potential should be "scrutinized," as National Economic Advisor Brainard has said. It is up to the interagency group known as the Committee on Foreign Investment in the United States (CFIUS) to undertake such a study, a process that could take considerable time.

CFIUS's scrutiny of the Nippon Steel–U.S. Steel deal will likely look at many factors. It could determine that the deal hurts national security even if U.S. Steel produces no military related steel at the moment. CFIUS could recommend that President Biden block the deal, or it could clear the deal with some modifications, like keeping specific defense contracts under the control of American nationals. Or it could clear it with no strings attached.

CFIUS reviews have become much more frequent and onerous for investments, including from allies, more than doubling from 158 new transactions facing reviews in 2012 to 326 in 2016. These reviews have generated criticism from investors and others. Even the hawkish bipartisan Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party  is concerned about unintended consequences for allied investment.  In December 2023, it recommended adding Japan and other allies to the CFIUS "whitelist," which would exempt them from some of the increased CFIUS scrutiny—sending allies a positive signal in contrast to some comments by the Biden administration. Japan and Korea, as parties to the Camp David Trilateral Summit of August 2023, should be added to the CFIUS whitelist. At present, only Canada, the United Kingdom, Australia, and New Zealand enjoy such exemptions, but only if the foreign part of the investment is non-controlling. The Nippon Steel deal would not be exempt from CFIUS under this proposal because Nippon would be a controlling investor.

The ever-expanding scope of national security threatens to erode the hard-won trust among allies and partners and to disrupt the delicate balance achieved between security and economic interests. The United States can only secure a buy-in from allies when national security is narrowly and clearly defined. America must move beyond a limited, domestic view of national security and adopt a broader and more holistic view of collective national security with allies.

Han-koo Yeo, senior fellow at PIIE, is a former trade minister for the Republic of Korea.

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