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--:-- Noel King: Welcome to Today Explained. I'm Noel King.
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--:-- Noel King: Today, we're talking about American-made steel. America is very proud of it. It's heavy. It's strong. Steel. But giant, iconic U.S. steel ran into some financial problems, than 13 months ago, it put itself up for sale. Steel. It got a multi-billion dollar bid from a Japanese company. The steel would still be made in America, mined in America, melted in America. It would still be called U.S. steel. Oh, I'm trying to conform. I'm trying to conform. Heavy. Aluminum. Strong. Shareholders were thrilled. The Steelworkers Union was not. And then the president started meddling and put the kibosh on the steel deal. Coming up on Today Explained.
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--:-- Noel King: Support for this show comes from ServiceNow. AI is only as powerful as the platform it's built into, don't you know? That's why it's no surprise that more than 85% of the Fortune 500 use the ServiceNow AI platform. While other platforms duct tape tools together, ServiceNow seamlessly unifies people, data, workflows, and AI, connecting every corner of your business. And with AI agents working together autonomously, anyone in any department can focus on the work that matters most. I've never met an AI agent. Learn how ServiceNow puts AI to work for people at ServiceNow.com.
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--:-- Noel King: Having a night out with your friends is awesome. Dealing with hangovers sucks. Meet Senorita, the THC-infused margarita that lets you skip the booze but keep the vibe. Made with real fruit, organic agave, and Himalayan pink salt, every sip is like a mini getaway. No fillers, no hangovers, just full flavor and a better buzz. Find your flavor at senoritadrinks.com. Use code VOX20 for 20% off. Must be 21 and over. This product may cause intoxication. This product has not been evaluated or approved by the FDA. This product may contain up to 0.3% THC.
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--:-- Noel King: This is Today Explained. I'm Noel King, and I'm the host here at The Washington Post. Tell me for you, where does this begin?
--:-- David Lynch: Well, it begins last year, a little bit before Christmas, when Nippon Steel announced it was planning to spend $14.9 billion to acquire U.S. Steel, a venerable American company and the third largest steelmaker in the United States.
--:-- Noel King: U.S. Steel has long been an American institution, once the largest corporation on the planet and in business for over 120 years. But now it's being gobbled up by an overseas competitor, Japan's Nippon Steel, for over $14 billion in a deal drawing mixed reaction.
--:-- David Lynch: The deal prompted a great deal of attention immediately. Union leaders are blasting the takeover deal, claiming it violates their agreement with the company. Pennsylvania Senator John Fetterman is unhappy.
--:-- Noel King: I just have to say it's absolutely outrageous that they have sold themselves to a foreign nation and a company.
--:-- David Lynch: The White House closely watching the deal from Japan's Nippon Steel saying that it deserves, quote, serious scrutiny. Now, in a statement, National Economic Advisor Lael Brannard saying that, quote, this administration will be ready to look carefully at the findings of any such investigation and to act if appropriate.
--:-- Noel King: And that was the first sign that what many had thought would be a fairly routine corporate transaction was going to be something other than that.
--:-- David Lynch: U.S. Steel had put itself up for bid a few months earlier. Despite the iconic name and its fabled history, it's a company that is in many ways a bit of a shadow of its former self. And it had lost money in nine of the last 15 years, and it needed a partner with deep pockets that could help it bulk up and modernize and invest for the future and be positioned to compete with some of the Chinese behemoths of the global steel industry that have been such a problem.
--:-- Noel King: So Japanese-owned Nippon Steel says, we will give you $14.9 billion. That was the bid. What would that company get out of this?
--:-- David Lynch: Nippon Steel was interested in the U.S. market for a couple of reasons, most notably perhaps because of President Biden's economic policies, his industrial policies, which have been designed to encourage or promote domestic manufacturing and domestic production.
--:-- Noel King: So these are things like the Chips and Sciences Act. Investment in the Chips and Sciences Act will create one million, more than one million construction jobs alone over the next six years, building semiconductor factories in America.
--:-- David Lynch: The Inflation Reduction Act, which is really about developing sources of renewable energy to fight climate change. The CEO, U.S. Steel, called the Inflation Reduction Act manufacturing, he called it the Manufacturing Renaissance Act because it's bringing jobs back to America, manufacturing here in America.
--:-- Noel King: And, of course, the bipartisan infrastructure legislation. This law makes us the most significant investment in roads and bridges in the past 70 years. It makes the most significant investment in passenger rail in the past 50 years and in public transit ever.
--:-- David Lynch: Many of those undertakings require steel. And so Nippon Steel assessed the market and said, basically, we want to be part of that.
--:-- Noel King: Was Nippon the only bidder? There was an earlier bid from an American company, a bit larger than U.S. Steel, called Cleveland Cliffs. But there were antitrust concerns because of the type of steel that Cleveland Cliffs specializes in.
--:-- David Lynch: Automakers in particular were worried that if Cleveland Cliffs were to acquire U.S. steel, there'd be less competition and that would make it more expensive for them to operate.
--:-- Noel King: A billion bid comes in Sounds like it all checks out The Biden administration though says it concerned about the deal What is the concern What did they articulate
--:-- David Lynch: Well, they didn't articulate much at first, but they didn't need to. Anyone who had a calendar knew what the concern was. The concern was political.
--:-- Noel King: We were on the cusp of the 2024 presidential election cycle. Joe Biden had won Pennsylvania in 2020 by about 80,000 votes. It was going to be a close contest in Pennsylvania and the other states of the industrial Midwest.
--:-- David Lynch: The United Steelworkers were an important constituency. And so the president was the president, who, by the way, bills himself as the most pro-union president in history, was determined to be on the right side of the steelworkers.
--:-- Noel King: And the steelworkers were opposed to the deal. President Biden speaking out against the sale of U.S. steel to Japan's Nipin Steel, saying the U.S. needs to, quote, maintain strong American steel companies.
--:-- David Lynch: President Biden's announcement has helped earn him the endorsement of the United Steelworkers Union. They represent 850,000 workers across the nation.
--:-- Noel King: When Biden telegraphs that he's going to be on the side of the steelworkers, how does he frame that? What is the quote-unquote excuse or reasoning that he gives when he says, no, no, no, this isn't going to work?
--:-- David Lynch: Well, it sort of dribbled out, I think, over time. The first sign that there might be problems or trouble ahead for the deal came within days of its announcement when Lael Brainard said it, quote unquote, deserved serious scrutiny.
--:-- Noel King: It is important to review or to make sure that there is serious scrutiny of these kinds of transactions from the perspective of national security and supply chain resilience.
--:-- David Lynch: And it wasn't clear initially exactly what that meant. No president just has carte blanche authority to veto private sector transactions that he doesn't like for political reasons.
--:-- Noel King: So in a transaction of this type, all roads lead to something called CFIUS.
--:-- David Lynch: Nippon Steel's proposed acquisition of U.S. Steel, currently under review by the Committee on Foreign Investment in the U.S.
--:-- Noel King: President Biden now is preparing to block the takeover formally as we await findings from that CFIUS report.
--:-- David Lynch: CFIUS is an acronym for the Committee on Foreign Investment in the United States, and it's an interagency panel chaired by the Treasury Secretary.
--:-- Noel King: And its job is to scrutinize transactions involving a foreign buyer. If a company or an investor wants to acquire something in the U.S. and there's any hint of a national security consideration, CFIUS will review it and then give it a thumbs up or a thumbs down.
--:-- David Lynch: And has CFIUS weighed in at this point? They have, at this point, not yet made their final recommendation, which goes to the president.
--:-- Noel King: What they have done is they have sent letters to both of the parties, Nippon Steel and U.S. Steel, delineating what the committee describes as national security concerns, which they further say cannot be mitigated by the buyer, Nippon Steel.
--:-- David Lynch: And that's a key point because it's not enough for a transaction to raise national security concerns because if you think about it, there may be ways to mitigate or address those concerns and then allow the rest of the deal to proceed.
--:-- Noel King: Not to sound naive about this, but Japan is an American ally. We don't have a confrontational relationship with Japan. How does Nippon Steel being owned by the Japanese make it a national security risk?
--:-- David Lynch: Well, that's what Nippon Steel would like to know. Because you're exactly right, and that's not at all a naive question. That is, in fact, the heart of the matter.
--:-- Noel King: Because while the CFIUS letters that we referred to a moment ago that have gone out to these companies have identified what the committee describes as national security concerns, they're quite general and, at least in the eyes of the people who have seen the letters, not terribly convincing.
--:-- David Lynch: And you're quite right. Japan is one of our closest allies and has been so for decades. We have 55,000 American troops stationed in Japan, and they're there in part because we have a mutual defense treaty with Japan, which commits the United States to come to the military assistance of Japan if it is attacked by a foreign power.
--:-- Noel King: So this is a country that we are treaty bound to defend in war, where we have American soldiers based and which we cooperate with across the board in a number of otherwise sensitive initiatives, including most notably in the emerging confrontation with China.
--:-- David Lynch: So the question that sort of demands to be asked is, is this really about national security or is this politicking meant to appeal to union workers in a battleground state, Pennsylvania?
--:-- Noel King: I think to ask the question is to answer it. At least it certainly does appear for now to be something that is largely motivated by politics.
--:-- David Lynch: When the Steelworkers Union came out against this, what did they argue exactly?
--:-- Noel King: Well, it's been a number of elements to the union concern. And it started initially almost on a very human level. The head of the union, Dave McCall, the head of the United Seal Workers, was irritated because he first found out about the deal when it already had been negotiated.
--:-- David Lynch: And that left a bad taste in the union's mouth. So Nippon Steel got off to a bad start from that standpoint.
--:-- Noel King: But the general concern is, and the union has complained about this with regard to Nippon Steel from the beginning of the deal, is that Nippon Steel, like many foreign producers, has been hit by Commerce Department actions in response to what the United States identifies as unfair trade.
--:-- David Lynch: You know, we recognize, as everybody does, Japan's an ally, but that doesn't necessarily make them an economic ally. For years we've had issues over trade cases where they've dumped product into the U.S., either selling it below market prices or it being subsidized.
--:-- Noel King: A foreign producer that is selling its products into the United States at what we regard as an inappropriately low price By doing so they making it hard or impossible for American competitors to do business We, in the form of the Commerce Department, will apply a tariff or duty to bring up the price to make it a level playing field.
--:-- David Lynch: And Nippon Steel has been among the foreign producers over the years that have been tagged by the Commerce Department for engaging in this behavior and have been hit by those kind of duties.
--:-- Noel King: What happens, David, to U.S. Steel if this deal with Nippon falls apart, if it doesn't happen?
--:-- David Lynch: Well, Dave Burrett, the CEO of U.S. Steel, just last week said publicly and quite directly, if this deal doesn't go through, you know, we don't have the money that Nippon Steel is promising to invest.
--:-- Noel King: And so Burrett has said there are thousands of good-paying union jobs at risk if this deal collapses. And he has also put on the table the possibility that U.S. Steel might even leave its Pittsburgh headquarters.
--:-- David Lynch: Those are the stakes that people are starting to talk about.
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--:-- Noel King: It's heavy, it's strong, steel. Oh, I'm trying to conform. Heavy. Strong. Steal. Steal. Steal. Steal.
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--:-- Noel King: Support for today's show comes from Adio. What is Adio? Adio is an AI-native customer relationship management system built specifically for the next era of companies.
--:-- [Sound effects: A brief clip of a party]
--:-- Noel King: Having a night out with your friends is awesome. Dealing with hangovers sucks. Meet Senorita, the THC-infused margarita that lets you skip the booze but keep the vibe.
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--:-- Noel King: This is Today Explained. We're back with David Lynch. He covers the global economy for The Washington Post.
--:-- David Lynch: U.S. Steel used to be this iconic American company, But it is not as big a deal as it once was, which is why it put itself up for sale. And yet the Biden administration is saying, no, we're not going to allow that sale. What does that tell us about the Biden administration's approach to economic partnerships like this that are pretty common in a globalized world?
--:-- Noel King: Yeah, I think what it tells you is there are some fundamental inconsistencies that are marbled through the Biden approach to the world.
--:-- David Lynch: On the one hand, nobody has been more outspoken about the virtues and necessities of having allies. Joe Biden's quite eloquent on that subject, and Japan is among our closest allies.
--:-- Noel King: His, Joe Biden's economic policies have been explicitly designed to crowd in private sector investment, to spend a little bit of public sector money or structure incentives with the tax code and other government subsidies to attract private companies, both American companies and foreign companies.
--:-- David Lynch: This is an explicit part of the president's approach that he had celebrated both shortly after coming to the White House and again a few months before the Nippon Steel deal was announced.
--:-- Noel King: All across America, instead of exporting jobs, companies, both foreign and domestic, are creating jobs here in America and exporting America-made products.
--:-- David Lynch: So this is something that the White House has wanted to see happen. And so along comes Nippon Steel, headquartered in an allied country with success and deep pockets.
--:-- Noel King: And why do they come They come because they think Joe Biden economic plan is working They think domestic production is where it at this reshoring trend to some degree They see happening and they want to capitalize on it and both capitalize on it and do so in a way that will provide jobs for Americans and provide investment for American communities
--:-- David Lynch: So looked at through that lens, you can imagine under different circumstances, perhaps if it wasn't a presidential election year and if U.S. steel was headquartered in Connecticut or New Hampshire or Florida or Texas or some state that was not a battleground state, perhaps this deal would be getting a quite different reception.
--:-- Noel King: We interviewed Joe Biden's U.S. trade representative, Catherine Tai, on the show a few months ago. A tariff is like a two-by-four, which you can get at the hardware store, right? Either you can swing it around and threaten people with it and bash things with this two-by-four, or you can use your two-by-fours in a strategic way, in a thoughtful, architectural way, And you can use a bunch of two by fours to build something really beautiful, to build something really useful, like a bridge or a fence or a house.
--:-- David Lynch: One thing that became clear in that interview is that Joe Biden's approach to international competition is closer to Donald Trump's than I think a lot of people realize.
--:-- Noel King: Joe Biden has put tariffs on Chinese imports to the United States. Everyone thought, you know, that they were Trump tariffs and then Biden would lift them. He only, in fact, lifted some of them.
--:-- David Lynch: I'm wondering, do you see an extension here of a kind of protectionism that started sometime in the last 10 years or so that Joe Biden has been interested in continuing?
--:-- Noel King: No, there's no question that the United States has taken a turn towards economic nationalism that began under Donald Trump and has continued, moderated perhaps by Joe Biden.
--:-- David Lynch: I think the Biden folks would distinguish what they've done from what Trump did in the past and from what Trump has promised to do in the future by saying that their approach is more targeted, more strategic, and also accompanied by these domestic investments that we've spoken of, which was not really part of the Trump program.
--:-- Noel King: But if you compare President Biden's approach to international economics, to trade and globalization to his democratic predecessors, President Obama who he served as vice president or President Clinton who I think of often as sort of the godfather of the globalization age, the Biden approach is quite different.
--:-- David Lynch: It's much closer to sort of the traditional democratic labor union skepticism of trade and much less devoted to the concept of trade liberalization.
--:-- Noel King: You cover the global economy. If this deal tanks, I wonder what the ripple effects might be. I wonder if other countries stop bidding the way Nippon Steel bid because they think, oh, America is doing protectionism now. How significant could this be broadly?
--:-- David Lynch: Well, I think like a lot of other questions, the answer depends in part on what happens on November 5th.
--:-- Noel King: In other words, this trend toward economic nationalism I think is going to continue under either Vice President Harris or former President Trump.
--:-- David Lynch: But it will perhaps be turbocharged under the former president.
--:-- Noel King: I don't think this deal will be enough to discourage foreign investors across the board.
--:-- David Lynch: I do think it's going to raise in people's minds the concept of geopolitical risk, and it's going to make and probably should make foreign investors to take a second and third look at a deal before they proceed.
--:-- Noel King: Of course, a Biden presidency only has a few more months. It will either be Kamala Harris or Donald Trump as president. Have either of them weighed in on Nippon's deal in particular?
--:-- David Lynch: Oh, they both have. It's the rare issue on which there's agreement across the board.
--:-- Noel King: Upon taking office, I will invoke the Defense Production Act wherever it's necessary to very quickly ramp up capacity of essential products. And I will stop Japan from buying United States steel.
--:-- David Lynch: U.S. Steel is an historic American company. And it is vital for our nation to maintain strong American steel companies.
--:-- Noel King: And I couldn't agree more with President Biden. U.S. steel should remain American-owned and American-operated. American-owned, American-operated by American Union steel workers, the best in the world.
--:-- David Lynch: And that's going to happen, I promise you.
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--:-- Noel King: Today's episode was produced by Peter Balanon-Rosen and edited by Matthew Collette. It was engineered by Andrea Christensdaugher and Rob Byers and fact-checked by Laura Bullard.
--:-- Noel King: I'm Noelle King. It's Today Explained. Support for the show comes from Mercury. What if banking did more? Because to you, it's more than an invoice. It's your hard work becoming revenue. It's more than a wire. It's payroll for your team. It's more than a deposit. It's landing your fundraise. The truth is, banking can do more. Mercury brings all the ways you use money into a single product that feels extraordinary to use. Visit mercury.com to join over 200,000 entrepreneurs who use Mercury to do more for their business. Mercury, banking that does more.
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