US Steel faces tough choices as founder of Nippon Steel merger

For more than a year, US Steel sought an ambitious solution to its growing challenges. Once a symbol of American industrial power, it had agreed to be bought by Nippon Steel, its Japanese rival, to try to avoid obsolescence.

Citing the need to finance costly upgrades to its plants, US Steel warned that if the deal was foiled, it would have to close plants and lay off workers.

Now, with the $14 billion acquisition blocked by President Biden on national security grounds and President-elect Donald J. Trump openly opposing it, the company has few easy alternatives .

Without a merger partner, the company could be forced to close its traditional steel mills, threatening the livelihoods of workers and the regions that depend on them. An attempt to merge with another competitor could run into competition concerns. And it is late in the technological transition from blast furnaces to electric furnaces.

US Steel does not recognize its defeat in the face of the takeover by Nippon Steel. Both companies are suing the federal government, claiming the policy corrupted its review process.

Nippon Steel and US Steel remain confident that the transaction is the best path forward for US Steel's future, and we will vigorously defend our rights to achieve that goal, US Steel spokesperson Amanda Malkowski said in a statement. a press release.

US Steel primarily manufactures flat-rolled steel plate, which is used in the manufacture of cars, trucks and household appliances. For decades, growing foreign competition weakened the company, as well as the entire domestic steel industry, especially as Chinese steel came to dominate the international market.

At its peak, US Steel was the world's largest steel producer. In 2023, however, it ranked 24th in the world, far behind powerhouses like China's Baowu and Nippon Steel, according to the World Steel Association.

The company has recently seen a resurgence, thanks in part to efforts to protect it from competition. Tariffs imposed under the first Trump administration and a surge in demand for steel, driven in part by a construction boom earlier this decade, led to record steel prices, reinforcing the financial results of the American steel industry.

But that hasn't allayed concerns about U.S. Steel's long-term viability. Compared to their foreign rivals, domestic steel companies have been slower to adopt mini-mills that are more energy efficient and more profitable than traditional steel mills. Smaller factories melt scrap steel in electric furnaces, a faster and less expensive process, while larger factories make steel from iron ore and coke, derived from coal.

U.S. Steel has done a poor job of modernization, said Alden Abbott, a senior fellow at George Mason University's Mercatus Center and general counsel for the Federal Trade Commission during the first Trump administration. Without the tariffs, the system would have been bankrupt years ago.

Some U.S. companies have made more concerted efforts to modernize their production methods, including Nucor, which has become the largest domestic producer. In 2023, US Steel opened a plant in Arkansas operating with electric furnaces.

US Steel argued that Nippon was the only buyer willing and able to make significant investments in several steel mills and protect jobs. That includes at least $1 billion for upgrading the Mon Valley Works plant outside Pittsburgh and $300 million for relining a blast furnace at the Gary Works facility in Gary, Indiana.

Blocking the deal means denying billions in investments committed to extending the life of US Steels' aging facilities and putting thousands of good-paying, family-sustaining union jobs at risk, the two companies said this week. last.

Bill Peterson, a stock analyst at JPMorgan Chase, wrote in a research note that if US Steel operated as a standalone company, it would focus on its new plant in Arkansas and possibly reduce its blast furnace assets.

But the United Steelworkers, the powerful union that represents 11,000 US Steel employees, strongly opposed the merger with Nippon. He accuses the Japanese company of illegal business practices and bad faith in its relations with the union.

The union had previously pushed for a merger with Cleveland-Cliffs, an American company that had bid for US Steel in 2023 but lost to Nippon in a bidding war. Unlike Nippon, it is unionized. (On Monday, US Steel and Nippon sued Cleveland-Cliffs, accusing the company of colluding with David McCall, the head of the steelworkers' union, to undermine the Nippon Steel deal.)

We are confident this is the right decision for our members and for our national security, the union said in a statement after Mr. Biden blocked the deal.

If US Steel were sold to a competitor like Cleveland-Cliffs, the combined entity would be formidable but could face federal antitrust scrutiny. It is unclear, however, whether the Trump administration would take as aggressive an enforcement approach as the Biden administration.

John Newman, a professor at the University of Miami Law School and former deputy director of the Federal Trade Commission's Bureau of Competition, said a merger with Cleveland-Cliffs would be challenged in court, largely because that domestic steel production is already dominated. by some players. Nucor, Cleveland-Cliffs and US Steel accounted for half of US steel production in 2023, according to the Commerce Department.

Regardless of political administration, everyone agrees that this type of merger is problematic, Mr. Newman said. On the other hand, if you have a super-competitive market, a few players shouldn't be so worrying.

But George Mason's Mr. Abbott said a national merger was more likely for U.S. Steel than remaining as a standalone entity. He said federal regulators under Mr. Trump could argue that a combined domestic steel company would be more competitive internationally.

There is also a political concern, Mr. Abbott added, that we cannot let US Steel collapse.

Cleveland-Cliffs did not respond to a request for comment.

Sarah Bauerle Danzman, a senior fellow at the Atlantic Council and associate professor at Indiana University, said having a single company control more of domestic steel production would make steel, including steel produced for defense purposes, more expensive.

You want to diversify into areas of steel manufacturing, Ms. Bauerle Danzman said.

In a social media post Monday, Mr. Trump, who has pledged to block the Nippons acquisition, wrote that US Steel should lead the charge to greatness and should not be sold to anyone.

Why would they want to sell US Steel now when the tariffs will make it a much more profitable and valuable business? Mr. Trump wrote at Truth Social.

Cheap imported steel has been a target for decades. Presidents George W. Bush and Barack Obama imposed tariffs on Chinese steel. Mr. Trump went further, imposing 25% tariffs on steel from most countries in 2018. Mr. Biden used quotas to limit steel imports, in addition to increasing customs duties on certain steel smelted outside the United States.

Frank Giarratani, a professor emeritus of economics at the University of Pittsburgh who has studied the steel industry for decades, said steel tariffs have mainly helped protect jobs. But they have not made domestic steel companies more productive or more internationally competitive, he said, while investing in new technologies would do that.

It's about protecting jobs, and it only has a temporary benefit, Mr. Giarratani said. In terms of making the industry competitive, tariffs don't seem to have accomplished that.

Bill Farrier, a leader of USW Local 1557 in Clairton, Pa., said he was glad that Mr. Biden rejected the Japan deal and was encouraged by Mr. Trump's opposition to it. the merger. Mr. Farrier, a mechanic at the Mon Valley Works, said he wanted Cleveland-Cliffs to be the ultimate buyer, but that any suitor would have to commit to overall improvement of the steelworks.

I would like to see some modernization, some new equipment, Mr Farrier said. We can then compete with anyone.

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