Stop the Steel: Opposition to Nippon Steel Acquisition Potentially Undermines Credibility of CFIUS

In December of 2023, the United States Steel Corporation, once the most valuable company in the world, announced that it had reached a deal with Japan’s Nippon Steel Corporation to be acquired for $14.9 billion. Given U.S. Steel’s former status as the backbone of the U.S. economy, its acquisition by a foreign company brings significant concerns over national security. However, it is not clear whether these concerns are genuinely over national security or simply political.

The Committee on Foreign Investments in the United States (“CFIUS”), which investigates foreign investments into the United States for national security concerns, has yet to conclude whether Nippon Steel’s acquisition of U.S. Steel would threaten national security. Regardless, CFIUS has already voiced fears that Nippon Steel would harm the U.S. Steel industry. Specifically, CFIUS suspects that Nippon Steel would divert U.S. Steel production to India given Nippon Steel’s rapidly growing market there. Further, CFIUS is concerned that Nippon Steel would not support U.S. tariffs on foreign steel, which U.S. Steel has aggressively advocated for in the past. However, not only has Nippon Steel rebutted these concerns, but experts, including former CFIUS members, have expressed that national security concerns over the deal aren't concrete: Nippon Steel already has investments in the United States; the Pentagon only requires three percent of national production (which it can get from various other steel producers if necessary); and Japan is a major U.S. ally, particularly in the realm of national security. President Biden's publicly stated intention to block the acquisition before CFIUS has made its recommendation adds to the unusual behavior around the deal.

The worry over the acquisition of U.S. Steel by a foreign company appears to be more closely related to the upcoming election than to national security issues. Both sides of the political aisle oppose the deal. Donald Trump claimed he would block the deal “instantaneously” if elected while President Biden and Vice President Kamala Harris stated that they believe U.S. Steel should stay domestically owned. Further, the United Steel Workers Union, many of its members being important votes in the upcoming election, strongly opposes the acquisition. CFIUS recently let the parties refile their application, delaying a decision on the deal until after the November 5th presidential election. However, President Biden has stated that he hasn’t changed his stance and would still move to block the deal after CFIUS makes its recommendation.

Overstating Nippon Steel’s national security threat to the U.S. puts CFIUS, a critical tool for national security, in a dangerous position. If the President can pressure CFIUS to declare Nippon Steel’s acquisition a national security threat in contrast to the evidence, it undermines the committee's credibility. Further, if the decision to block the deal is perceived as primarily political, it could incentivize other countries to take a protectionist stance on foreign direct investment, citing national security as a pretext.

The danger is not just political, however. Due to the unusual circumstances, several CFIUS specialists expect legal action, and U.S. Steel has declared its intent to “pursue all possible options under the law.” Rick Sofield, a former Justice Department CFIUS representative suggested that, in the wake of the Supreme Court’s overruling of the Chevron precedent, courts could curtail the powers of the committee if they think the national security argument is unreasonable. The President’s decision, under the Defense Production Act establishing CFIUS, is not subject to judicial review. However, the committee’s evaluation process is, which leaves CFIUS in danger of judicial interference.

Foreign direct investment can present real national security concerns, and CFIUS plays a vital role in evaluating those concerns and making recommendations based on their findings. However, with an election hanging in the balance, it appears that CFIUS has become part of a political struggle that could undermine its credibility, and more importantly, create tensions with an essential ally of the United States.

Henry Braunreuther is a second-year law student at Wake Forest University School of Law. He holds a B.A. in Risk Management and Insurance and a certificate in Japanese Professional Communication from the University of Wisconsin, Madison.

Reach Henry here:

Email:  [email protected]

LinkedIn: www.linkedin.com/in/henry-braunreuther