Why Trump should switch sides on the US Steel-Nippon Steel merger (but probably won’t)
The clock is ticking on government approval for the U.S. Steel-Nippon Steel merger, and whether short-term political buffoonery will win out over inexorable economic logic. My money is on buffoonery.
Opposing the combination is the petulant, insular leadership of the United Steelworkers (USW), listing a series of trumped-up grievances. Apparently their biggest gripe is their little cabal was not properly consulted. If the USW executives want to call the shots, maybe they should buy the company. That’s hardly likely, as the USW can’t seem to get out of the steel business fast enough, organizing nurses, college grad students and pretty much anyone else from whom they can snatch their 1.45 percent payroll tax (I mean “dues”).
(Note: Nippon Steel promised a $5,000 bonus for each steelworker and $2.7 billion in investments into the old integrated Indiana and Pennsylvania facilities. I’m thinking that’s more value than the union has provided in decades, given that employment in the iron and steel sector has fallen by over 100,000 since 1988. If the USW were a business, it would have gone bankrupt long ago.)
Currently the decision is on President Biden’s desk. His own administration is split on the matter. In short, the people who are in the pro-business camp are lining up with their interests, while people who are in thrall to union leadership are lining up with their interests.
So, who is focused on the interests of the workers and their families? Precisely nobody.
Government can’t beat economics
The world is awash in steel overcapacity, potentially over 500 million tons per year. China is home to much of that overcapacity (and falling domestic demand and producer price deflation). In such dire economic circumstances, the name of the game is consolidation. Only the big and well-capitalized will survive.
As of 2023, six of the top 10 steelmakers in the world are Chinese and none are American. The biggest American steelmaker is Nucor, at just 15th place worldwide — a non-union producer with zero interest in US Steel assets. The top six Chinese producers have increased production by over 56 million metric tons from 2019 to 2023. Meanwhile, the top six non-Chinese producers have contracted by over 36 million metric tons.
US Steel sits in 24th place, producing fewer than 16 million tons per year — about 1.5 million tons behind Cleveland-Cliffs, the only realistic domestic partner (and a company that earlier tried to grab US Steel in a cheap deal.) A Cliffs acquisition would, in theory, result in a 33-million-ton producer, barely sneaking into the top 10. But the idea that Cliffs would keep the old integrated facilities open without a multibillion-dollar government subsidy is absurd. Just this year Cliffs closed a major West Virginia plant when it couldn’t get the tariff increases it wanted.
The US Steel-Nippon combination would push the company to third among world steel producers, behind fast-shrinking Arcelor Mittal. With a small manufacturing footprint in the United States, the likelihood of consolidation in the U.S. is much lower than with Cliffs, which operates over 20 steel-producing sites. And, under Cliffs, all the white-collar staff is almost certainly gone.
The workers and local politicians — the people who must deal with the economic fallout — understand this logic. Mayors representing communities hosting US Steel integrated operations have endorsed the deal, and it also has the support of at least one USW local. Not that anyone, especially Biden, seems to care.
Can Trump think ahead?
The problem for incoming President Trump is the same as it ever was: he acts reflexively without considering the long-term consequences. If he really plotted out how rejection would play out, he would quickly figure it would not only be economically disastrous, but politically costly as well.
With a huge agenda on his plate, a major downsizing in the American steel industry will be the last thing he wants to deal with. Trump can’t force these steel plants to stay open. And he won’t be able to shift the blame to Biden, considering Trump’s own opposition. Either a standalone US Steel or a combination with Cliffs will almost certainly result in multibillion-dollar subsidy demands. The bidding starts at $2.7 billion. Have fun with that.
And the idea that tariffs will be a cure-all seems far-fetched. Odds are Chinese steelmakers will ever more aggressively dump their product on the world market — and there is always the specter of currency devaluation.
Furthermore, hacking away the thicket of regulations handicapping American industry is going to take time. The American steel industry needs a combination of more efficiency, better technology, smarter regulation and protection from predatory Chinese producers. Take out the first three and America is stuck with an industry on perpetual welfare. That won’t make anyone great again.
McCormick’s first test
It is possible newly elected Republican Sen. Dave McCormick of Pennsylvania makes his first chess move toward re-election. The USW endorsed his opponent, so McCormick owes them nothing. Even better, with real steelworkers gravitating toward the deal and local Democratic elected officials in support, McCormick has nothing to lose and everything to gain by swinging for this deal. As a bonus, McCormick could grab a nice photo op with the deal-supporting mayor of Braddock, home to loud opponent Sen. John Fetterman. It hardly gets better politically than that.
Sure, Trump won’t be happy. But McCormick should be playing the long game for his 2030 re-election — and supporting the deal is a no-lose proposition for any Pennsylvania Republican (if the promises by Nippon Steel are ironclad).
GOP elected officials have successfully ignored Trump plenty of times. The key to breaking with Trump is not opposing him head-on or calling him out. If you are smart about it, you can make the right political call – just consider how Georgia Gov. Brian Kemp defied Trump yet won a crushing re-election victoryin 2022. For Pennsylvania Republicans, identifying with workers against an out-of-touch union leadership is an opportunity any politico should jump at.
Not every politician is in the buffoonery camp. The President Pro Tem of the Pennsylvania State Senate, Sen. Kim Ward, has been a resolute advocate. Pennsylvania Gov. Josh Shapiro has been riding the fence. My guess is he sees the logic of the combination, but breaking with Fetterman and the somnambulant Biden publicly is too difficult politically.
How will this drama play out? Badly and expensively is the best guess. If there is one constant in politics, it’s that politicians always learn the hard way and stick taxpayers with the bill.
Keith Naughton is co-founder of Silent Majority Strategies, a public and regulatory affairs consulting firm, and a former Pennsylvania political campaign consultant.