As we’ll discuss today, this protectionist caterwauling is ridiculous. Though details will of course matter, the acquisition in general raises zero economic or security concerns, and it could very well benefit U.S. Steel’s domestic facilities and workers (and thus American steelmaking capacity). Just as importantly, the deal was the predictable result of the very protectionism and industrial policy that today’s critics say they champion. But this predictable nothingburger is still important for at least one big reason: It speaks volumes about today’s protectionists.
And none of it’s good.
The Bogus Case Against the Nippon Steel Deal
Let’s start with the economic insignificance of the deal in question—and U.S. Steel. As National Review’s Dominic Pino explains, the company was once vital to the U.S. industrial base and a major American employer, but it has shrunk dramatically since the 1970s and today employs just 20,000 people. That figure might sound like a lot, but it represents a mere 0.012 percent of the U.S. workforce and 0.15 percent of our manufacturing workforce. (The United States actually gained more manufacturing jobs in November 2023—28,000—than the total number of people employed by U.S. Steel!) In terms of market capitalization, meanwhile, U.S. Steel was the 572nd most valuable company in the United States when the Nippon Steel deal was announced, thus causing the company’s stock to surge. (Pre‐deal, it was in the low 900s!) The company dropped out of the S&P 500 in 2014 and, in terms of crude steel output, now ranks just third in the United States—about 18 percent of total domestic output—and 27th in the world. This isn’t your grandfather’s U.S. Steel.
It isn’t his Nippon Steel, either, by the way. Although that company was once closely connected to the Japanese government (and Japanese industrial policy), those days are long over. Today, Nippon Steel is a private multinational corporation, with stock traded publicly on Japanese and U.S. over‐the‐counter markets, steelmaking facilities all over the world, and a large share (23 percent) of foreign ownership. And while protectionism and government intervention were once core features of the Japanese steel market, high tariffs and distortive foreign exchange controls were phased out in the 1960s and more liberalization has followed. Today, Japan’s steel market is fairly market‐oriented—in many ways more market‐oriented than the U.S. steel market.
For example, the World Trade Organization reports that Japan’s average tariff rates on steel and steel products are the same or a bit lower than those of the United States; Japan’s highest tariffs on these goods are nearly four times lower (3.3 percent vs. 12.5 percent); and Tokyo allows significantly more steel products to enter the Japanese market duty‐free than does Washington into the United States. Japan also applies only 15 “trade remedy” restrictions (anti‐dumping, countervailing duty, or safeguard) on steel imports, compared to the hundreds that are applied here. And, of course, the United States also applies those 25 percent “national security” tariffs and related quotas—policies that have no Japanese analog.
That isn’t to say Nippon Steel is some sort of free‐market poster child—this is the global steel sector, after all, where government involvement has long been pervasive. But “when you push the sentimentalism aside,” Pino notes, all we really have here is “a relatively large publicly traded company in a global industry … purchasing a much smaller publicly traded company in a way that will have negligible effects on industry consolidation either globally or within the United States.” That’s hardly grounds for the ensuing political hysteria.
The “national security” arguments are similarly empty. Japan has been one of the United States’ closest allies for more than 60 years (dating back to the U.S.-Japan Security Treaty of 1960) and today hosts not only 55,000 U.S. military personnel and thousands of Department of Defense civilians and family members, but also the United States’ most advanced military assets, “including the U.S.S. Ronald Reagan carrier strike group and the F‑35 Joint Strike Fighter.” As a result of the governments’ numerous defense‐related procurement agreements, Japan acquires more than 90 percent of its defense imports from the United States, totaling tens of billions of dollars in government‐to‐government sales. Indeed, just days after the Nippon Steel deal was announced, the Japanese government literally changed its domestic law so it could sell American‐designed Patriot missiles—manufactured by Mitsubishi Heavy Industries in Japan under a license from U.S.-based Raytheon and Lockheed Martin—to the U.S. government for potential use in Ukraine. (Very similar, by the way, to the type of defense‐related manufacturing and procurement partnership I advocated in this 2021 paper, with Japan specifically mentioned.)
Japan’s close relationship to the United States—and its important role in countering China’s influence in the Asia‐Pacific region—extends to private investors like Nippon Steel. As the Congressional Research Service recently documented, Japanese investors haven’t been a CFIUS concern since the 1980s (today it’s all about China). In fact, per the Hudson Institute’s William Chou, the hawkish bipartisan House Select Committee on the Chinese Communist Party just recommended that Congress put Japan on the CFIUS “whitelist” of close allies—a list that includes Australia, Canada, New Zealand, and the United Kingdom and exempts their investors from CFIUS jurisdiction for many U.S. transactions. Knee‐jerk opposition to the Nippon Steel deal, note Chou and others (including Col. Heino Klinck, who served as deputy assistant secretary of defense for East Asia under former President Trump), is not only groundless but also undermines important U.S. national security objectives.
Steel‐specific security concerns are also silly. Even leaving aside the utter vacuity of the Trump administration’s “national security” findings regarding global steel imports and tariffs, recall that President Trump’s own secretary of defense, James Mattis, wrote during that investigation that “US military requirements for steel and aluminum each only represent about three percent of US production.” At the same time, Trump’s own secretary of commerce, Wilbur Ross—who oversaw the aforementioned “national security” investigation of steel imports—noted in supporting the Nippon Steel acquisition that idled steelmaking capacity in the United States today exceeds U.S. Steel’s total steel output. Double or even triple DOD steel consumption and shut down U.S. Steel entirely, and there’d still be plenty of domestic steelmaking capacity available.
Even this calculus, however, overstates the security risk here for three big reasons. First, as a previous U.S. government investigation of steel imports documented, even a large‐scale military conflict wouldn’t strain U.S. steelmaking capacity because DOD needs are simply tiny relative to U.S. production (emphasis mine):