Nippon Steel's proposed acquisition of US Steel for $14.9 billion marks a pivotal moment in strengthening US-Japan economic ties, aiming to enhance competitiveness in the global steel market while supporting local communities and job security.
On November 30th, 2023, Nippon Steel Corporation announced a $14.9 billion deal aimed at bolstering its presence in the Western market and creating stronger economic ties with the US. Their proposal of acquiring US Steel is currently stuck in processing in the Committee of Foreign Investment in the United States. As one of the world’s largest steel producers, Nippon Steels’ actions reflect the ever-changing economic and geopolitical dynamics shaping US-Japan relations. With demand for steel surging in various sectors, the implications of this deal could reverberate across multiple industries.
This agreement comes at a pivotal moment when both countries are navigating the evolving challenges of international trade, including intensified competition from emerging markets and fluctuating tariffs and trade policies. These factors have put pressure on profit margins and emphasize the urgency for strategic alignment. Many supporters of the deal believe that a strengthened partnership with Japan can enhance US supply chain resilience and foster technological collaboration. They view the Nippon Steel deal not merely as a corporate transaction but as a vital link between the two nations that will contribute to sustainable growth. The two companies have labeled this deal “Moving Forward Together as the Best Steelmaker with World-Leading Capabilities”.
The Rise and Resilience of Nippon Steel
Nippon Steel carries with it a legacy that dates back to Japan’s strategic push to establish itself as a major steel producer in the late 1800s. This initiative led to the emergence of several large private steel corporations but, World War II significantly hindered growth as much of Japan’s steel production was diverted to support the war effort. The post-war period saw a remarkable turnaround, particularly during the Korean War when global demand for affordable steel surged. This demand revitalized Japan’s major steel producers, including Yawata Iron & Steel and Fuji Iron & Steel. Their eventual merger in the 1970s created Nippon Steel, which quickly ascended to become the world’s largest steelmaker, surpassing US Steel.
Nippon Steel in the following years not only solidified its status as a global player but also played a role in Japan’s post-war recovery, providing essential steel for infrastructure and contributing to the rapid economic growth of Japan at the time. However, recent years have brought significant challenges for Nippon Steel and the steel industry.
Nippon Steel and the United States steel industry have had a historically significant relationship, starting their partnership in 1984 through a joint venture with Inland Steel. This collaboration addressed challenges related to rising labor costs and competition, leading to the establishment of manufacturing facilities in South Bend, Indiana. Nippon Steel’s continued expansion into the Western markets includes its acquisition of ThyssenKrupp Steel’s factory in Calvert, Alabama in 2002.
Details of the Deal
Nippon Steel was not the only company seeking to acquire US Steel. Initially, US Steel received an offer from Cleveland Cliffs, which proposed an acquisition cost of $10 billion, but the US Steel Board of Directors rejected this offer calling it an “unreasonable proposal”. Concurrently, Nippon Steel and US Steel began negotiations, and on December 18th, 2023, they announced an agreement for Nippon Steel to acquire US Steel for $14.9 billion, representing a 40% premium to US Steel’s shared price. In March 2024, Nippon Steel further committed to investing an additional $1.4 billion into US Steel facilities and over $2.7 billion into US steelworkers facilities in Pennsylvania and Indiana, aiming to support local communities.
On September 4th, 2024, US Steel employees rallied in support of the Nippon Steel deal, highlighting the benefits they would receive. Without the financial backing from Nippon Steel, US Steel would likely have to abandon its blast furnace facilities, resulting in thousands of lost union jobs and jeopardizing the company’s viability. Additionally, the Nippon Steel deal secures US Steel’s headquarters in Pittsburgh where it has operated since 1901. Losing its headquarters would significantly impact the surrounding area, which would face a substantial loss of jobs and tax revenue; last year, US Steel generated $3.6 billion in economic impact for Pennsylvania. This urgent financial need is why US Steel shareholders quickly approved the deal.
Nippon Steel’s President Eiji Hashimoto emphasized the strategic advantages of the acquisition stating “ We are excited that this transaction brings together two companies with world-leading technologies and manufacturing capabilities, demonstrating our mission to serve customers worldwide and our commitment to building a more environmentally friendly society through the decarbonization of steel.” Nippon Steel aims to enhance its manufacturing capabilities and expand into new geographical areas while honoring all of US Steel’s existing contracts.
Economic Implications
With Nippon Steels’ commitment to investing heavily in US steel facilities, this partnership could revitalize the domestic steel sector and create new jobs in the Midwest. The collaboration also allows both companies to advance sustainable energy practices within the steel industry. US Steel is utilizing Big River Steel, one of the most advanced sustainable mills in North America, while Nippon Steel has developed hydrogen injection technology for blast furnaces and high-grade steel production using electric arc furnaces. These efforts align with Nippon Steel’s and US Steel’s goals of both achieving carbon neutrality by 2050. This deal will rekindle US Steel’s initial plan of a $1 billion investment in its Mon Valley Works operation which failed to come to fruition in 2019. Nippon Steels’ investment of $1 billion would facilitate the critical upgrades needed to fulfill its original plan of improving the air quality in the Mon Valley while increasing the production of higher-quality steel.
By increasing competition in the domestic steel market, the deal is expected to protect worker wages and enhance union bargaining power. Furthermore, Nippon Steel’s promise of no layoffs or plant closures under the contract reassures employees and stakeholders alike. With the potential for significant financial gain and growth in expertise, this acquisition will ensure a stronger, more competitive steel industry.
This deal not only enhances the competitive position of Nippon Steel and US Steel against domestic producers like Cleveland Cliff’s but also against global competitors. The global steel industry has faced intense competition, particularly from low-cost Chinese steel which has allowed Chinese companies to emerge as top competitors. Both Japan and the US have struggled to compete against this influx of cheap imports, which has made it difficult for their domestic steel industries to thrive in both national and global markets. The need for the deal is underscored by Nippon Steel asking the Japanese government to consider tariffs on Chinese steel due to anti-dumping claims. The situation is further complicated by a decline in demand for Japanese steel, which Nippon earlier this year announced a staggering 70% cut in production in China as Japanese companies have lagged in adapting to the electric vehicle shift while their Chinese counterparts have outperformed them. This slowdown has exacerbated Nippon Steel’s challenges, putting pressure on its operations and the broader industry. The partnership with US Steel presents a critical opportunity to mitigate these declines.
Hesitancy from the US
There is hesitation within the US to fully embrace the Nippon Steel and the US Steel partnership, which is led by the current political climate, particularly with the upcoming presidential election. The heightened scrutiny and competing interests surrounding foreign investments in critical industries create a challenging environment for this deal to navigate. President Biden, former President Trump, and presidential candidate Kamala Harris have all expressed opposition to the Nippon Steel and US Steel deal. Concerns stem from the fear that the US would be losing a large American-owned and operated steel company. As Saloni Sharma, a spokeswoman for the president, stated, “It is vital for US steel to remain a domestically owned and operated company”. Moreover, many steelworkers’ unions are apprehensive that despite Nippon’s assurances to uphold current contracts with US Steel, new ownership might lead to a disregard for pension agreements and a failure to fully honor investment commitments.
However, Nippon's Steel remains optimistic, believing they have thoroughly addressed all regulatory and operational concerns, ensuring full compliance with US laws and public sentiment. The company is confident that, despite the current political battle, the deal will ultimately secure approval by the end of the year, paving the way for a deeper US-Japan connection.
The views expressed are those of the author and do not necessarily reflect East-West Center policies or positions.
Samantha Garcia is a participant in the Young Professionals Program at the East-West Center in Washington, DC. She is a student at Ewha Womens University acquiring her M.A. in Development Cooperation with concentrations in East Asia and Womens Studies.