Biden’s Blocking of Nippon Steel: Economic Security or Bad Industrial Strategy?
US industrial edge and strategic alliance with Japan stands to suffer as election-promises are re-labelled as national security risks.
This is an op-ed. All opinions expressed are the author’s own.
The Monongahela River meanders through a state which is not only at the nucleus of American politics, but also the fulcrum of America’s industrial base. Pennsylvanian coal and steel have pulsated through the veins of the American economy since the 19th-century: steel that was used to build everything from the iconic Golden Gate Bridge to U.S. aircraft carriers during WW2. But it has now reached a fork in the road.
In practically his final act as president, Biden has blocked the attempted acquisition of U.S. Steel by Nippon - the Japanese steel manufacturing company. He has done so on the grounds of "national security".
But Biden’s ban of Nippon, when put under an X-ray scan, comes out as protectionism under the guise of national security. Industrial strategy, not ‘economic security’ — and bad industrial strategy at that.
Coming into 2025, the state of the deal was in deadlock. Three CFIUS agencies — the Treasury, Pentagon, and State Department — concluded that the acquisition posed no security risk. However, the problem is that “national security” has become a political tool. Biden and Harris campaigned on blocking Nippon in an attempt to win blue collar voters in Pennsylvania — not because it posed a security threat. Back in 1993, the American steel company Armco successfully merged with Kawasaki Steel Corporation of Japan, to become AK Steel. But that was, of course, in the days of peak globalisation – before the ‘small yards and high fences’ of the 21st-century were erected.
U.S. Steel is a classic example of a legacy company which could do with an injection of capital, scaling laws, and a dose of innovation. J.P. Morgan created U.S. Steel in a merger back in 1901. It grew to be an American behemoth, employing more than 340,000 people at its peak during the Second World War. Today, it is a beleaguered, tired legacy company — only employing 14,000 Americans.
Yet Nippon was offering precisely the right dose of medicine. It had plans to invest $1 billion into a new U.S. Steel base in Pennsylvania, as well as an extra $300m into the Indiana plant. This was on top of a pledge for $1.4 bn in U.S. Steel facility upgrades — underpinned with guarantees for no plant closures, no layoffs, and cooperation with United Steelworkers (USW) labour union. That is why, despite the labour unions’ opposition to the deal, some American steelworkers held rallies at U.S. Steel facilities in Pennsylvania, Indiana, Minnesota, and Alabama — in support of the acquisition.
There was also a clear geostrategic advantage to the Nippon acquisition. Firstly, it was a test of Biden’s so-called “friendshoring strategy”: the idea that — in an era of geoeconomic competition with China — the U.S. should prioritise supply chains with its allies. And not only is Japan the United States’s most important ally in the Indo-Pacific, it has long held the position of being one of the United States’ most important economic partners since the 1990s. Japan holds more foreign direct investment in the United States than any other country ($800bn) and employs over a million Americans. Investment from Japan has been critical to other industries, like U.S. auto-manufacturing, and has been central to the industrial revival of states like Ohio, Indiana, Tennessee, Kentucky, and Texas. If Biden was serious about “friendshoring”, he would have allowed the deal to go ahead.
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More importantly, if Biden had been earnest about competition with China, he would have thought again. Beijing produces over half of the world’s steel, and the United States cannot compete with that unless it remains open to competition, new technology (which Nippon offers - especially with green tech), foreign investment, and scaling of capacity. If the United States is not very careful, it will lose the steel manufacturing race just as it lost out on the solar race to China — dismally, and unnecessarily. China now has an 80% global market share of Photovoltaic Cells (PVs) — the critical components of solar panels — partly because of bad protectionist U.S. industrial strategy in the early 2010s in allowing a handful of monopolistic companies to stumble on in an uncompetitive market.
The blocked deal is to be yet another instance in a rising trend of economic security measures in the United States. In an age of geopolitical competition, brittle supply chains, dual use technology (consumer tech which can be repurposed for military use), and economic interdependence, the economy itself has become a national security issue.
Before Nippon, early in 2024, a law was passed banning TikTok unless it is sold by the Chinese parent company — ByteDance — to the U.S. before the 19th January 2025. This was also on the grounds of protecting “the national security of the United States from the threat posed by foreign adversary controlled applications”. But whilst a ban of Nippon is sheer sugar-coated protectionism, TikTok’s ban by CFIUS – which Trump will make a final decision on in late January – was done under justifiable concerns of national security. The social media app extracts vast amounts of data from its users — and TikTok is now a major source of news for an unsettling number of people (40% of those who have TikTok only get their news from it). A distinction thus has to be made between justifiable national security concerns, and sugar-coated mercantilism.
The danger, therefore, is that the over-use of the ‘national security’ card will breed a ‘boy who cried wolf scenario’: creating a kind of national security inflation which undermines the currency of a genuine security concern further down the line.
And yet this rise of economic security — from concerns with supply chains to heavy supply-side industrial strategy — is not unique to the United States. Countries around the world, admittedly under pressure from the United States, prevented the Chinese company Huawei from sinking its teeth into Western 5G infrastructure back in 2018. By the late 2010s 60% of global foreign direct investment (FDI) — including M&A deals — were going to countries which apply screening on national security grounds; two times more than was being screened in the 1990s. The OECD estimates that the share of FDI subject to screening on national security grounds has increased by 60% since 2010 amongst its 38 member states. There is, therefore, a real danger that if the United States treats ‘national security’ as a political tool for protectionist purposes, other countries will follow.
If anything, allowing the Nippon acquisition to go ahead would have been the best decision for U.S. national and economic security: tightening the relationship of the United States with a key ally in Japan, expanding the U.S.’s industrial base, producing more American jobs, catalysing the green transition, and staying competitive with China’s steel manufacturing dominance.
As it stands, U.S. politics has trumped national security; and U.S. industrial strategy has become unstrategic.
Guy Ward Jackson is a Science & Tech Policy Analyst at the Tony Blair Institute for Global Change, and holds a MA in intelligence & international security from King's College London: Check out his Linkedin here
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