By Siding with Steelworkers over C-Suites on US Steel Purchase, Biden Shows What a Foreign Policy for the Middle Class Looks Like

President Biden caused an uproar in April when he stated that US Steel should remain “domestically owned and operated,” after the Japanese company Nippon Steel proposed to buy the former. In the months since, this has become a bipartisan rallying cry, with policymakers noting the steel dependence of US industries, infrastructure, and clean energy systems. Meanwhile, the companies have dug in their heels, with US Steel upping its rhetoric in recent days, pledging to shutter its Pennsylvania headquarters and plants if the deal doesn’t go through.

An economic and foreign policy hot potato

Over the course of this controversy, various observers have called it “a threat to economic liberty,” “the dumbest economic idea,” “naked cronyism wrapped in nonsensical xenophobia,” “way out of proportion” to the number of steelworker jobs, and “unprecedented for a president to make a substantive comment on a case that is pending before [CFIUS]”—that is, the Committee on Foreign Investment in the US, which is reviewing the merger.

But these commentators display a lack of curiosity about the reasonable bases for concern on this deal—explored in more detail below. Moreover, the administration’s action should not have been a surprise. After all, Biden was the first US president to walk a picket line (with the United Auto Workers) last fall, upsetting the norm that heads of state stay neutral or even pro-management when it comes to labor disputes. In the steel dispute, it was the United Steelworkers (USW) that demanded solidarity, after alleging numerous contract violations and questionable actions from both US Steel and Nippon. Rival domestic steel company Cleveland-Cliffs (which has developed a more cooperative stance with the union, which also represents its workers) has also called the deal a mistake. As Biden said in April, “It is important that we maintain strong American steel companies powered by American steel workers,” he said.

The big difference between the auto and steel cases was that the latter directly involved commercial diplomacy with a US ally, and Biden asserted national security concerns with the Japan-headquartered Nippon taking over an iconic American asset. One columnist called this “economic nationalism . . . out of place with the respect [Biden] purports to show for American allies.” Former Japanese officials also expressed surprise, saying, “We thought we’re completely aligned countries.” Japan’s current candidate for prime minister has made similar comments. In a sign of just how much the deal has gotten tangled up with foreign policy, Nippon has reportedly hired former Secretary of State Mike Pompeo to lobby for the deal, as the company has tripled its amount of lobbying expenditure and hired other former foreign policy lawmakers.

Yet the writing was on the wall, for anyone willing to look. Biden’s top national security advisor, Jake Sullivan, has written at length about the idea of a foreign policy for the middle class. This philosophy notes that so-called “neoliberalism”—which leaves it to elite market actors to decide where and how production happens—has hurt US workers. By ignoring rising inequality and environmental degradation, neoliberal foreign policy was on shaky footing that only a more well-rounded industrial policy can address. When faced with a choice between upsetting labor or potentially upsetting an ally, the working class needs to win—at least some of the time. 

In any case, the administration’s announcement does not seem to have caused insurmountable problems with Japan. The Financial Times reported the two countries are planning “the biggest upgrade to their security pact in 60 years.” And as US Ambassador to Japan Rahm Emanuel said this week, “The US-Japan relationship is deeper, richer, and stronger than any single commercial transaction.” 

Labor has a (policy) point

As it happens, the decision to side with labor in this case is not just good coalitional politics; it’s also good policy. As finance has become ever more detached from the real economy and the fate of any given town or nation, labor unions have started to fill the void. USW’s current contract with US Steel requires ongoing capital investments in domestic facilities, 60 days’ notice for major acquisitions, and “the earliest practicable notification” of buyout offers so that the union can organize a counterbid. In this case, Nippon announced the deal before consulting with the union. This pattern has been ongoing, with the company leaking union communications instead of waiting for their response, and US Steel making pledges via press release rather than enforceable contracts. This month, the union alleged that US Steel’s CEO is attempting to inflate share prices and save his $70 million change-in-control bonus rather than put production on a sustainable footing.

Moreover, when unfair trade practices in China or other disruptions hurt steel markets, the union reasonably questioned whether a Japanese company would ever idle its home country operations before it idled its US operations, and whether it would use its newfound control over US Steel’s iron ore assets to privilege its overseas factories. Additionally, the Ohio and Pennsylvania congressional delegations have raised concerns about Nippon’s ties with Chinese producers, which have undercut US producers in recent years. Not for nothing, ensuring continuity of domestic sources, supply chains, and workforce is squarely within the CFIUS mandate. And recent news reports indicate that CFIUS appears poised to conclude that the “the national security concerns raised by the acquisition could not be mitigated.” 

There were also climate concerns. Nippon is a laggard when it comes to decarbonizing steel. In contrast, Cleveland-Cliffs, which had organized its own bid for US Steel, is among the companies partnering with the US Department of Energy to make investments to clean up air quality, including April’s announcement of a new $500 million conversion project in Middletown, Ohio. Projects like this give the US a fighting chance to keep up with green steel leaders like Sweden.

Zooming out, let’s put this deal in perspective. If the United States had hundreds of (zero carbon!) integrated steel plants, it would probably not make sense to spend much political capital blocking foreign acquisition of any one of them. Unfortunately, the actual total is eight, and US Steel owns three of those. If there’s even a chance that a purchaser might idle one, it would cause immediate national and economic security problems. We need not look very far to find an example of mergers and offshoring devastating an industry important for the military and civilian economy: There are just four operating aluminum smelters in the United States, down from 30 in the 1980s. The very least a responsible policymaker should do is thoroughly kick the tires on a deal with a company with a record of problematic business and contract dealings. 

The road ahead

How exactly this merger proposal will play out remains unclear. Are US Steel’s latest threats a mere negotiating tactic? Could the administration respond in kind by threatening use of the Defense Production Act or public ownership over steel assets as a bridge to a long-term solution, a precedent set by FDR and other presidencies? Regardless, if the controversy causes global companies to realize that doing business in the US requires honoring workers and communities, then the idea of foreign policy for the middle class will be closer to reality.