The Daily - How the Election Is Sinking a $15 Billion Business Deal

Episode Date: September 12, 2024

In a highly unusual move, the Biden administration signaled last week that it would block a Japanese company from buying an iconic American company in a critical swing state.Alan Rappeport, who covers the Treasury Department for The Times, discusses the politics that could doom the multibillion-dollar deal, and what it says about the new power of American labor.Guest: Alan Rappeport, an economic policy reporter for The New York Times.Background reading: President Biden is expected to block Nippon Steel’s takeover of U.S. Steel.How swing-state politics are sinking a global steel deal.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From the New York Times, I'm Sabrina Tavernisi, and this is The Daily. In a highly unusual move last week, the Biden administration signaled that it would block a Japanese company from buying an iconic American company in a critical swing state. Today. My colleague, Alan Rapoport, on the politics that could do a multi-billion dollar deal and what it says about the new power of American labor. It's Thursday, September 12th. So Alan, there's been this really interesting standoff over the potential acquisition of

U.S. Steel. And now the sale is in jeopardy. So help us understand why this is important. Well, there's a really fascinating dynamic going on here. We have a historic American company that was once the largest company in the whole United States. And now it's on the brink of being bought by a Japanese company called Nippon Steel. And so a lot of people, including workers, the union, lawmakers, are not happy about

this at all. And last week, we got word that President Biden was actually preparing to go ahead and block the steel, which in a lot of ways was pretty surprising. And why is that surprising? Normally, presidents don't go ahead and interfere in deal, which in a lot of ways was pretty surprising. And why is that surprising? Normally, presidents don't go ahead and interfere in foreign acquisitions like this, especially ones that are between a U.S. company and countries that are allies. But as we all know, we're in an election year, and this is not a normal year. So the potential to block this deal is really about a lot more than just the company U.S.

Steel. The company is located in Pennsylvania, which is going to be a really important swing state in the upcoming November election. They could actually end up determining who wins the whole thing. Second of all, culturally, it's important because of the way the company's story is interwoven with the history of America

and the history of American labor itself. Okay, so let's talk about that. Explain a bit of that history. Well, it all started around the turn of the 20th century. 1901, these industrialists like Andrew Carnegie and J.P. Morgan come together to form U.S. Steel. The company actually was the first billion dollar company in the United States.

It was known for building some of the most famous bridges and skyscrapers, and some of its steel was even used in the United Nations building. Oh, wow. And its employment actually peaked around World War II when it had 340,000 or so workers. So really a company that just in some ways like embodied, you know, American power and American greatness in an era where that was really on the ascent.

Exactly. After World War Two, however, a lot of that started to change. The company had gotten so big, but it also become kind of complacent. By then, Germany and Japan were sort of starting their steel industries from scratch with a lot of new technology that was more advanced than what US Steel was making. And US Steel was actually kind of slow to adopt a lot of these innovations. And by the 1960s and the 1970s, there had been some labor strife within US Steel, there had been shutdowns of mills, and the US was finally starting to see a flood of imports from other countries around the world.

And it had been pushing hard on the United States government to impose some trade restrictions and tariffs to prevent this flood of foreign steel from totally upending its business. And that was really what started an era of protectionism in the United States. And over the next decade or so, when China eventually started to ramp up its own steel production, that really posed a major threat to the industry and to the company. We saw the U.S. steel workforce really start to shrink at that point. From 1979, when it had about 170,000 workers, to 1995, it was down to about 20,000 workers, where it is right now.

And in Pennsylvania, where it's headquartered, there's only about 4,000 workers left. So how does this company that's really just a shell of its former self wind up where it is now as this key talking point smack dab in the middle of the American presidential race? Well, a lot of it has to do with Donald Trump. Thank you, everybody. Thank you so much. I greatly appreciate it. Who in his first election campaign back in 2016. With 30 miles from Steel City, Pittsburgh played a central role in building our nation. Really put a big focus on the American worker.

But our workers' loyalty was repaid, you know it better than anybody, with total betrayal. Steel workers, mining workers, who he said, you know, had been left behind by Republicans and Democrats for decades. Our politicians have aggressively pursued a policy of globalization, moving our jobs, our wealth,

and our factories to Mexico and overseas. He blamed a lot of this on trade deals that had been written by both Republicans and Democratic administrations. And he said he was going to tear those up, make better deals, and he was going to make, you know, American steelworkers great again. The politicians have proven, folks, have proven, they do nothing.

For years, they watched on the sidelines as our jobs vanished and our communities were plunged into depression-level unemployment. Many of these areas have still never recovered and never will unless I become president. And when he took office, he started imposing big tariffs on steel and aluminum imports from around the world. He said, if you don't have steel, you don't have a country.

And Democrats were really forced to start embracing these kinds of populist policies as well. Right. Trump really put his finger on something important politically. Does U.S. steel ever recover? I mean, you said that Trump put tariffs on imports. So did that help? It helped for a while and gave the company some breathing room. The company got a bump

just after the pandemic when there was a surge in demand for steel, but that didn't last very long. Profits started declining over the last couple of years. The company's stock price had been flat and shareholders had been starting to get frustrated. And last year, some of its rivals started to see US Steel as a target. In August, a company called Cleveland Cliffs, which is based in Ohio, put in a bid for the company that was unsolicited, but US Steel didn't like it. And that started this whole situation

where other companies also started making bids for U.S. Steel. And then in December, Nippon Steel, which is the fourth largest steel company in the world and is based in Japan, put in a $15 billion offer for U.S. Steel, which they accepted. So the deal was announced and the company thought it was a big premium for U.S. Steel. They promised to keep the headquarters in Pittsburgh, invest in plants, and bring a lot of new technology that US Steel didn't have. But the union felt blindsided, and they quickly came out against it and said, we don't support this deal.

So what does the union say about it? Why did it not like the deal? Well, when you hear the union leaders talk about their issues with it, And Zach's joining us now, David McCall, United Steelworkers issues with it, they list several problems. Some of them are more nuanced than just the fact that it's a Japanese company. They don't trust the fact that Nippon is actually going to not lay off workers. What makes it so insincere is they make a statement that there will be no layoffs, there will be no plant closures.

But in our discussions with them, they say there will be no plant closures, there will be no layoffs, unless there's a business plan change. And they're concerned about what might happen once their existing contract ends. And for our members, it's making sure that it is a domestic owner that continues to be able to backstop not only our labor agreements, but our pension plans, our retiree health care plans, and to make sure they don't trust the fact that, you know, a lot of the benefits that they currently have are actually going to continue into the future. And Alan, are there grounds for the union to think that?

Is that true? It's hard to say. I think a lot of this comes from the fact that they felt blindsided and not looped into the fact that this deal was happening or that management was going to accept it. There was definitely a lot of mistrust between the union and management that's been festering over the last few years. Union leaders have been saying that this is really just a ploy by the chief executive of US Steel to get a big payout or golden parachute, as they say it, when a company

changes control to another company. And so while a lot of these issues have been sort of bubbling up under the surface for a while, the unions lobbying against the deal has really been ramping up and intensifying as the election has been drawing closer. And the big question is whether or not all this political pressure is gonna work. We'll be right back. So after the deal is announced, the union starts applying political pressure to prevent Nippon Steel from buying U.S. Steel.

What happens? How do we see that play out? So almost immediately after the deal was announced in December, there was political pushback, outrage was bubbling up. You were hearing from all kinds of politicians across the political spectrum that this deal should not go through. Democratic Senator John Fetterman from Pennsylvania came out against it. Pennsylvania State Governor Josh Shapiro expressed concerns. J.D. Vance came out saying that the deal, you know, needed to be blocked. But at the presidential level, we saved the steel industry. Now, U.S.

Steel is being bought by Japan. Donald Trump was the first to make a move coming out against the deal. I would block it. I think it's a horrible thing when Japan buys U.S. Steel. I would block it instantaneously. Absolutely. And his comments put direct pressure on Biden, who was still a candidate at the time, and he had to say something about U.S. Steel. U.S. Steel has been an iconic American company

for more than a century, and it should remain a totally American company. Yeah! He's billed himself as the most pro-Union president ever. And by the spring, Biden finally comes out in support of the steelworkers. American owned, American operated by American union steelworkers, the best in the world.

And that's gonna happen, I promise you. But of course, Biden drops out of the race and Vice President Harris becomes the Democratic nominee. When unions are strong, America is strong. And we will continue to strengthen America's manufacturing sector. And then she goes ahead and adopts Biden's position on the merger. To drive that point home, she says it at a rally in Pittsburgh on Labor Day. U.S. steel should remain American owned and American operated.

And I will always have the back of America's steel workers. So it's kind of this funny situation where all the candidates, Trump, Biden and Harris, all agree on a policy. Right. There's this kind of arms race for who can actually show American workers in this state that they have their interests at heart the most. Exactly. I mean, it really shows how labor and steel have become the sort of political poster child in this election. And so that's what set off this protracted standoff. And it's really put U.S. Steel in a difficult situation, trying to figure out what they're going to do with this Nippon bid and figure out whether or not it's going to go forward.

So on the national stage, we're seeing the presidential candidates really compete for the steelworkers vote, which makes sense because they need Pennsylvania to win. Biden has actually gone a step further signaling that he will block the deal. But at this point, he's no longer in the race. So why is he doing this? And how is he justifying this intervention? So even though Biden's out of the race, he still wants Harris to win. And he's clearly hoping to give Democrats a leg up with this move.

And so the means by which he's going to potentially block the deal has to do with this shadowy interagency panel known as CFIUS, which is the Committee on Foreign Investment in the United States, kind of a mouthful. Indeed. It's kind of an obscure panel made up of cabinet officials across the government, and it's led by the Treasury Department. It reviews foreign acquisitions of sensitive companies, infrastructure, all kinds of things that might potentially pose a threat to the United States. And it has the power to make recommendations to block these transactions.

And Alan, what's the implication here? Because of course, Japan is an important ally to the United States, specifically regarding China, which of course is an adversary. So it's very interesting and kind of odd that a Japanese company would be seen as a security threat. Have they actually said anything about what the concerns actually are? Not publicly, the potential national security concerns that they might raise are the idea that Japan or a Japanese company getting a hold of US Steel

could potentially jeopardize the security of the US Steel sector more broadly. And that that's an issue if there was sort of a national emergency crisis and the United States needed steel for various reasons. I think there's also been a more broadly considered view of national security and economic security and how they're defined. And the idea that this could erode the US industrial base if something happens to this company is also something that they might say is you know a reason to block the deal. So what does US Steel say

about all of this? So they've continued to defend the logic of the deal saying that they don't see any national security threats, this is going to be good for workers, good for workers in Pennsylvania, and that Nippon Steel really is the only option for allowing them to continue to invest in Pennsylvania. But they've also been giving some other indications that if it doesn't go through, there could be some repercussions

for Pennsylvania steel workers. They've suggested that there could be plant closures, layoffs, and that they might even consider relocating out of the state so they can focus on some of their plants in the south where they don't have to rely on union labor. And so a lot of people in Pennsylvania see this as a threat, and they're not happy about the fact that U.S. Steel is raising the specter of leaving if this deal gets blocked. Interesting. A U.S US deal leaving Pennsylvania would be a really bad thing for the state and for those workers.

But how likely is this to happen if Nippon Steel doesn't buy this company? It's hard to know if they're bluffing or not, but I think it is definitely a possibility. I think the company definitely does not like the idea that the federal government interfering with some sort of free market transaction. If it does happen, it most likely would happen after the election. Obviously, the union is not particularly happy, but there's also the

possibility that Nippon will live up to their word, make these big investments in Pennsylvania, potentially reopen some of these idle plants in the Midwest, and potentially revive U.S. Steel. And what if it doesn't go through? Well, that'll be the most interesting situation. I think you'll probably see other companies, potentially Cleveland Cliffs or others that made the initial bids for U.S. steel, try to get back in the game. I think there will be a lot of backlash from different quarters, particularly Japan.

We've already heard from some lawmakers in Japan saying it really makes no sense for the United States to move forward and block this deal and that it's not justified. Other US allies will definitely be raising their eyebrows as well, particularly ones where the United States is often preaching open markets and the necessity of that. I think it'll make it harder for United States to be able to make that case. But I think it definitely will raise some questions for potential foreign investors who want to invest in Pennsylvania or in other potentially politically sensitive states or sectors, you know, whether or not they should actually move forward with those deals because

they might get blocked. So, Alan, is it possible that this whole move by Biden could just backfire? Like in his scramble to show that he's all for American ownership and Team USA, he ends up hurting the very workers he's trying to protect and the very swing state he's trying to win? There's definitely that possibility. There's a lot of potential trade-offs that have to be weighed here and a lot of potential reverberations that could happen depending on what he does and if the deal is blocked.

And I think that really puts the Biden administration in a difficult position where they have to weigh the possibility that, you know, in trying to help these workers and keep this company American-owned and in Pennsylvania, in the longer term, they may end up costing jobs in the state that they're trying to help. On the other hand, I think the short-term politics are really difficult to resist, and those forces are really strong. The idea of giving U.S. steel away to a Japanese company and letting that happen is something that's really uncomfortable for a lot of people.

And I think the potential ramifications of that and the fact that the union and labor, which is so powerful and so important, particularly in election year, is against it is something that's really hard to avoid. Alan, thank you. Thanks very much. On Wednesday, CEOs of Nippon Steel and US Steel met with representatives from over half a dozen US government agencies in a last-ditch effort to save the $15 billion deal.

We'll be right back. Here's what else you should know today. The latest numbers on the economy show inflation is continuing to slow. The consumer price index for the month of August was 2.5 percent, down from 2.9 percent in July, and its lowest level in three and a half years. However, one detail that could give economic officials pause is housing inflation. Those numbers for August remained high. But mainly, the report confirmed that inflation, a key issue for voters, is continuing to cool after surging in 2021 and 2022. It's seen as the final big economic

measure before the Federal Reserve cuts interest rates for the first time since early 2020, a move it's expected to make at its meeting next week. Today's episode was produced by Diana Wynn and Sydney Harper with help from Olivia Gnat. It was edited by Lexi Diao with help from Michael Benoit. Fact Checked by Susan Lee contains original music by Dan Powell, Will Reid, and Alisha Baetube, and was engineered by Alyssa Moxley. Our theme music is by Jim Brunberg and Ben Lansford of Wonderly. That's it for the daily. I'm Sabrina Tavernisi. See you tomorrow.