Republicans are supposed to be fighting socialism, not implementing the ideas of Clement Attlee with MAGA characteristics.
Jim Geraghty posted on Monday about the government takeover of U.S. Steel. Japanese firm Nippon Steel had offered to purchase the company, a deal that the shareholders of both companies approved. But politicians stepped in. First, Joe Biden blocked the sale entirely. Before the election, Trump said he would do the same. Now that he’s president, he has allowed the deal, but only in exchange for what can be described as nationalization.
That’s the kind of thing we expect from a Labour Party government in the U.K., and sure enough, Prime Minister Keir Starmer is in the process of renationalizing British Steel. But for a Republican president in the U.S. to follow his lead is as disappointing as it is peculiar.
It’s a very unusual arrangement, one that really has not been done before in the U.S. Jim compared it to the government’s partial takeover of General Motors in 2009, and there are certainly similarities in the political motivations and basic unsoundness of government control of a private company. But the federal government became a 60 percent shareholder in GM, a stake it eventually sold off over a period of a few years, returning GM to private-sector ownership.
The federal government is only owning a token share of U.S. Steel, called a “golden share,” but in exchange for that and for allowing the investment from Nippon Steel, the president of the United States personally has enormous power over how the company is run — in perpetuity. The president gets to name one of the company’s three independent directors and gets veto power over the other two. And the president gets veto power over a wide variety of business decisions, including relocation or closing of facilities, sourcing of materials, moving jobs, acquisitions, and more.
It’s very odd for the government to have that amount of control without putting any actual financial stake into the company. The government’s stake is essentially the promise of allowing Nippon Steel’s $14 billion investment to happen, since Trump would have likely kept Biden’s block in place otherwise. And there is no plan to ever return U.S. Steel fully to private control.
Even though it’s not public ownership in the way nationalization is normally undertaken, it is nationalization in its effect. As Jim wrote, “The board of directors of U.S. Steel and those who own the 226 million shares of U.S. Steel stock no longer really make the decisions for the company.”
On top of that, it’s nationalization by the U.S. government’s own definition, as applied to companies from other countries. Scott Lincicome wrote about that today for The Dispatch:
First, the United States has long treated a private company controlled by a foreign government as equivalent to that government under U.S. “trade remedies” law and related litigation, with “golden shares” and other relevant facts supporting those determinations. Most damningly in this regard is how the Commerce Department treats “public entities” (aka “public bodies”) in its investigations of subsidized imports, repeatedly finding that foreign companies with little or even no direct government ownership can nevertheless be “meaningfully controlled” by a foreign government—and thus akin to the government itself—where the state remains involved in important aspects of the company’s business operations, such as plant closures or board of directors appointments. . . .
Other trade remedies provisions also look to golden shares as evidence of corporate control. In fact, recent revisions to the Commerce Department’s regulations repeatedly cited special “golden shares” as evidence that a company under investigation is controlled by another company or by the state, even though the controlling entity doesn’t officially own a majority of voting shares in the company. In supporting these conclusions, Commerce cited to the independent Organization for Economic Co-operation and Development (OECD): “Even when a government has a minority share in an enterprise, it can still be a controlling share, when a government is still the biggest owner or has a golden share, which allows de facto control regardless of formal voting rights.” (Emphasis mine.]
The first Trump administration even incorporated this broader view of nationalization into the U.S.-Mexico-Canada Agreement. The agreement says a company is state-owned “if, through an ownership interest,” i.e., not necessarily majority ownership, “it can determine or direct important matters affecting the enterprise.” Examples given in the agreement of such important matters include some of the powers that the U.S. president now has over U.S. Steel.
The deal sets a new precedent that this sort of bizarre arrangement is the kind of thing the U.S. government is willing to do. Those foreign countries that use golden shares are usually poorer and have corrupt governments. They are less attractive places to invest. Now, at least for this one case, the U.S. is one of those countries. The next foreign company that wants to invest in a U.S. company has to keep in mind that it might be more important to deal with politicians than with the business itself to make the deal go through.
Republicans are supposed to be fighting socialism, not implementing the ideas of Clement Attlee with MAGA characteristics.