President Joe Biden has made clear his opposition to Japanese manufacturer Nippon Steel’s announced acquisition of U.S. Steel.
U.S. Steel, Biden declared, “has been an iconic American company for more than a century and it should remain totally American.”
Oddly enough, Biden delivered this protectionist pandering to an audience of steelworkers, the very people whom his obstructionism threatens most.
Employees need strong and stable employers, and foreign direct investment allows flailing domestic firms to avoid downsizing or liquidation and the concomitant layoffs. New foreign ownership very often injects new capital and new brainpower into U.S.-located acquisitions, making stagnating businesses competitive once more.
Despite its storied past, U.S. Steel has atrophied. The company has slouched into obscurity, choosing to invest in rent-seeking, not innovation. Once the world’s largest company, it tumbled from the S&P 500 in 2014 and last year languished below the 900th slot. Nippon believes new technologies will restore the sick man of the American steel industry. Further, having paid a premium for U.S. Steel, it has considerable financial incentive to make good.
However, led by Biden and Sen. J.D. Vance (R-OH), a bipartisan coalition proposes to block this merger, endangering the jobs of U.S. Steel’s workforce, which Nippon has pledged to maintain post-acquisition. After dispensing with bogus “national security” concerns, the Biden-Vance types’ agitation seems to stem from reflexive protectionism, with a chaser of pro-union bias.
Viscerally, the protectionists cannot stomach an “iconic American company” — with U.S. in its name, no less — selling to foreigners. To them, the question seems almost to be one of aesthetics and national iconography.
Framed properly, the merger saga concerns basic economics. It involves a geriatric, technologically outmoded, and poorly managed American company, which, having failed utterly in its own right, is endeavoring to return its capital and workforce to productivity by relinquishing its assets to the highest bidder.
Politicians such as Biden and Vance, who both purport to champion manufacturing workers and seek to hamstring FDI, should pause to consult their own constituents’ economic interests. As Reason’s Eric Boehm notes, “over 300,000 [Ohioans] earn paychecks from companies based overseas — and about half of them (151,300) work in the manufacturing sector.”
Moreover, Nippon owns shares in eight American manufacturers, and it and other Japanese-based firms employ more than 963,000 Americans. And these workers have profited. Dartmouth’s Matthew J. Slaughter reports that “Total annual compensation at [U.S. affiliates of foreign multinational enterprises] averaged $86,859 per worker — about 22% above the average for the rest of the private sector.”
Vance, in particular, should understand this. The Japanese firm Kawasaki saved Armco, an Ohioan steelmaker at which his own father once worked. Indeed, before catching his current populist fever, Vance acknowledged readily in his 2016 memoir that his hometown’s “flagship company probably would not have survived without” Kawasaki’s entrance.
Corporations have life cycles and finite life spans. Beginning as youthful upstarts, successful ones work better or cheaper than their competition, garnering stability and market share. Good times make weak business plans. With continued success, young and hungry firms become old and bloated. None — not even the largest corporate giants — can stave off the onset of the twilight years, in which poor management or younger and hungrier rivals first cause stagnation and then downsizing or liquidation.
Displaced from their jobs, the erstwhile employees of shuttered firms must find new jobs — no matter what personal financial havoc they must endure in the interim. Some may choose instead to exit the workforce, preferring an early retirement or, for younger Americans, an extended — and often federally subsidized — hiatus from work.
FDI operates like an antiaging serum, allowing elderly companies a second youth. It allows them to become productive again and offer Americans innovative and competitively priced products. For workers, it cushions the jostling of creative destruction, which, although generally uplifting and indispensable to any healthy economy, can nonetheless cause the unlucky few great personal harm.
If FDI de-ages flagging companies, the tariffs and the sundry industrial policies Biden and Vance prefer act as a necrotizing infection. They distort markets and raise consumer prices while failing to cure the underlying diseases that ail subpar American firms. U.S. Steel, for example, persisted in using near-obsolete technologies that hamstrung its own productivity. A tariff cannot make fundamentally ill-managed firms competitive, though a company can dream — and rent-seek.
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Lawmakers can follow a tested prescription for success: they can do nothing, allowing individuals to allocate capital as they, with intimate knowledge of their own circumstances, see fit. Markets have a better record than central planners.
If, as former President Calvin Coolidge reputedly said, “the chief business of the American people is business,” the chief business of American lawmakers is to avoid hindering Americans at work.
David B. McGarry is a policy analyst at the Taxpayers Protection Alliance.