After years of wrangling, Nippon Steel of Japan was finally granted the go-ahead to buy U.S. Steel on June 13 by the Trump Administration. Previously, the Biden Administration blocked this deal, based on the concern of a foreign company buying a company that has become a U.S. icon, but in the past few decades has lost its luster and its might in the U.S. and world economies.
I was disappointed with the Biden Administration’s opposition to this deal. In its heyday, U.S. Steel was a pillar of the U.S. economy that provided the world with its steel products. After WWII, Japan rebuilt its core industries, and Nippon Steel became the beacon of the newest technology in steel production. Meanwhile, U.S. Steel rested on its laurels and failed to comprehend the competitive threat posed by a modern, high-technology steel producer such as Nippon Steel. U.S. Steel’s market share and power ebbed, while Nippon Steel’s market share and power rose.
I was in favor of Nippon Steel acquiring U.S. Steel because this company needs the capital injection and modernization that the Japanese company can bring to the table. In addition, Nippon Steel has pledged that it would continue to keep U.S. Steel’s operations running in the U.S. For these reasons, I was disappointed that the Biden Administration chose to deny the acquisition based on national concerns, which I thought were more steeped in the politics of having a company that is a household name to Americans, purchased by a foreign interest.
President Trump is touting the deal and his involvement in it. However, I am very concerned about the way the U.S. federal government factors into the deal. In order to allow Nippon Steel’s purchase, President Trump stipulated that certain conditions be attached, what he calls a “golden share,” that gives him unprecedented power over the future of the acquisition. Per the agreement, the golden share provides Trump certain rights. First is the veto power over Nippon Steel closing, mothballing, or selling locations in the U.S. through 2035. Nippon Steel cannot change U.S. Steel’s name or move its headquarters from Pittsburgh or locate the company outside of the U.S. Through 2030, Nippon Steel is not allowed to cut the base salary of U.S. Steel’s employees. It also has to adhere to a strict timeline that was agreed upon for its $10.8 billion capital injection in U.S. Steel. Finally, Nippon Steel is prohibited from doing any business acquisitions in the U.S. that could compete with U.S. Steel and its subsidiaries.
According to Trump, “We have a golden share, which I control or the President controls. Now, I am concerned whoever the President might be, but that gives you total control.” The deal requires the Treasury and Commerce Departments to manage this deal after Trump leaves office, essentially passing the golden share to the next President.
Mexico is an example of why I think this golden share sets a bad precedent for the U.S. About the time I started my career, the Mexican government was moving away from a state-led economy, in which the Mexican government had a hand in and exerted control over everything from banking to tortilla dough. Mexico adopted this system in the 1930s, believing that foreigners commanded too much control over Mexico’s economy. Over the next several decades, Mexico’s government-led industries became bloated, inefficient, and non-competitive. After Mexico’s decade-long economic crisis of the 1980s, it gradually privatized its industries. Today, Mexican companies have to be innovative and compete in world markets, thus making them more efficient and sustainable.
Trump’s golden share is anathema to the long-held belief that government should stay out of the private sector. Americans, and particularly the Republican party, have believed in capitalism with minimal government control. Granted, industries need to be regulated by the government to ensure safety and legal measures. However, having the presidency have the say over what would traditionally be decisions that a private company, either domestic or foreign, has the right to make in the U.S. is a move towards a state-led economy. Some might even go as far as to say that it is a move towards the type of communism practiced in China. Even David McCall, President of the United Steelworkers International, expressed concern that Trump, through the golden share, “has assumed a startling degree of personal power over a corporation.”
It's a pretty good bet that Trump will maintain his golden share throughout his presidency. It will be interesting to see if the next President chooses to maintain this policy with a private company. It also remains to be seen if the precedent set by Nippon Steel, allowing it to be handcuffed by the U.S. federal government, will bode badly for companies attempting future deals.
Jerry Pacheco is the president of the Border Industrial Association. Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.