Citing national security concerns and following an expansive but divided Treasury Department review, President Biden recently decided to deny the $14 billion purchase of U.S. Steel Corp. by the Japanese firm Nippon Steel. The decision is final, at least for now, but both companies have already brought suit to overturn it.
They aren’t the only losers here. U.S. consumers and businesses that buy steel products will be denied access to what the two manufacturers likely intend to be a more efficiently made, and therefore more affordable, product. Unfortunately, a little-understood political phenomenon is working against us.
The Treasury review was conducted by the Committee on Foreign Investment and with participation by the State and Commerce departments and the offices of the national security adviser and U.S. trade negotiator. It ended with a deadlock. While there was no recommendation, the reviewers gave no indication that the acquisition would pose a national security problem.
Biden apparently disagreed and chose to follow the recommendation of the United Steel Workers, which had ardently opposed the purchase by Nippon since it was announced a year ago. Instead of citing his long-celebrated practice of being America’s strongest union-supporting president, he framed the decision as one rooted in the broad public interest.
In an all-too-predictable occurrence among politicians, the president assumed the role of the small-town Baptist in my “Bootlegger-Baptist” theory of political behavior. That is to say, he used language geared toward what’s in our moral or supposed best interests to support a decision that also benefits the financial interests of another group — the parable’s bootleggers. (Historically, bootleggers and Baptists support Sunday closing laws that shut down the legal sale of alcoholic drinks, but for decidedly different reasons.)
Maybe Biden believes in the national security justification. Still, one can’t help but notice bootleggers, perhaps including some who speak like our Baptists, coming out of the woodwork.
Along with the steel union, which has a financial interest in opposing the deal, Cleveland-Cliffs, a rival steel producer, tried to buy U.S. Steel in 2023 but was outbid by Nippon. Presumably, denying the Nippon deal would put Cleveland-Cliffs in a more favorable position.
Also joining the chorus with a combined Bootlegger-Baptist chant were the Sierra Club and other environmental groups. They came out against Nippon’s promise to make significant steel-making investments in the decaying U.S. Steel plants, which would mean more steel would be produced in America, along with more pollution.
Thus, Biden’s incredulous Baptist talk about national security made at least three groups in the coalition happy. But let’s face it: Ordinary citizens tend to fall in line when politicians offer moral justifications for actions that serve well-organized, influential private interest groups.
Today, our ears ring from repeated Trump and Biden reminders that union-supported tariffs on Chinese, Mexican and Canadian imports can also help some domestic industries become healthier. While the net benefits of tariffs are dubious, as most economists will tell you, politicians know that claiming the moral high ground will usually persuade enough of their constituents to buy the story.
In the Nippon Steel case, Japanese ownership of highly specialized steel-making machinery under firm U.S. jurisdiction (and staffed by Americans) hardly represents a national security threat. After all, just one hint of trouble and the mill gate locks would be changed and asset confiscation would ensue.
In the end, we’ve got a politically successful regulatory episode wrapped in Baptist clothing. Looking deeper, Hans Christian Andersen might say that our Baptist has no clothes.