(By: Steve Forbes)
Champions of free markets should applaud the recent announcement of a deal in which Nippon Steel, a Japan-based company, will buy U.S. Steel. Instead of focusing on government-imposed tariffs that allegedly protect steelmakers (these taxes raised steel prices to American manufacturers and manifestly failed in saving jobs), the market has found a positive way forward that will strengthen this vital industry and benefit its thousands of workers.
Moreover, this transaction will be a blessing for our national security. It begins to deepen a critical partnership with a crucial ally at a time of increasing belligerence by Beijing. China’s headlong military expansion threatens free world access to vital international waterways such as the South China Sea.
To counter Beijing’s aggressive militarism, the U.S. needs to undertake a big buildup of military weaponry. But we don’t have the necessary military infrastructure, including the necessary kinds of steel. We need the help of Japan and other allies. The proposed Nippon Steel-U.S. Steel union is an important first step.
Yet President Joe Biden and his troglodyte union allies want to throw a wrench into this unequivocally good agreement.
Even though it currently has a fairly small presence in the U.S., Nippon Steel is the second-largest steel company in the world, behind the Chinese behemoth Baowu. By acquiring U.S. Steel, Nippon Steel gives itself a shot at surging demand for American-made steel, created by the 2018 tariffs slapped on foreign steel imports coupled with mandates in the 2021 infrastructure bill that required contractors to use domestic steel.
When the government clamped down on imports with one hand while artificially boosting demand with the other, the inevitable happened. U.S. steelmakers are now looking at the highest number of backlogged orders in 15 years. This hurts other American manufacturers when they can’t get the raw materials they need to make their products. And when they do get delivery, they get hit with artificially high prices that damage them and their customers.
As usual, government tariffs didn’t accomplish their central goal of protecting American jobs; U.S. Steel’s workforce decreased by almost 25% from 2018 to 2022. That should have been expected. Research on the 2018 tariffs conducted by two Federal Reserve economists showed that, overall, they resulted in a net decrease in employment. Any small job growth that was realized in protected industries was significantly outweighed by the negative impacts of retaliatory tariffs and increased costs for other businesses. Bottom line, they found, “tariffs have been a drag on employment and have failed to increase output.”
The capital, market access, and industry expertise Nippon Steel brings to the table will be a bonus for U.S. Steel. The unions should not object to this plan (although we shouldn’t be surprised if they do) because Nippon Steel has pledged to honor existing labor agreements and pension obligations. It has also committed to making steel as cleanly as possible, a must if the industry is going to succeed in this era of climate change obsession. Nippon Steel has the financial resources to invest in existing Pennsylvania U.S. steel facilities that need environmental improvements, a plus for both the company and the environment.
After decades of seeing America’s heavy manufacturing base eroded by foreign competition, the Nippon Steel/U.S. Steel alliance is an encouraging example of foreign investment creating U.S. jobs and boosting domestic output instead of moving them offshore. As competing with China becomes ever more difficult, this will bolster an industry that is critical to other manufacturing businesses while providing high-paying jobs for American workers.
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Steve Forbes is chairman and editor-in-chief of Forbes Media.