Elaine Thompson/AP Photo
A Boeing 737 MAX 7 is displayed during a debut of the new jet for employees and media, in Renton, Washington, February 5, 2018.
In 2021, the Biden administration broke with its predecessors and embraced the long-standing progressive goal of industrial policy. The gaps in our industrial base revealed by the pandemic, and the belated concerns about supply chains, pushed the administration to reject past views of industrial policy as a sin against the free market. Several Biden-sponsored laws and policies now promote industrial planning aimed at the development and expansion of U.S.-based production and technology, with rewards to companies having good labor commitments.
But in the absence of public ownership, industrial policy is only as good as the private companies that carry it out. Much industrial policy relies on so-called national champions: domestic companies whose interests are supposedly congruent with the national interest. What happens when those interests diverge?
Exhibit A is Boeing. The long-standing U.S. lead in aircraft is substantially based on Boeing, aided by extensive subsidies from Pentagon contracts (40 percent of Boeing revenues in 2022), and more recently $17 billion in COVID aid under the CARES Act for “businesses critical to maintaining national security.” But Boeing is now close to a failed company, because of decades of financialization at the expense of engineering. Earlier this month, a piece of the fuselage fell off of one of its 737 MAX planes mid-flight, and now the FAA wants Boeing to inspect its 737-900ER planes for the same deficiency.
By contrast, Europe’s Airbus actually behaves like a responsible national champion, and has now surpassed Boeing as the world’s leading commercial aircraft producer.
Our friend Matt Stoller, who writes the newsletter BIG, has a remedy: nationalize Boeing. As he writes, “Boeing is a state-backed national champion, constructed by the state, financed by the state, protected by the state, and with much of its revenue supplied by the state … it’s time to acknowledge this situation and have the government step in directly and reorganize the firm, as it would during a war or in a bankruptcy.”
Exhibit B is U.S. Steel. Like aircraft, steel is essential to the national defense. It is also a key part of the industrial base. But in December, U.S. Steel decided to sell itself to Japan’s Nippon Steel, in a $14.1 billion all-cash deal. This sale, if allowed to go forward, has immense potential consequences for both U.S. industrial security and for good domestic jobs.
Japan has excess steelmaking capacity of about 20 million tons. Unlike most U.S. companies, Japanese corporations are highly nationalistic—they actually behave like national champions.
Nippon has two motivations for this deal. By acquiring U.S. Steel and producing in America, Nippon can qualify for Buy America requirements and increase its market share. Nippon may also try to gradually reduce U.S. production and increase production in Japan. This, however, is complicated by an agreement that the U.S. made with Japan in February 2022 that ends 25 percent tariffs on Japanese steel exports in exchange for an export quota. However, the deal has an exclusion clause that allows a U.S. consumer (such as a Japanese transplant auto factory) to request a foreign supplier by claiming scarce domestic supply or quality. One way to drop that domestic supply is to ramp down U.S. Steel production.
The Nippon deal has been opposed by all four senators from Ohio and Pennsylvania, three of them Democrats, as well as Democrat Joe Manchin of West Virginia, and Republicans Josh Hawley (MO) and Marco Rubio (FL).
The Steelworkers union is far more of a patriot than many of the companies that its rank-and-file work for.
U.S. Steel had a rival bidder, Cleveland-Cliffs, a domestic producer with good relations with the United Steelworkers (USW). Unlike U.S. Steel, which has been disinvesting in blast furnace production and backed out of a commitment to build a new $1 billion plant in the Mon Valley south of Pittsburgh, Cleveland-Cliffs is committed to expanding domestic capacity and state-of-the-art green technology. Its initial offer to purchase U.S. Steel last August, valued at $7.3 billion, was well below Nippon’s, but U.S. Steel executives refused to negotiate further.
This issue is far from over. The USW’s contract with U.S. Steel, signed in December 2022, provides that any successor company must honor collective-bargaining agreements. Nippon has vowed to do so. But the union has already filed a grievance, based on U.S. Steel’s failure to give advance notification about the sale.
The Steelworkers’ contract gives the union the right to bid in the event that a company is subject to a takeover. The union transferred those rights to union-friendly Cleveland-Cliffs. Nippon Steel has had a number of facilities in the U.S. going back four decades, and union officials say that the company is not friendly to the union.
Deals like this one are also subject to extensive reviews by CFIUS, the government’s Committee on Foreign Investment in the U.S., which can take months. In 2018, Congress expanded CFIUS powers in the Foreign Investment Risk Review Modernization Act. Last September, Biden issued an executive order expanding the factors that the committee should consider, including how the proposed deal affects U.S. supply chains.
After the Nippon deal was announced, the White House put out a statement that began, “The President believes U.S. Steel was an integral part of our arsenal of democracy in WWII and remains a core component of the overall domestic steel production that is critical to our national security.”
American steelworkers are the world’s most productive. On average, it takes one worker to produce one ton of steel. Yet steel output is declining because of global overcapacity and foreign dumping of steel below the cost of production. The Nippon deal could accelerate that decline.
CFIUS could condition the purchase on Nippon Steel’s strict respect for U.S. Steel’s contract with the Steelworkers, which has three more years to run, or on maintenance of employment and capacity. Once the sale is final, however, that could be challenging to enforce. Other acquisitions of U.S. producers, which included conditions imposed by CFIUS, were ignored after the fact.
The best outcome would be a rejection of the sale to Nippon, one way or another. Either U.S. Steel should remain intact, or if its board insists on selling it, the company should be sold to a domestic producer like Cleveland-Cliffs, which is committed to expanding U.S. production with good union relations.
The union is far more of a patriot than many of the companies that its rank-and-file work for, demanding that companies act in the national interest as well as the shareholder interest.
The USW is the true national champion. If U.S. industrial policy is going to rely on corporate national champions, the government working with the union needs to make them live up to the name.
