Commentary
A superpower wanting to remain a superpower needs a strong defense industrial base. And to have a strong defense industrial base, you need a strong steel industry. Consequently, having a strong steel industry is not optional if you want to remain a superpower.
What’s more, a strong national steel industry must be under the control of U.S. citizens to ensure that it is 100 percent available in a national emergency. This dovetails with the Department of Defense’s 2022 National Defense Strategy, which identifies as a priority ensuring that the United States can securely produce the products, services, and technologies needed now and in the future at speed, scale, and cost.
Further, ensuring that we have a strong defense industrial base trumps the Friedmanian goal of achieving optimal efficiency for the worldwide production of steel.
Hence, while allowing Nippon Steel to acquire U.S. Steel may look good from a short-term economic perspective, doing so accelerates the emasculation of the U.S. defense industrial base and would be contrary to our stated National Defense Strategy.
Sure, getting $1.3 billion to increase the capacity of one U.S. Steel plant and extend the production life of another is nice. And that such an investment by Nippon would help ensure that thousands of U.S. Steel workers have jobs going forward is also a benefit. And if it is a choice of U.S. Steel being bought out by Nippon Steel or going under, then selling this iconic American company to Nippon Steel makes sense. But in making such a choice, U.S. lawmakers are missing an opportunity to take the steps the United States needs to take to at least partially restore the defense industrial base that won World War II.
Let’s not forget that by the end of World War II, the United States dominated world steel production, producing 67 percent of the world’s pig iron and 72 percent of the world’s steel. In 1969, the U.S. steel industry reached its peak, employing 700,000 workers and producing 141 million tons of steel.
Sadly, today the United States produces just 1.6 percent of the world’s pig iron and 4.3 percent of the world’s steel. Further, the United States has gone from being the biggest exporter of steel to being the biggest importer. And, including U.S. Steel, the United States has only four major steel makers remaining.
Suffice it to say, those numbers aren’t the numbers of a superpower.
Simply denying Japan from buying U.S. Steel is not enough. Yes, the United States needs to maintain tariffs that protect defense-critical industries such as steel from the kind of predatory trade practices Japan and China used to gut our steel industry. But agile, anti-dumping tariffs are not enough: A package of tax and investment incentives must be put in place that makes investing in ever-more-efficient U.S. steel manufacturing, including U.S. Steel, an attractive proposition for U.S. and foreign investors, while ensuring that control remains firmly in the hands of those who owe their allegiance to the U.S. Constitution.
Properly structured incentives will strengthen existing U.S. steel-making firms and encourage the formation of new firms, while making U.S.-manufactured steel competitive in the global market.
Speaking of being competitive in the world market, many mistakenly believe that the high cost of American labor makes that impossible. While that may have been true decades ago, in 2024, that is not the case. The reason American steel can be competitive in today’s global market is that improvements in manufacturing steel have significantly reduced the percentage that labor makes up of the overall cost. Indeed, when we look at all the costs to produce a ton of steel, we find that it costs almost the same to create a ton of steel in the United States as it does in China. But when you factor in the costs of shipping and distribution that China must incur to ship a ton of steel to the United States, the unsubsidized cost of Chinese steel is actually higher.
The problem is that the Chinese communist regime does subsidize its steel production and is willing to use subsidization to drive steelmakers in the United States and other countries out of business. Further, while the value of iron and steel directly shipped from China into the United States was only about $600 million last year, China has engaged in schemes built around transshipping, which involves China shipping its steel to other countries, which then minimally add value to it before shipping it to the United States.
As it stands, we don’t know exactly how much Chinese steel is coming into the United States via transshipping, but it does appear that Mexico is the largest transshipper and that Canada may also be involved in significant transshipping. We can infer this because even as we have seen the domestic demand for steel for Mexico and Canada remain essentially static, we have seen both Mexico and Canada increase steel imports from China. Mexico, in particular, has more than doubled its imports of Chinese steel since 2020. Perhaps not coincidentally, Mexico and Canada, being the largest exporters of steel into the United States, have increased exports to the United States that appear to be correlated with their imports from China.
However, the problem of Chinese steel goes beyond how much Chinese steel makes its way into the United States, as China with its massive overcapacity relative to its own needs, is flooding subsidized steel onto the world market, which is depressing world steel prices.
Still, regardless of what China is doing or not doing, the point is that the United States needs to revitalize its steel industry. With this in mind, letting a foreign country, even one currently friendly to the United States, gain control over a significant portion of U.S. steel production via buying U.S. Steel seems counterproductive to national security.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
