At the end of 2023, Japanese corporation Nippon Steel announced plans to acquire U.S. Steel, an American steel producer founded by J.P. Morgan and Andrew Carnegie. In April 2024, with 98% of its shareholders in favor of the deal, U.S. Steel approved a $14.9 billion acquisition by Nippon Steel. The agreement details that Nippon Steel would pay $55 per share, well above the company’s current share price.
U.S. law authorizes the president to block transactions that could threaten national security following a review by the Committee on Foreign Investment in the United States (CFIUS). CFIUS was created to serve the president by reviewing the potential national security risks of certain foreign direct investment (FDI) in the U.S. economy. Based on the recommendation of CFIUS, the president has the authority to prohibit or suspend any transactions that could be a threat to the U.S. national security.
After CFIUS was unable to reach a consensus on whether the merger was a national security threat, the decision was referred to President Joe Biden. In the past, he has stated that the U.S. steel industry should remain domestically owned and, on January 3, President Biden blocked the transaction.
In general, the United States should welcome international investment, as it plays a vital role in fostering economic prosperity. Claims that blocking the merger is necessary to safeguard national security appear to be overstated. The Financial Times reported that the Pentagon, Treasury Department, and State Department have all concluded that the acquisition poses no national security risks.
Foreign investment is beneficial to the U.S. economy and, barring legitimate national security threats, mergers should be allowed to go through. As of 2023, the United States has attracted $5.4 trillion in foreign domestic investment. Japan is no stranger to investing in U.S. companies, making up 15% of U.S. FDI holdings. A study by the Japanese Automotive Manufacturers Association shows that Japan has been the top provider of FDI for the last four years. The investment relationship between the United States and Japan helps support job creation, increased production, and overall investment, strengthening U.S. economic competitiveness.
Economists generally advocate for the free flow of capital across national borders because of the many advantages that it provides the host country. Economist Martin Feldstein found that allowing foreign investment and the international flow of capital enables capital to seek the highest rate of return and reduces the risk faced by owners of capital by allowing them to diversify their investments. It can also allow for the transfer and innovation of technology, promote competition in the domestic input market, contribute to human capital development, and generate profit through corporate tax revenue.
The States should welcome investment from our friends and allies, not block it.