Trump's Steel Deal: A Political Turning Point in Foreign Investments

Trump's Steel Deal: A Political Turning Point in Foreign Investments

Last week, former US President Donald Trump announced the approval of a "planned partnership" between Nippon Steel and US Steel, effectively concluding an eighteen-month saga that unfolded amidst a national-security review by the Committee on Foreign Investment in the United States (CFIUS). This transaction had faced significant scrutiny, particularly following the prohibition placed by former President Joe Biden in one of his final acts before leaving office, which left the decision on such foreign investments to the incoming administration.

The announcement of the Nippon deal raises critical questions about the evolving role of CFIUS in evaluating international investments. While many commentators, including myself, have highlighted the commercial advantages of the merger and the positive implications of Japanese investment in the US steel sector on national-security interests, the real concern lies in the broader implications for future investments and CFIUS's mandate.

The terms surrounding the agreement, although not fully disclosed, appear to resemble prior negotiations, now rebranded with a different public relations narrative. In light of rising public opposition, Nippon has made assurances that US Steel would maintain its historic name and headquarters in Pittsburgh and that the board would comprise a majority of US citizens. Furthermore, Nippon has committed to significant investments in US production capabilities, pledging not to relocate operations offshore.

One notable aspect of this new arrangement is the concept of a "golden share," as described by US Senator David McCormick (R-PA). This arrangement might grant the government direct oversight over a select number of board seats, although specifics remain unclear. Notably, this "share" does not equate to an ownership stake, yet it could symbolize a paradigm shift in how CFIUS exercises its powers. Historically, CFIUS operated within a narrow framework focused on national security risks associated with foreign investments. A shift toward broader oversight—including continuing approval of board members—would represent an unprecedented extension of government power.

The implications of introducing such government controls could facilitate expanded industrial policy practices. As the US maintains heightened vigilance over critical supply chains, the distinctions between strategic industrial policy and national-security concerns have become increasingly intertwined. Should the government demand stringent production protocols from Nippon, it could signify a significant departure toward state-directed management, paralleling France’s robust regulatory approach to foreign investments in recent years.

Moreover, embracing a more proactive approach in mitigating investments runs counter to the White House's America First Investment Policy, which advocated for simplifying mitigation agreements to promote efficiency. The juxtaposition of Trump’s public rally celebrating the deal with Biden’s earlier constraints raises concerns about the politicization of the CFIUS process.

The initial formation of CFIUS by President Gerald Ford in 1975 was intended to alleviate political tensions surrounding foreign direct investment, focusing on national security rather than political interests. The ongoing evolution of CFIUS illustrates the persistent tension between legislative ambitions for heightened oversight and executive efforts to shield foreign investments from political controversy.

If reviews by CFIUS devolve into mere political instruments rather than being grounded in objective risk assessment, the Nippon Steel case could mark the beginning of the end for the long-standing goal of depoliticizing foreign direct investment in the United States.

This raises an essential question: if the US rejects transactions such as Nippon Steel's—especially involving partners from a G7 nation—what foreign entities could be deemed acceptable in the future? As discussions progress, the consequences of the Nippon Steel deal could resonate significantly within the investment landscape for years to come.