The United States are rebuilding its manufacturing base, and the purchase of US Steel marks another step in this direction.
Industrial giant US Steel was sold to Nippon Steel in a $14.9 billion agreement announced on Monday. Nippon Steel took advantage of the tax incentives in President Biden’s Inflation Reduction Act.
Nippon Steel won the auction against other major conglomerates like the Ohio-based Cleveland-Cliffs and ArcelorMittal, the Indian conglomerate based in Luxembourg. Lakshmi Mittal, ArcelorMittal’s executive chairman, is one of the richest entrepreneurs in India.
The final deal saw Nippon Steel purchasing the American company at $55 per share, significantly more than its market value at the moment it was announced. Since then, however, US Steel’s stock price jumped 27% to $50 per share, still significantly less than what was purchased for.
Nevertheless, the deal will help Nippon Steel, the world’s fourth-largest producer of steel, jump one position in the ranking and reach third place.
To some, however, that is still not enough to justify such an enormous expense. "We feel Nippon is overpaying for those assets,” said Gordon Johnson, an analyst at GLJ Research “This isn’t the technology space. This is still the cyclical steel industry".
Takahiro Mori, Nippon’s executive vice president, said in an interview he’s confident there will be no regulatory or anti-trust issues.
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The return of the rust belt
US Steel was once the world’s largest company, founded over a century ago by magnate J. P. Morgan, the same entrepreneur who founded the homonymous bank in 1871.
In the first half of the century, US Steel helped build the manufacturing capabilities of the United States, the same capabilities that allowed them to win both world wars.
Over the years, however, the United States gradually gave up its manufacturing, outsourcing it to the rest of the world. In the second half of the century, the United States needed not such a massive manufacturing base, especially as the economy was shifting to services.
The US took advantage of its hegemonic position, using the US dollar as its biggest asset and ensuring cheap labor in third-world countries to its advantage.
This strategy, however, gave way to countries like China to rise uncontrollably, posing a threat to US hegemony.
Now, the Biden administration wants to start a reversing process to increase American manufacturing once again, or at least bring it closer to its borders. The US Steel acquisition will revamp American steel production and increase domestic factory output.
At the same time, American companies are increasingly moving their production lines to Mexico, a country considered more politically aligned to US interests (and where labor is cheaper than China).
The US wants to remain the global superpower through manufacturing. A high-risk, high-reward strategy.
