The proposed acquisition of U.S. Steel, an iconic U.S. corporation, by Nippon Steel of Japan has drawn unusual attention from Washington, putting the fate of the deal in doubt. Reporting about a secretive government review of the acquisition suggests a final decision will be made shortly after the election, but the troubled status of the acquisition has prompted sharp criticism.
For decades, the U.S. government observed an “open investment” policy: neutrality concerning foreign investments into, and acquisitions of, U.S. companies. There is little doubt this has been beneficial, as the U.S. has become the largest recipient of foreign investment. But the handling of the steel deal, according to some observers, signals a serious weakening of this beneficial policy.
That criticism misses important context: The government has been weakening the open investment policy for many years, particularly by broadening the concept of “national security” and allowing that label to override government neutrality toward foreign investors and buyers.
The steel deal is the just the tip of the iceberg.
Initially announced in December 2023, the planned acquisition of U.S. Steel soon ran into headwinds. President Biden stated in March that U.S. Steel must remain under American control. Vice President Kamala Harris, campaigning to succeed Biden, repeated that statement. Donald Trump has also said he would block the deal.
This political opposition may be explained by U.S. Steel’s headquarters in Pennsylvania, a critical state in the forthcoming election, and opposition to the deal by many Pennsylvania-based U.S. Steel workers. The primary government mechanism to block the deal, though, is the Committee on Foreign Investment in the United States, a secretive panel that has a legal mandate to intervene in deals only to protect national security, a well-recognized exception to U.S. neutrality toward foreign investors and buyers.
The parameters of this exception, though, are not policed by courts or any other independent body, so “national security” means whatever the governing administration says it means. Recent reporting suggests the committee has found national security problems with the deal, aligning (unsurprisingly) with the administration’s political interest in potentially blocking the transaction.
The security problems reportedly concern whether U.S. steel production would be sufficient for U.S. defense if the U.S. Steel corporation were no longer available. This lack of availability assumes that the anticipated Japanese owner, Nippon Steel, might somehow deprive the United States of the production that currently is available under U.S. ownership. With this explanation — transfer to a foreign owner might reduce steel production capacity — the president reportedly is prepared to block the deal.
Critics contend that this use of national security to accomplish apparently political goals (i.e., winning Pennsylvania’s electoral votes) shows that national security has become an infinitely malleable concept. Concern about steel production seems like a loincloth for a naked political aim. The national security exception, now infinitely malleable, might deter innumerable investments.
Yes, but this has been the U.S. government’s trajectory throughout the Trump and Biden administrations.
In 2018, for example, then-President Trump signed legislation to reform the committee that conducts these foreign deal reviews. As part of that reform, the legislation requires private-sector lawyers to review thousands of foreign deals annually for national security implications and to submit many for official approval by the committee. The overwhelming majority of these foreign deals — those reviewed by private lawyers and the subset submitted for committee approval — have involved investors and buyers from Europe, Canada, Japan and other close U.S. allies. There is little indication of any national security benefit, but the rules do deter investment.
Regardless, such politically popular trumpeting of “national security” has continued in the Biden administration. The committee increasingly attaches conditions to foreign deals, such as limiting the buyer’s access to U.S. company data. Just this summer, the committee announced to much fanfare the largest penalty it ever imposed: a $60 million fine on a German investor for allegedly breaching limitations imposed on the investment. This was among six penalties on foreign investors from 2023-24. Previously, the committee imposed just two penalties (both in the Trump administration), and $1 million was the largest previous fine announced before the $60 million whopper.
Significantly, none of these penalties has been adjudicated in any forum outside the committee. No court is available to oversee its determinations that “national security” is at stake in any of these deals.
The details of the government’s decisions are usually hidden under the cloak of national security, and opposition can be framed as unpatriotic, so only rarely do interested parties make a fuss. But throughout the Trump and Biden administrations, it has been apparent that the concept of national security has become unmoored. In this respect, the steel deal is just the most recent visible sign.
Stephen Heifetz previously served on the Committee on Foreign Investment in the United States and currently is a partner at the law firm Wilson Sonsini Goodrich and Rosati. The views expressed do not necessarily represent the views of the firm or any of its clients.
