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Business News/ News / World/  The Cost of Keeping US Steel US-Owned
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The Cost of Keeping US Steel US-Owned

On today’s Big Take DC podcast, what a fraught US Steel deal reveals about American manufacturing and union politics — and what it could mean for the 2024 election.

The Cost of Keeping US Steel US-OwnedPremium
The Cost of Keeping US Steel US-Owned

(Bloomberg) -- Listen to the Big Take DC podcast on iHeart, Apple Podcasts, Spotify and the Bloomberg Terminal.

A Japanese company’s bid to buy US Steel has sparked a fight with the United Steelworkers union — and put the company at the center of the 2024 presidential contest.

Today on the Big Take DC, reporters Joe Deaux and Josh Wingrove trace why the deal came to a halt, how the company fits into Joe Biden and Donald Trump’s brands of political nostalgia, and why the fate of this deal could have an outsized impact on the election.

Read more: How the US Steel Takeover Became About Biden and Swing States

Listen to the Big Take DC podcast every week.

Here is a lightly edited transcript of the conversation:

David Gura: In March, Takahiro Mori, a senior executive at Japan’s largest steelmaker, hopped on a flight from Tokyo to Pittsburgh.

Josh Wingrove: He'd come all the way to the altar of the steelworkers, you know, this hallowed ground of the American labor movement, of the American steel industry.

Gura: Josh Wingrove covered the fallout from that visit for Bloomberg News, and he says Mori flew all that way to clinch a big deal:

His company, Nippon Steel, wanted to acquire US Steel Corporation, which was once the largest company in the world.

Wingrove: Really, it was an olive branch. He's trying to convince the union leader to get on board.

Gura: On the other side of the table was Dave McCall, the head of the powerful United Steelworkers union. 

In corporate takeovers, unions don’t always hold much sway. But due to a combination of timing, circumstance and politics, in this deal, they do.

Joe Deaux: Dave McCall and his team sat in silence.

Gura: That’s Joe Deaux. He covers metals and mining for Bloomberg News.

Deaux: You send one of your highest ranking executives of a top five global steel maker 15 hours to the United States, and there's an expectation that a substantial conversation will occur.

Gura: But that is not what happened. 

A lot people thought this landmark deal was a corporate slam dunk, but talks fell apart in less than an hour. The future of the deal is now uncertain.

In part, because it’s happening in the crucible of a presidential election. 

Wingrove: The issue is the politics, and the politics is the union.

Gura: And now, there are huge consequences – for President Biden, former President Trump, and the entire American steel industry. 

Today on the show, what this fraught US Steel deal tells us about American manufacturing and union politics — and what it could all mean for Joe Biden and Donald Trump. 

This is the Big Take DC podcast from Bloomberg News. I’m David Gura, filling in for Saleha Mohsin.

This is not your run-of-the-mill corporate deal. Because US Steel is not just any company.

Joe Deaux: It was the world's largest company. 

Gura: That’s Joe Deaux, a Bloomberg metals reporter. 

US Steel was forged in 1901 by a few names you may have heard before: Andrew Carnegie, J.P. Morgan and Charles Schwab. The metal it’s made is a part of the United Nations building, the New Orleans Superdome, and the Chicago Picasso sculpture. But its metal is used for more than just landmarks: 

Deaux: Steel is ubiquitous. It is in everything. 

Steel: A Symphony of Industry: Steel has kept pace with and anticipated the increasing needs of the nation…

Deaux: Steel is in the roads. It's in your refrigerator, houses. Like, it's everywhere. 

Steel: A Symphony of Industry: In any giant ladle of molten metal, there may be steel that is destined to defeat time and distance, to provide the framework of mighty buildings…

Deaux: And so, this was a company that at one point, when we were a manufacturing based economy, was absolutely central to everything. It was also part of the war machine. World War I, World War II.

Conquer by the Clock:  The tools that in our hands mean victory, and our hands must be as relentless as the hands of our clocks…

Deaux: It employed a lot of people. But, automation came around in the seventies and eighties and people started to lose their jobs and talk to any of these steelworkers, and they will tell you. ‘Yeah, I remember when they brought a continuous caster into the plant and that was fully automated and we instantly lost a lot of jobs. A lot of people who worked in the mills and the furnaces for ages were no longer needed.’

Gura: Automation hit US Steel particularly hard. 

The company was slow to adopt new, more efficient technology. Plus, in the last few decades, other countries like China, have doubled down on steel production, and they’ve undercut the US on prices. 

Joe says, US Steel’s approach put it at a competitive disadvantage. 

Deaux: These old blast furnace mills that have been around since the day of Andrew Carnegie. They're slower. You can't turn them on and off. You can’t flip a switch. If you want to bring them down, there's a massive process behind that. 

Gura: And pretty soon, US Steel fell behind.

By 2015, the company was posting losses of more than $1 billion a year. 

And in 2020, US Steel’s CEO made a bold move: 

He spent a lot of money on one of those new, higher-tech plants — the kind a company can scale up or down quickly, and uses a process that doesn’t pollute as much. 

Deaux: He paid a premium for it. And I remember at the time when he bought it, many people in the steel industry they'd laugh. They said, ‘I cannot believe how much they overpaid for this mill.’ But at its core, what all these people said was it's kind of their only option. Because if not, you're still talking about a company slowly marching toward its doom.

Gura: That big bet … paid off. That mill became the crown jewel of US Steel. It was a boon to its bottom line.

But it also introduced a new problem. Workers at that new, higher tech plant weren’t unionized. Which posed a threat to workers in those old-school mills, who are members of the United Steelworkers union, or the USW. Non-unionized labor at profitable US Steel plants weakened the Union’s bargaining power. 

Those USW workers are the people Dave McCall was representing at that tense meeting with Nippon Steel – the company that wants to buy US Steel.

Now, at the time of that meeting, even though US Steel had managed to pull itself out of the red – thanks in part to its decision to purchase that state-of-the-art mill, it still had long-term capital concerns. Which made it interested in a merger.

Nippon Steel announced its bid in December. It offered to invest over $1 billion in the company, and promised it would not idle plants or have any immediate layoffs.

Deaux: That announcement came out at 6 in the morning. I spoke to Dave McCall just before 6:30am.

Gura: Wow.

Deaux: And you could sense a bit of surprise in his voice. I think anybody I could say, yeah, if you at a company and you find out some you've never of maybe is, is gonna buy your company, you might also just have questions like, what that, you know, mean for me or my job? Uh, and, and is like one of the things that we've heard from not just McCall, but the steel workers themselves. Right.

Gura: One of those workers is Rob Hutchison. He’s been a USW member for the last 28 years.

Joe recently caught up with him in Pittsburgh. 

Rob Hutchison: Of course, everybody's worried about their job, their future, their community, the iconic name of US Steel being lost.

Gura: Hutchison told Joe this isn’t just about being blindsided by the news – that their company’s being sold — and sold to an international company they didn’t even know was bidding.

He’s also concerned about security – security he and other workers don’t believe they’d get with this current offer.

Hutchison: What kind of investments is Nippon actually going to make? Are they going to live up to their, their promises? Which have been pretty vague at this point.

Deaux: It's not just saying you're going to invest $1.4 billion dollars. It is, of that $1.4 billion dollars, we're going to invest X number of millions of dollars to the mills are unionized work. You need some assurances that go beyond just save half of the mills. 

Wingrove: Right now there's sort of like two sides of the coin to US Steel. 

Gura: White House reporter Josh Wingrove.

Wingrove: One is this new, modern, more efficient plant, the crown jewel, and the others are the older, more hallowed, unionized blast furnaces that have a lot more political clout.

Gura: For Mori, that “crown jewel" is what his company wants. But he can’t get his hands on it without the backing of the union, which represents the other part of the company.

Wingrove: To a lot of people, this deal is a no brainer. It is a sale to an allied country's company. A lot of people thought this would sail through, including, it seems, the buyer.

Gura: But McCall and the union rejected the deal. In part because the bid didn’t specify which jobs Nippon Steel would keep — whether the deal would protect union work.

McCall also said Nippon Steel should’ve consulted the USW sooner. But the union had been backing a rival bid, from an American company. 

Wingrove: Nippon Steel said it couldn't rope the union in to its own bid. It would be showing its hand to an ally of a competitor. The union walked out politely. They didn't like storm out, but the union wasn't satisfied.

Gura: US Steel and Nippon Steel gave Bloomberg a joint statement, which said, in part: 

“We are confident that our partnership will protect and grow US Steel. The deal will protect jobs, strengthen American supply chains, and enhance the competitiveness of the US economy, all while building resilience against threats from China. US Steel’s headquarters will remain in Pittsburgh, and its products – supported by significant capital investments and technology sharing from Nippon Steel – will remain mined, melted, and made in America. "

One week after the meeting, President Biden released his own statement… which was pretty extraordinary.

Wingrove: It called explicitly for US Steel to be American owned and American run. It went farther than a lot of people thought it would.

Gura: Essentially, because the union opposed the deal… President Biden did, too.

Deaux: A president weighing in on a deal in the first place is huge. And then weighing in on, like, a steel deal is, like, next level. 

Gura: Why Joe Biden weighed in on a steel deal at all, what his support of the union means for the future of US Steel, and how all of this could figure into the 2024 election…  after the break.

We’re back. 

After the head of the United Steelworkers union rejected Nippon Steel's offer to takeover US Steel, President Biden stepped in to say he had the union's back. Here’s Josh Wingrove on why… 

Wingrove: Joe Biden has spent the last four years courting unions. Biden is from Scranton, Pennsylvania. His dad moved their family to Claymont, Delaware, just outside of Philadelphia. The steel industry,  Pennsylvania steel industry, union jobs. I mean, this colors every speech this guy gives. It is the entire lens of Joe Biden and his view on the economy. 

Gura: In a sense, it’s not surprising President Biden would weigh in on this deal—that he’d throw his support behind the USW— even if presidents are largely reluctant to weigh in on corporate takeovers. And his decision to back the union paid off. 

Within a few weeks, the United Steelworkers union endorsed Biden’s reelection campaign.

Wingrove: The union leadership are essentially unanimous. The question is, will their members follow them? Quite clearly, a lot of union members like Donald Trump.

Gura: That’s because while Biden has branded himself as “Union Joe," it’s impossible to talk about US manufacturing’s rise to prominence without talking about Donald Trump.

With his Make America Great Again slogan, Trump is appealing to nostalgia for a time when American manufacturing reigned supreme — US Steel’s golden era. 

When he ran for president in 2016, Trump said he’d prop up the struggling US steel industry. 

Wingrove: These are blue collar workers, Trump is speaking to them. And he flipped a lot of these important states in 2016 by speaking to them. 

Gura: Two years later, as president, he made good on that promise. Trump imposed a 25% tariff on steel imports. Which was a radical move.

Wingrove: The tariffs caused a mess. Everyone, including allied countries,  uh, who lost their minds over that. But they were successful in  reshaping the domestic steel industry. And right now, those tariffs remain in place because there's bipartisan agreement on them. Democrats and Republicans think they work. 

Gura: Which brings us back to “Union Joe," and his own nostalgia-based tagline: Build Back Better.The steel industry is one of very few issues where there is common ground among Republicans and Democrats.

Wingrove: On the issue of protecting steel, Trump and Biden are very close together. I mean, it's difficult to distinguish their policies. The direction is one way on this, and that is more protectionism for the American steel industry. 

Gura: And keeping US Steel American-owned has important symbolism. 

Which makes a Japanese takeover of US Steel in 2024 very tricky. 

Because what might be best for US Steel Corporation’s bottom line — being bought out by a Japanese company — is not what its union wants, and or what either leading presidential candidate wants.

Wingrove: The question has shifted a little bit from who should own US Steel to what's the best outcome for the United Steelworkers?

Gura: Both Biden and Trump have spoken out against this deal. But Josh Wingrove says that raises another question neither candidate has answered:

Wingrove: What would be a better option? 

Gura: There are a few different ways this could go. 

One: the deal does not happen, and US Steel remains independent. But that might mean the company runs short of capital, and workers could still end up losing their jobs.

Option two: the takeover does happen… but then the union won’t be happy.

Option three: US Steel gets bought by another company, or a combination of other companies. But the other highest bidder, the one backed by the union, is another US steelmaker, named Cleveland Cliffs. Cleveland Cliffs’s bid would likely be lower, and it would give the company a monopoly over domestic iron ore reserves and a dominant share of coveted automotive steel.

Wingrove: Then you create antitrust concerns and if I was ranking the top two things that Joe Biden focuses on in managing the economy, it's probably unions and anti monopoly efforts.

Gura: It’s unclear where the deal goes from here. Even if it does go through, it could get tied up in legal and regulatory maneuverings—including by President Biden, whose administration is reviewing the deal to confirm there are no security concerns from this foreign investment in a US company.

Wingrove: Joe Biden almost certainly cannot win the presidency again, if he loses Pennsylvania, there are a lot of swing states, but this is for him crucial. It is a big state. It has a lot of electoral college votes. It's his home state. Demographically, if he loses Pennsylvania, he's probably losing. Similarly for Trump, if he can steal away Pennsylvania, his odds of winning go through the roof. So Pennsylvania is the ball game in some ways. And that's why we're seeing such focus on this.

Gura: So Josh thinks, it’s likely a decision on the deal just slides… until after the election.

Wingrove: It's really messy. It's just a no win situation. And the administration has a lot of leeway to stop, start, you know, pause the clock, review this, review that. They can really delay things. 

Gura: But… slowing down this deal is also risky.

Wingrove: Because if it collapses, that might not be good for US Steel, and it might not be good for the steel workers. And if it's bad for the steel workers, then all the politics that are hanging over this deal flare up again. And the question will be, who helped kill this deal, and why, if people eventually blame whatever is about to happen for them losing a shift, or losing a job, or closing a plant.

More stories like this are available on bloomberg.com

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Published: 12 Apr 2024, 05:11 AM IST
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