CFIUS should steel itself from domestic presidential politics. On Biden’s public intervention on the Nippon Steel-US Steel Acquisition
By Thomas P. Feddo, founder of The Rubicon Advisors LLC and former Assistant Treasury Secretary for Investment Security (2019-2021)
This blogpost elaborates on the opinion piece ‘Biden, CFIUS and the US Steel Acquisition’ authored by Feddo and published on the Wall Street Journal (15 April 2024)
In December 2023, Nippon Steel and US Steel announced their plan to proceed with the acquisition of the latter by the former. The two companies are major players in the steelmaking sector: Nippon Steel is the largest producer in Japan and the fourth worldwide, while the Pittsburgh-based US Steel is the third in the US and the 27th worldwide. However, the acquisition entered rough waters after President Joe Biden voiced his opinion on the deal last March. The President concluded his laconic statement on the matter with words that seemed simultaneously firm and opaque: “It is vital for it (i.e., US Steel) to remain an American steel company that is domestically owned and operated.” A week later, the United Steelworkers trade union endorsed Biden’s campaign for re-election. The declaration could bolster support for Biden in a state critical to the outcome of the November presidential election, but it remains to be seen if the statement is merely a political tactic or a real policy choice that is implemented. Should it prove the latter, such a move would raise real concerns about compliance with the relevant law and damage to a vital U.S. national security tool. For now, the President has reiterated at campaign rallies his intention to “keep the company American”, but his Administration still declines to say whether the President would use his authority to block the buyout.
The only obvious way to kill the acquisition is through the Committee on Foreign Investment in the US (CFIUS), a longstanding interagency body tasked with evaluating cross-border transactions for potential national-security risks. According to reports, both steel companies had requested a CFIUS review a week prior to the President’s statement. Comprising nine cabinet officials and chaired by the Treasury Secretary, CFIUS operates confidentially, employing rigorous, fact-based analysis exclusively focused on national security. Its strictly confidential assessment is mandated by federal law, which is in part intended to shield the Committee from inappropriate political influence. While President Biden’s statement made no direct reference to CFIUS or national security, it led to speculation that he was attempting to preemptively signal his preferred outcome—well prior to the Committee completing its required analytical process. Nonetheless, an adverse CFIUS ruling would be unwarranted based on the Committee’s statutory and regulatory framework.
Indeed, the acquisition poses no discernible national-security threat to the US, as CFIUS primarily evaluates the foreign investor’s intent and capacity to jeopardise US national security, alongside the nature of the US business activities. This transaction, in the steel-making sector, does not implicate advanced technology, critical infrastructure, sensitive data, or the defense industrial base supply chain. On the contrary, Nippon Steel’s investment in US Steel promises to bolster American production capabilities and fortify geopolitical ties between the US and Japan, amid escalating Chinese assertiveness around the globe. Given Tokyo’s strategic relevance, particularly in areas such as its cooperation on Washington-led export controls and regional defence initiatives, such investments are pivotal. Notably, in early March, the US Navy Secretary encouraged Japanese and Korean shipbuilders to invest in American shipyards. Just a week later, President Biden articulated a position on the Nippon Steel-US Steel acquisition that, through the CFIUS lens of national security, was completely incongruous with his Navy Secretary’s message.
Under CFIUS’s statutory authority, President Biden can only intervene to prohibit the acquisition after CFIUS makes a referral to him and upon finding “credible evidence” that it “threatens to impair” national security. Given the President’s public and premature intervention here, if CFIUS indeed refers the acquisition and the President blocks it, the Committee’s integrity would be undermined. The White House has already taken a stance on the acquisition, transparently for a political calculus, and ignoring both the confidentiality and the process established in the law. Will either the public or the transaction parties find legitimacy in a CFIUS outcome that endorses ex post the President’s choice? The Committee risks gaining a reputation for being a secretive and powerful tool of arbitrary authority, at the mercy of domestic politics and electoral whims.
If such a scenario unfolds, global investors will question America’s openness to foreign investment, while special interests and lobbyists stand to gain inappropriate influence over national security policy choices. Additionally, US allies may question the depth of their relationship with Washington, if their companies are deemed a national security liability on such transparently thin justification. Finally, the legitimacy of CFIUS, a critical national-security mechanism that served the country for almost 50 years, would be undermined.
