THE POLITICAL BATTLE FOR U.S. STEEL / THE WALL STREET JOURNAL

The Political Battle for U.S. Steel

Unions and politicians are trying to steer the company’s sale after tariffs fail to make it more competitive.

By The Editorial Board

A worker leaves the U.S Steel Edgar Thomson Works in Braddock, Pa., March 26, 2020. PHOTO: GENE J. PUSKAR/ASSOCIATED PRESS

Government industrial policy is in fashion these days, using tariffs, subsidies and mandates to allocate capital. 

But to see how that is working in practice, look at the fate of U.S. Steel, which is now seeking a buyer to improve its fortunes. 

A mix of labor politics and protectionism could block a sale in the best interest of shareholders.

The search for a buyer took off this month when U.S. Steel publicly sought bids. The company decided to hold an auction after rival Cleveland-Cliffs made an unsolicited offer of $7.3 billion. 

U.S. Steel’s board says the offer validated its “compelling transformation,” but the company’s underwhelming performance explains why it’s open to a sale.

Holding company Esmark topped Cleveland-Cliffs’ offer once the bidding began, but Ohio-based Cleveland-Cliffs is back in the mix. 

That’s because the United Steelworkers (USW) union, which represents U.S. Steel’s employees, is backing Cleveland-Cliffs as its favored buyer. 

The USW wants U.S. Steel to join another unionized steel producer, and Cleveland-Cliffs is one.

That’s a problem for U.S. Steel because the union claims it can veto every other buyer. 

The company’s labor agreement says prospective buyers must set terms of employment with the USW, which the union reads as a right to negotiate. 

U.S. Steel dismisses that reading, saying any buyer can “establish terms” with the union merely by adopting the existing labor contract.

The company holds the legal high ground here, but the USW could lodge a complaint that would drag a deal through arbitration and drive down the price. 

Esmark dropped its bid after the USW endorsed Cleveland-Cliffs.

If U.S. Steel manages to clear the union hurdle, it could face a greater challenge from Washington. 

Legislators and regulators will play a role in the company’s fate. 

Congress’s industrial-policy caucus is already weighing in for their parochial political interests.

GOP Sen. J.D. Vance sent a letter to U.S. Steel this month urging the company not to consider offers from overseas buyers. 

Democratic Rep. Ro Khanna echoed him, saying “any new steel acquisitions in the US must be led by American companies.” 

Their goal seems to be to tip the buyout in favor of Cleveland-Cliffs to protect the USW.

Their demands ignore the small scale of the deal and existing national-security safeguards. 

Once the world’s most valuable steel producer, U.S. Steel has slipped to 27th in global steel output and now produces about a third less volume than current U.S. leader Nucor.

As for security, the Committee on Foreign Investment in the U.S. can review the impact that a sale might have on specific areas of manufacturing. 

The panel of executive departments could attach conditions that it deems necessary, such as requiring U.S. Steel to divest from certain contracts. 

This tailored approach could allow a deal with ArcelorMittal, the Luxembourg-based company that may make a bid.

There’s also a potential antitrust problem because a Cleveland-Cliffs-U.S. Steel merger would create a domestic monopoly in tin-plate steel. 

Cleveland-Cliffs is already seeking a tariff of up to 300% on tin-plate steel.

The irony is that U.S. Steel reached the point of selling despite years of help from industrial policy. 

President Trump slapped a 25% tariff on steel imports in 2018 to aid domestic producers. 

That padded U.S. Steel’s profits but it hasn’t revived the company’s competitiveness.

U.S. Steel is seeking private capital after government failed, and its shareholders deserve a competitive bidding process. 

But today’s nexus of political and union power may not let that happen. 

This is how it goes when politicians seek to run the U.S. economy.