By Matt Peterson

President Biden's nixing of U.S. Steel's attempted sale to a foreign buyer may be the last word on that transaction. But it's the tip of the iceberg of a bigger issue. Purported national security concerns are driving new forms of government intervention in the economy, and not just under one party.

Biden's decision Friday to block U.S. Steel's sale to Japan's Nippon Steel on national security grounds shows just how flexible national security has become as an excuse for interference in business and the markets. That justification is only likely to become more common when President-elect Trump returns to power on Jan 20.

"Without domestic steel production and domestic steelworkers, our nation is less strong and less secure," Biden said.

The White House did not respond to a request for comment.

But as Barron's has reported, more steel production in the U.S. is precisely what the deal would have provided.

A better explanation for Nippon Steel's failed bid is that a foreign company accidentally wandered into a political minefield by trying to acquire an iconic unionized American manufacturer in a swing state during an election season. The United Steelworkers' leadership opposed the sale to Nippon. The self-described "most pro-union president ever" couldn't risk being outflanked.

Apparently, ensuring that part of his legacy was important enough to drive Biden to act with less than three weeks left to his presidency, when many thought the deal might be allowed to squeak through.

Biden's decision risks undermining the Committee on Foreign Investment in the U.S. The committee, known as Cfius, was created by President Ford in 1975 and much expanded by Congress in 2018. The committee reviews potentially sensitive transactions involving foreign buyers of U.S. assets. It acts in secret and has the power to retroactively review transactions. Based on such reviews, the president can block or unwind transactions, as he did in this case.

Cfius opened its investigation after the prospective deal was announced in December 2023. It concluded its investigation earlier this month, but did not make its findings public under longstanding practice. Ultimately, it's the president's decision.

Biden's statement announcing the deal didn't offer specifics. "As a committee of national security and trade experts across the executive branch determined, this acquisition would place one of America's largest steel producers under foreign control and create risk for our national security and our critical supply chains," he said.

People who have served on the committee say it is a highly professional, nonpartisan operation. It has to be. While it has the power to launch its own investigations, in the majority of cases it relies on businesses to self-report potential issues. The U.S. economy is too large for even the federal government to know what's going on in all cases. The committee gives businesses guidelines on how to determine when potential national security issues arise.

It's rare for a Cfius review to result in the president blocking a deal. The committee reviewed 342 cases in 2023, according to the congressional Research Service. In CFIUS's decadeslong history, only nine transactions have been blocked or reversed, including U.S. Steel.

The previous eight cases had another thing in common: All involved advanced technology, and all the potential acquirers had links to China. Neither is the case for the U.S. Steel deal.

Advocates for blocking the deal claimed it could undercut the U.S. ability to produce the steel the military needs in an emergency.

It isn't clear that is true. Japan is a treaty ally of the U.S. The Department of Defense estimated in 2018 that just 3% of domestic steel production goes to military needs.

"This is such a monumental self own," said Sarah Baurle Danzman, a professor at Indiana University who has served on Cfius. Her point is that the executive branch is using powers it was given to safeguard the nation to undermine a deal that would have made economic sense -- not exactly what Congress intended.

That sets up a worrying precedent. The next president can ask for a secret review of transactions he may dislike and order them banned. And the next president may do that. Donald Trump in 2020 ordered TikTok owner ByteDance, a Chinese company, to divest or be banned based on a Cfius review.

That order was never enforced, and Trump now supports TikTok staying in the U.S.

The stakes go beyond just a few high-profile companies and an obscure committee. U.S. presidents have been granted vast legal power to interrupt business in the name of national security. For decades that power was used sparingly. But now both parties want to exercise it routinely.

National security was the basis for Trump's tariffs in the first administration, including steel tariffs that encompassed Japan and other U.S. allies. Trade experts have said he could use the 1977 International Emergency Economic Powers Act to impose the universal 10-20% he campaigned on, though courts may disagree.

With Congress mired in dysfunction, there's little to check a president who wants to intervene heavily in the economy. Biden's decision to override the U.S. Steel transaction will make it easier for every future administration to gesture vaguely at national security whenever its power is questioned.

It's hard to get the genie back in the bottle. At this point, it isn't clear anyone in power even wants to.

Write to Matt Peterson at matt.peterson@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 03, 2025 16:32 ET (21:32 GMT)

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