Why the steelworkers union might crush Nippon’s bid for U.S. Steel

Nippon Steel has made a generous offer to the union, including a vow of no layoffs or plant closures under the current contract and a $1.4 billion investment in union facilities, executives said in an interview with The Washington Post.

But the union says that Nippon Steel’s proposal contains substantial holes that would allow it to back out of the union contract — making way for layoffs or plant closures. In a draft of the agreement Nippon sent to the union in March, obtained by The Post, Nippon said, for example, that it could abandon its promise not to conduct layoffs or plant closures in the case of an “unanticipated or significant downturn in business conditions.”

“[Nippon] goes around saying that there’ll be no layoffs and no plant closings at any of our facilities,” said David McCall, president of United Steelworkers, which represents 10,000 workers at the once-iconic American company. “But it’s all conditional. … That’s an absolute empty promise.”

McCall also told The Post that the proposal lacks guarantees that the Japanese steel giant will refrain from using the acquisition to undercut American steel production or will steer its U.S. investments toward nonunion plants. Nippon Steel and other Japanese producers have a “well-established record” of dumping steel in U.S. markets, resulting in job losses, according to the union.

The Commerce Department in recent years has imposed multiple trade penalties on Nippon Steel and other Japanese steelmakers accused of selling products in the United States below their production cost.

While the steelworkers’ union does not have the legal power to block a deal, its political leverage, especially during an election year, is critical to the fate of the acquisition. Biden and Trump are competing for union voters in swing states.

The United States has lost more than 50,000 steel jobs since 2000, according to Labor Department data, in part due to cheap steel imports from East Asia that have devastated steelmaking communities throughout the industrial Midwest, labor experts say.

“There’s a huge atmosphere of mistrust about where this merger might be headed,” said Susan J. Schurman, a labor studies professor at Rutgers University, noting U.S. Steel’s recent efforts to shift production to the nonunion South.

Both the Justice Department and the Treasury Department-led Committee on Foreign Investment in the United States are investigating Nippon Steel’s bid to purchase U.S. Steel, which could drag out beyond November.

Meanwhile, Democrats, including Sen. Sherrod Brown of Ohio, who is locked in a tight race that could determine whether the party holds the Senate, sent a letter to the Biden administration Monday saying that the acquisition “poses a grave threat” to “American manufacturers and workers.” The letter, also signed by Sens. John Fetterman and Bob Casey, both of Pennsylvania, calls an executive action to block the deal “urgent.”

Nippon Steel is drawn to the United States by its trade and industrial policies, officials have told The Post. A blend of tariffs and quotas limits U.S. imports of foreign steel and aluminum. At the same time, demand for industrial metals is rising, thanks in part to Biden’s efforts to promote domestic production of semiconductors and renewable energy products.

If the merger is consummated, the combined company would become the world’s third-ranked steel producer, gaining heft to battle supersized Chinese rivals on the global stage.

Nippon Steel told the union in December that its North American subsidiary would be financially responsible “to honor all commitments” in the union contract, including steelworkers’ benefits, health care and pensions, according to a Dec. 18 company letter.

The union alleges that Nippon’s proposal violates their agreement with U.S. Steel, by not holding the Japanese parent company responsible for the union contract and instead leaving members exposed to the whims of a subsidiary.

But at least twice this year, the company indicated that responsibility for those contractual commitments would be shared by both Nippon Steel and its North American subsidiary. Those assurances represented a step toward the union’s demand that the Japanese corporate parent be responsible for fulfilling the union contract.

The union, however, remains unhappy. Enforcing its current contract after the merger could require the union to take Nippon Steel to court, a potentially lengthy process that McCall labeled “unacceptable.”

U.S. Steel and the union will enter arbitration over this concern and other issues in August.

A spokesman for U.S. Steel said in a statement that the company has “tried to resolve” the union’s issues and “move swiftly through the arbitration process to reach a resolution,” but that the union “has repeatedly attempted to delay and requested indefinite postponement of the arbitration.”

Nippon Steel sees an opportunity to enter a growing market by acquiring the third-ranked steelmaker in the United States, which operates both traditional blast furnaces and smaller, more efficient electric arc systems, and owns mines in Minnesota and Alabama.

The Japanese company believes it can cut in half the carbon emissions from U.S. Steel’s blast furnaces using an experimental hydrogen-fueled technology, according to Takahiro Mori, vice chairman of Nippon Steel. The goal is to have such systems operational by 2030, he said.

That’s one example of how Nippon Steel’s annual $500 million in research and development spending could pay off for its American target, Mori said.

“We are going to share all the fruits of this kind of R&D and technologies. That makes U.S. Steel very strong,” he said.

Shares of U.S. Steel have lost roughly 24 percent of their value this year, as Biden’s opposition to the deal became clear. Nippon Steel’s U.S. securities are down almost 7 percent over the same period.

The deal would marry the world’s fourth- and 27th-largest steel producers under Japanese ownership. Nippon Steel executives have promised to retain U.S. Steel’s name and Pittsburgh headquarters, a nod to the venerable steelmaker’s lingering hold on the public imagination.