In one of his final acts as President, Joe Biden has blocked Nippon Steel’s acquisition of US Steel, citing national security concerns. This controversial decision, executed through executive action on January 3, 2025, has reignited debates over protectionism and its impact on economic stability. The Executive Order demands US Steel and Nippon Steel to submit documents to the Committee on Foreign Investment in the United States (CFIUS) within 30 days to terminate the merger. It also authorizes Attorney General Merrick Garland to enforce the order. The reasoning is nominally national security: “I hereby reserve my authority to issue further orders with respect to the Purchasers or US Steel as shall in my judgment be necessary to protect the national security of the United States.”
In the gearing up of the 2024 Presidential Election, Biden promised to shield the industry from foreign competition. My analysis suggests this situation was a political ploy to achieve stronger support in the 2024 Presidential Election amongst union workers and industry leaders in the Rust Belt. The Keystone State, Pennsylvania, is a swing state that Biden won by razor thin margins in 2020. Roughly a year ago, the US Steel decision was put on ice pending a review by CFIUS. CFIUS acts as a guard dog ensuring who can and can’t invest in the USA in order to protect “national security”. On September 22, 2022, President Biden, through Executive Order, was the first President to expand the scope of CFIUS to include, “present risks to the national security of the United States, and it is for this reason that the United States maintains a robust foreign investment review process focused on identifying and addressing such risks.”
The investment review process directed CFIUS to focus on five emergent spectra, including supply chain protection, advanced technology, industry investment trends, cyber security, and personal data. In short, Biden armed CFIUS with new mandates and now has used an undisclosed report from CFIUS to intervene in domestic and international markets, citing national security as justification to block the merger between Nippon Steel and US Steel.
While Biden’s decision may seem tailored to present, unique challenges, it continues a recurring trend in US trade policy. The Reagan administration’s protectionist measures in the 1980s offer a cautionary tale of economic inefficiency and unintended consequences. On July 19, 1983, President Ronald Reagan issued Proclamation 5074 – Temporary Duty Increases and Quantitative Limitations on the Importation Into the United States of Certain Stainless Steel and Alloy Tool Steel. The United States International Trade Commission, or USITC, has months prior issued an undisclosed report claiming various steel goods are harming domestic industries, “all the foregoing of stainless steel or certain alloy tool steel; and round wire of high speed tool steel… are being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the domestic industries producing articles like or directly competitive with the imported articles.” In reaction to this report, Reagan opted to raise tariff rates against steel imports: “I am providing import relief through the temporary imposition of increased tariffs and quantitative restrictions on certain stainless steel and alloy tool steel.”
As the 1980s rocked forward, the USA and other nations signed “Voluntary Restraint Agreements.” These agreements sought to provide protection for US domestic industries without becoming a fixed quota system. Trade import quotas were prohibited in international trade law under the GATT, General Agreement on Trade and Tariff, now the World Trade Organization (WTO). Voluntary Restraint Agreements became a lever of power in Reagonomics, while still aiding the declining domestic steel industry. Steel imports into the United States would be kept to 18.5 percent market penetration, although “Japan and the European Economic Community each have about 5 to 6 percent of the American steel market.”
In the late 1990s, the Cato Institute released research about the steel industry and the protectionist measures undertaken by the Reagan Administration (1981-1989). Authors, Brink Lindsey, Daniel T. Griswold, and Aaron Lukas questioned steel protectionism effectiveness in job retention declaring, “Employment in the steel sector has declined by more than 60 percent since 1980 largely because of rising productivity, and employment will continue to fall even if trade barriers are imposed.” In addition, the Voluntary Restraint Agreements, amongst other protectionist measures, cost the US economy roughly $7 billion in the 1980s.
Brookings Institution author Robert Crandall agreed. In his examination of the lack of firm growth under the 1980s import restrictions, he writes, “Despite the trade protection of the late 1970s and 1980s, the integrated steelmakers were forced to launch a major retrenchment in the early 1980s. These companies began closing plants, reducing capacity from 138 million tons in 1980 to 90 million tons in 1987.”
Jobs evaporated and companies downsized, and protectionist measures of the 1980s imposed more harm than good. Why would 2025 be any different?
Clearly, both the current and incoming administration have failed to learn the repeated lessons of the previous decades. Government desires to protect the steel industry. But the industry remains a world powerhouse, the USA ranking number four in steel production. On top of this, Nippon Steel promised to invest in the rust belt, “including at least $1 billion to Mon Valley Works and approximately $300 million to Gary Works as a part of $2.7 billion in investment that it has already committed.” Nippon Steel even agreed to entrust the future board members of the merger to be US citizens, going so far as to preserve key positions such as CEO to US citizens. Just prior to its prohibition, on December 23, 2024, US Steel and Nippon Steel remarked the merger as an act of “Friendshoring” bringing not only two strong industries together, but also the governments of Japan and USA.
The Biden Administrations’ interventions in the steel industry reflect a pattern of prioritizing short-term political gains over sustainable economic strategies. The market manipulation of the 1980s through Voluntary Restraint Agreements, mirrored in the recent prohibition of Nippon Steel’s acquisition of US Steel, demonstrates a troubling reluctance to learn from past mistakes. Rather than fostering investment, innovation, and competition, these protectionist policies risk stifling growth and ignoring the potential for revitalization in regions like the Rust Belt, where Nippon Steel’s proposed investments could have delivered much-needed economic benefits.
In an increasingly interconnected global economy, clinging to outdated protectionist measures is a losing strategy. To secure its economic future, the United States must adopt policies that encourage openness and collaboration while leveraging its position as a global leader in innovation. A commitment to fostering competition and welcoming investment will strengthen not only the steel industry but the broader economy — paving the way for long-term growth and stability, a far more important goal than fleeting political favoritism.
