The US’s foreign direct investment (FDI) community has hit back at president Joe Biden’s decision to block Nippon Steel’s $14.9bn acquisition of US Steel on national security grounds, describing it as “undermining trust” in the country and a “flagrant abuse” of presidential authority.

The White House’s January 3 decision to halt the Japanese firm’s acquisition of the 123 year-old industrial group followed one year of bipartisan pushback to the deal in Washington DC, amid a tussle to win blue-collar votes ahead of the November election.

Responsibility for screening the country’s inbound investments lies with the Committee on Foreign Investment in the United States (Cfius). However, in accordance with Cfius rules, it referred the decision to the White House in late December after failing to agree that the deal posed no national security risks. 

On January 6, three days after Mr Biden’s decision, Nippon Steel and US Steel sued the government alleging the president unlawfully interfered in Cfius’s decision-making process “to advance his political agenda” which prevented a good-faith review. The Nippon–US Steel case is only the second Cfius lawsuit in history, and one which local FDI experts see grounds for. 

“If ever there were a [Cfius] case that warrants action against the president, this is it,” said national security lawyer John Kabealo, founder of Kabealo Law in Washington DC. Mr Biden and vice president Kamala Harris publicly opposed the transaction before and during the review by Cfius — intended to be an apolitical body — which “effectively directed [Cfius] not to approve the transaction”, he added.  

These actions are a “clear and flagrant abuse of a president’s national security authorities to achieve unrelated — [or] political — objectives,” according to Mr Kabealo.

Reflecting on Mr Biden’s early public opposition to the deal, Jonathan Samford, CEO of Global Business Alliance, stated that “to subvert national security laws to advance campaign pledges undermines the trust and economic cooperation that are central to our nation's prosperity”.

These early public pronouncements conflated the president’s national security concerns with his political stance, said former Cfius member Harry Broadman, creating “obfuscation that flies in the face of Cfius’s raison d’etre”. Now at the Rand Corporate think tank, he believes the president has signalled that US FDI policy “is neither clear nor stable”, a point which is likely to become one of the “centrepieces of the litigation”.

The companies’ lawsuit requests a new Cfius review, the fate of which could be in the hands of president-elect Donald Trump who has also opposed the deal. 

The only other time an investor has sued the government for blocking a deal via Cfius was in 2012 when Chinese-owned Ralls Corporation brought a lawsuit against the Obama administration over its forced divestiture of windfarms. The case settled in 2015, with Ralls allowed to sell on better terms than the White House ordered.

More on Nippon Steel and Cfius:

• US steel heartland leaders hit back at Nippon saga
• Nippon Steel: flashpoint in politicised US investment screening
• Opinion: Nippon Steel fiasco is shortsighted politics in action

‘Powerful and negative’

While Nippon and US Steel are fighting to salvage their deal, attention has turned to the block’s broader ramifications for FDI into the country. Mr Samford of GBA, which represents foreign firms in the US, said the decision “sends a powerful and negative signal” that the country “may no longer honour its longstanding open investment policy”. 

Sarah Bauerle Danzman, a professor of international studies at Indiana University, agreed the US has sent “a powerful signal that it is willing to stretch the definition of national security beyond generally understood limits … by labelling a company headquartered in a major ally a national security threat”. 

Beyond politicising the Cfius process, observers have criticised Mr Biden and other opponents to the deal for not articulating the national security risk it presents. The Council on Foreign Relations’s Matthew Goodman is among those to argue that blocking Nippon’s acquisition is “counterproductive” to Mr Biden’s objectives of protecting national security by strengthening supply chains. “Nippon Steel’s bid was the most realistic chance to salvage US Steel’s production and jobs,” he said.

The Japanese firm pledged to invest $2.7bn across its would-be US operations, a commitment that US Steel — whose headcount has halved over the past two decades as it struggles to compete with cheaper production in Asia — is not in a position to make.

The blocked deal has pit local government leaders in US Steel communities against lawmakers in DC, with the former “imploring” Mr Biden to approve the deal via an open letter in December. “We are hard-pressed to understand how elected officials in Washington can abandon this region [by opposing] the Nippon/US Steel deal,” Stefani Pashman, CEO of Pittsburgh region’s Allegheny Conference, said in a statement. The area is home to US Steel’s flagship Mon Valley operations.  

The company’s other major operations are in Gary, Indiana, whose mayor Eddie Melton, said in a statement he is “deeply disappointed” by the decision and the city now faces job losses and “an uncertain future”.

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