Two thoughts on Biden's statement

Behind the electoral calculations, a worrying trend

President Joe Biden roiled the US-Japan relationship this week when he delivered a strident new statement on Nippon Steel’s bid for US Steel. He said:

It is important that we maintain strong American steel companies powered by American steel workers. I told our steel workers I have their backs, and I meant it. U.S. Steel has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated.

The immediate implications of this statement for the purchase, which will be reviewed by the Treasury Department’s Committee on Foreign Investment in the United States (CFIUS) at some point, are unclear. This statement was also released over the objections of some in his administration, emphasizing the extent to which this has more to do with the political support of United Steelworkers (USW) than the merits or demerits of Nippon Steel’s bid.

I think we can look at this statement two ways.

First, we can look at this as an all-too-familiar tendency of incumbent US presidents to turn to protectionism and economic nationalism when facing tough reelection campaigns. Biden is not the first and presumably will not be the last to play this card. And this is hardly the most egregious example. Let’s not forget George W. Bush’s steel tariffs. Or, for that matter, that Richard Nixon, concerned about his own reelection prospects, unilaterally ended the postwar monetary system and imposed a 10% universal tariff because he thought it might help.¹

In this sense, Biden’s statement is dismaying, particularly for those who believe closer US-Japan economic ties are worthwhile in and of themselves, or for those who want the US to uphold a rules-based economic order, or for those who simply think that Nippon Steel’s purchase could actually make US Steel a better business. But it is not necessarily an episode that has larger implications for the US-Japan relationship or the climate for Japanese investment in the United States, particularly if in the end CFIUS approves the sale anyway.

I suspect that the Japanese government is by and large taking this approach. There is little that the Kishida government can say or do about a private transaction or a domestic US regulatory process like CFIUS. Both Chief Cabinet Secretary Hayashi Yoshimasa and Minister of Economy, Trade, and Industry Saitō Ken declined to comment on the matter. Japan’s government is all too aware of the political calculations behind Biden’s statement. The Nikkei Shimbun published a story Thursday with a headline that captures this sentiment: “Labor Unions Blocking Nippon Steel | The 1% of Voters Moving All of America | Influencing the Presidential Election.” The article then walks through union membership numbers in Pennsylvania, Wisconsin, Michigan, and Ohio, comparing them with the margins of victory in those states in 2020. It also points to the importance of union endorsements, funding, and volunteers. Tokyo just isn’t blind to this reality.

There is, however, a more concerning way of looking at this statement, which is that yes, Biden is thinking about the electoral map, but this is also part of a pattern that suggests that economic nationalism is now firmly embedded in both the Democratic and Republican parties. While the Biden administration has generally been more polite to US allies than the Trump administration, its “foreign policy for the middle class” is, as Adam Posen argued last year, its own sort of “America First” policy. It appears all too eager to deploy industrial policy or protectionism first and patch things up with allies later – or, in the case of the Biden administration’s approach to trade agreements, not negotiate in the first place. Biden’s statement is also alarming in its choice of words – “It is vital for it to remain an American steel company that is domestically owned and operated” – for what it says about the expansiveness of economic security arguments. The US Department of Defense does not buy from US Steel, and if anything, Nippon Steel could modernize the company. The notion that US Steel remaining an American steel company is the best outcome for US national security, for US workers, or for the US economy more broadly has not been proven, but the ease with which the president and, to a greater extent, members of Congress have made this argument is troubling.

In short, in isolation Biden’s statement can be viewed as a fairly typical gesture by an incumbent president. But set against the broader climate in US politics, it takes on a more alarming cast. For example, in a profile of Senator J.D. Vance (R-OH), one of the most outspoken opponents of Nippon Steel’s bid, published on Friday, Politico’s Ian Ward characterized Vance’s views of US international economic policy as follows:

What Vance wants to see happen — and believes he can play a role in precipitating — is a fundamental shift away from the rules-based international order and toward a system where individual nations are responsible for their own security and economic well-being. Vance admitted that getting to this point would require a “really drastic change” in the way the U.S. economy functions, beginning with erasing America’s trade deficits, severely curtailing immigration and possibly even abandoning the dollar as the global reserve currency. But it would also require an entirely new way of measuring economic strength.

This is effectively a call for autarky and is a prescription for a set of policies that would leave the United States – and its trading partners – poorer. It is the bleak, and, frankly, un-American idea that international economic relations must be necessarily zero sum.

I mention this example not because I think Biden is making a similar argument. Nothing Biden or his administration has said or done is as radical as Vance’s worldview; the Biden administration is still committed to US engagement in the global economy, however much it prefers to do so on US terms. But I do fear the creeping normalization of zero-sum economic nationalism, the belief that another country’s gain must necessarily be a loss for the United States. If the Biden administration is prepared to play this card against a Japanese company, when Japanese companies provide more foreign direct investment than any other countries’ businesses and have longstanding commitments to US communities and workers, no country is immune. A second Trump administration would in all likelihood reinforce this trend.

From Tokyo’s perspective, the more widespread this kind of thinking becomes in the United States, the less reliable the United States will be as a partner in supporting an rules-based international order whose existence Tokyo acknowledges is indispensable for its national security. As sensitive as the Kishida government is to the realities of electoral politics, I have no doubt that some in Tokyo are harboring these fears as well.

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1. I’ve been reading Jeffrey Garten’s Three Days at Camp David on the Nixon shock, which is a fantastic account of this episode.