This particular deal is a good thing for the country. Metals production is incredibly capital intensive and margins on products are low (this is base production, not the high value-add specialty alloys). That means the business needs to spend billions to make millions in net profit.
This is exactly the kind of business that the American investor class lost patience with in the era of globalization, and even further with the rise of big tech - where it becomes possible to bootstrap billion-dollar businesses with millions in starting capital. Capital flight from manufacturing, and businesses with similar capex/opex/margin profiles has gutted the US manufacturing base and only a dwindling number of legacy players even operate - new entrants can’t get investment and either set up overseas or just never advance past the planning stage.
The end result for US Steel has been decades of mismanagement and cost-cutting that have left the US without competitive base metals production - funds that should have been spent on R&D instead went to shareholders. This mismanagement has caught up to the business and it is now producing products of inferior quality and at higher prices than overseas suppliers who haven’t spent the last 3 decades avoiding investment in their own business. The ‘Buy American’ provisions and metals tariffs are basically the only reason it hasn’t folded already.
Enter Nippon Steel, a company very used to operating in an environment with expensive energy, labor, and inputs. It wants to buy the US Steel assets (read steel plants and workers) and operate them as an independent subsidiary in order to gain more of foothold in the American market and be eligible for US defense contracts. This capital infusion is desperately needed as the current owners of the business have underinvested since the 80s. Somehow, this story gets twisted into some nativist drivel, and now the US gov is set in blocking the deal to score political points with the uninformed. What this means is we’ll be giving US Steel a taxpayer bailout in a few years, or it will go bankrupt, or the ghouls in charge will change their entire outlook and begin to treat it like a business to be managed and not a money sponge to be squeezed…
This particular deal is a good thing for the country. Metals production is incredibly capital intensive and margins on products are low (this is base production, not the high value-add specialty alloys). That means the business needs to spend billions to make millions in net profit.
This is exactly the kind of business that the American investor class lost patience with in the era of globalization, and even further with the rise of big tech - where it becomes possible to bootstrap billion-dollar businesses with millions in starting capital. Capital flight from manufacturing, and businesses with similar capex/opex/margin profiles has gutted the US manufacturing base and only a dwindling number of legacy players even operate - new entrants can’t get investment and either set up overseas or just never advance past the planning stage.
The end result for US Steel has been decades of mismanagement and cost-cutting that have left the US without competitive base metals production - funds that should have been spent on R&D instead went to shareholders. This mismanagement has caught up to the business and it is now producing products of inferior quality and at higher prices than overseas suppliers who haven’t spent the last 3 decades avoiding investment in their own business. The ‘Buy American’ provisions and metals tariffs are basically the only reason it hasn’t folded already.
Enter Nippon Steel, a company very used to operating in an environment with expensive energy, labor, and inputs. It wants to buy the US Steel assets (read steel plants and workers) and operate them as an independent subsidiary in order to gain more of foothold in the American market and be eligible for US defense contracts. This capital infusion is desperately needed as the current owners of the business have underinvested since the 80s. Somehow, this story gets twisted into some nativist drivel, and now the US gov is set in blocking the deal to score political points with the uninformed. What this means is we’ll be giving US Steel a taxpayer bailout in a few years, or it will go bankrupt, or the ghouls in charge will change their entire outlook and begin to treat it like a business to be managed and not a money sponge to be squeezed…
Thanks for the explanation. That clarifies things.