The steel deal: Biden speaking during a campaign event in Milwaukee, Wisconsin last week. It’s understandable why he would want to politicise the US Steel decision, and he’s far from the first president to factor in electoral considerations when making economic policy. — AFP
PRESIDENT Joe Biden signalled last week that his administration will oppose Nippon Steel’s proposed purchase of US Steel. As a matter of electoral politics, it’s easy enough to understand.
As a matter of economic policy, however – not so much. The merger requires approval from the Committee on Foreign Investments in the United States (CFIUS), which examines such cross-border deals to ensure they are compatible with US national security.
But the more relevant issue is that the steelworkers’ union wants the Biden administration to make the approval conditional on labour concessions that will help their members. Biden’s stance is a favour to his supporters.Both Donald Trump and George W. Bush enacted protectionist steel tariffs to try to win Pennsylvania’s electoral votes, so Biden’s move is hardly unprecedented.
But it does underscore the fatal flaws in the kind of “industrial policy” that has come into vogue in recent years and is embodied in much of Bidenomics.
The idea behind industrial policy is essentially that economic growth is too important to be left to the market. Instead, the state should deliberately cultivate leading industries in strategic sectors.
In some sense, this is compelling. The notion that the United States has a national-security interest in maintaining a steel industry certainly makes sense. Russia’s war against Ukraine has revealed critical weaknesses in the West’s defence industrial base.
And the extension of these security concerns toward things like microchip and pharmaceutical manufacturing – alongside the traditional pillars of the industrial-age economy such as steel – certainly has merit.
Where things start to go awry is with the premise that these national-security exceptions to a general free-market disposition should also be drivers of economic prosperity.
The right way to think about the security case for maintaining a domestic steel industry is that it’s a potentially costly but necessary commitment: Building nuclear submarines is frighteningly expensive.
It’s true that their manufacture “creates jobs.” But nuclear sub manufacturing is not fundamentally a source of American prosperity.
In fact, in many ways it’s the opposite: A lot of material resources and skilled labour are poured into machines that generate very little economic welfare for the American people.
The jobs associated with the subs are a cost of maintaining America’s defences, not a benefit of the defence spending.
Of course, to make subs you need steel, which is why there are good reasons to maintain a domestic steel industry.
But Japanese ownership of US steel facilities is not a security risk. Not only is Japan a US ally, it is the key US ally against the key adversary, China.
Nippon Steel has committed to maintaining production in the United States, which is the relevant national security issue.
Precisely because this is a sensitive security topic, the United States should be thrilled that it wants to buy the company.
In labour terms, it’s easy to sympathise with workers who want a better deal.
But leveraging the CFIUS review to extract economic concessions for workers doesn’t just violate the purpose of the process – it undermines it.
The United States has a strong security interest in the thriving domestic production of steel.
That means trying to make operations as efficient and competitive as possible, not boosting labour costs above where they would go without government intervention.
Steel is not the only area in which the administration is trying to turn industrial policy into a win for workers.
The attempt to use subsidies to create a domestic semiconductor manufacturing industry, for example, is flailing, mostly because of the White House’s determination to attach many strings to every subsidy dollar in order to promote other progressive goals.
Each deviation from technically sound policy may be defensible on its own terms.
It’s not catastrophic to help the steelworkers out in this merger deal, or to slap tariffs on Chinese electric cars even while trying to promote electric-vehicle adoption, or to hobble the offshore wind industry with Jones Act requirements (that, incidentally, a different union likes).
Taken together, however, it amounts to an incoherent approach to policy.
Another case in point: According to Politico, Biden is obsessed with increasing the supply of housing and frustrated by the federal government’s inability to do much about it.
At the same time, his administration is poised to further increase tariffs on imported softwood lumber, which will increase the cost of building houses.
It’s notable that, for all his striving to be seen as the most pro-union president ever, Biden does not appear to have more support from blue-collar union members than did Barack Obama or Bill Clinton.
That’s because Biden has offset more stridently labour-friendly positions with further-left positions on environmental and social issues.
To borrow Ezra Klein’s metaphor, he is adding an electoral everything bagel to go with the economic everything bagel he has already ordered.
Under the circumstances, any step to depoliticise economic policy would be welcome. And the Nippon Steel deal is as good a place as any to start.
Let the CFIUS review happen on the merits. Scrutinise the actual national security concerns. Take seriously the notion that, from a security perspective, higher labour costs are worse.
Again, it’s understandable why Biden would want to politicise the US Steel decision, and he’s far from the first president to factor in electoral considerations when making economic policy.
But the politics-first approach has hardly delivered political success so far. Why not try assessing the question on the merits? — Bloomberg
Matthew Yglesias is a columnist for Bloomberg Opinion. The views expressed here are the writer’s own.
