U.S. warns against Nippon merger with U.S. Steel, citing China steel glut

Nippon Steel's proposed $14.9 billion takeover of U.S. Steel would create national security risks because it could hurt the supply of steel needed for critical transportation, construction and agriculture projects, the U.S. said in a letter sent to the companies and seen by Reuters.

The letter cited a global glut of cheap Chinese steel, and said that under Nippon, a Japanese company, U.S. Steel would be less likely seek tariffs on foreign steel importers.

The Committee on Foreign Investment in the U.S. said in its 17-page letter sent Saturday to Nippon Steel and U.S. Steel, and first reported by Reuters, that decisions by Nippon could "lead to a reduction in domestic steel production capacity."

CFIUS added "U.S. Steel's decisions in (trade) cases will be influenced by Nippon Steel and may take into account Nippon Steel's commercial interests and competitive position in the global steel market."

The letter provided a first glimpse of the national security grounds that the Biden administration could use as a basis for its expected move to block the merger, even as the companies and many industry experts questioned the strength of the arguments.

CFIUS appeared to be "significantly expanding" its definition of national security risk, said Sarah Bauerle Danzman, a professor at Indiana University and a fellow at the Atlantic Council.

"While the resilience of U.S. domestic steel capacity is clearly in the national interest, it is unclear how ownership by a firm domiciled in a major treaty ally would fundamentally threaten this," she said.

Many Republican and Democratic lawmakers have voiced opposition to the deal. Vice President and Democratic presidential candidate Kamala Harris said on Monday at a rally in Pennsylvania, the swing