Nippon Steel insists it wants all of US Steel. Not a minority stake, nor the “investment package” US President Donald Trump is suggesting.
One of the last orders issued by former president Joe Biden was to reject the Japanese multinational’s takeover bid, ostensibly on “national security” grounds (one of the “exceptions” under World Trade Organisation rules). The new leadership at the White House had been expected to take a different view, but Trump’s recent comments on the merger signal continuity rather than change.
Much of Trump’s protectionist impulse is an episodic return to protectionism arising from the economics of the global steel and other product markets, rather than solely about his brand of new age Republican nationalism. The bipartisan consensus in the US on the necessity for protective trade measures in the face of a global crisis of overproduction in steel and other sectors is well established.
The retention of the section 232 tariffs imposed by the Biden administration is testimony to this. But this episode also illustrates the cyclicality of changes in who has the power, and over what period changes in productivity at home translate to export market dominance abroad. It is a particularly mercantilist idea, not unique to this era.
The US itself has experienced numerous episodes of relative productivity advantage that made its lead firms in key product and service markets dominant. Think of how the Bessemer process and cheap steel built late 19th century America and Britain, or how changes to semiconductor technology and computing power made many industries far more productive from the 20th century.
One commentator has suggested that between the end of World War 1 and the late 1950s the amount of steel one American worker could produce in an hour more than quadrupled. The capacity and distribution of purchasing power to absorb that in buildings, aeroplanes, cars and washing machines in America and elsewhere could not keep up.
Much of Trump’s protectionist impulse is an episodic return to protectionism arising from the economics of the global steel and other product markets, rather than solely about his brand of new age Republican nationalism.
No steelmaking country operating at a minimum efficient scale can produce for their market alone. Not even China. Thus “intervention” in markets becomes an existential need and protection against price volatility. Firms buy up other struggling producers while carving out markets in ways that avoid periodic price slumps. The transnational consolidation (Tata Steel and Mittal Steel’s acquisitions since the 2000s are examples) seen since the late 1990s, to which the Nippon deal (had it gone through) would have contributed, is further complicated by technological and machinery changes.
Examples are the cheapening (or making more expensive) of raw material inputs and improvements in productivity at a national level in large protected markets such as China and India. To the extent that these changes allow for outlets and markets for the disposal of excess steel products, they create international trade opportunities. And problems.
When supply conditions change, be it through the introduction of new producers or politically induced changes that “reintroduce” new competing supplies, political responses often follow. Two decades ago the main SA primary steel producer observed the same. In its annual report of 2002, Iscor (now ArcelorMittal SA) highlighted that the cause of low steel prices then was a “capacity overhang” after the collapse of the eastern European communist bloc.
Thus new supply from outside existing exchange relations between countries upset the delicate balance, much like significant scaling up of Chinese and Indian production would do in the decades that followed. Then, as now, many nations including the US, the eurozone and even China, responded with safeguard measures.
The changes in the past two decades have unfortunately spawned a countertendency among developed nations, which are experiencing widespread deindustrialisation. One expression of this tendency is trade-deficit accounting as a form of agitational politics.
To what extent this becomes a handmaid to rearmament and gunboat diplomacy as overproduction becomes a permanent rather than episodic feature in markets such as steel, only time will tell. What is not in dispute is that old impulses of domination and conquest are everywhere. And that is not new.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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