Committee on Foreign Investment in the United States (CFIUS)

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U.S. Steel Acquisition Proposal Tests Biden’s Industrial Policy

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The president is under pressure from Democrats and Republicans to block the sale to Japan’s Nippon Steel, which could upset a key foreign ally.U.S. Steel is an iconic example of the lost manufacturing muscle that President Biden says his economic policies will bring back to the United States.But last month, the storied-but-diminished company announced plans to be acquired by a Japanese competitor. That development has put Mr. Biden in an awkward bind as he tries to balance attempts to revitalize the nation’s industrial sector with his efforts to rebuild international alliances.Mr. Biden’s administration has expressed some discomfort with the deal and is reviewing the proposed $14.1 billion takeover bid by Japan’s Nippon Steel. The company is offering a hefty premium for U.S. Steel, which has struggled to compete against a flood of cheap foreign metal and has been weighing takeover offers for several months.The proposal has quickly become a high-profile example of the difficult political choices Mr. Biden faces in his zeal to revive American industry, one that could test the degree to which he is willing to flex presidential power in pursuit of what is arguably his primary economic goal: the creation and retention of high-paying union manufacturing jobs in the United States.Mr. Biden is under pressure from the United Steelworkers union and populist senators from both parties, including Democrats defending crucial swing seats in Ohio and Pennsylvania this fall, to nix the sale on national security grounds. The senators contend that domestically owned steel production is critical to U.S. manufacturing and supply chains. They have warned that a foreign owner could be more likely to move U.S. Steel jobs and production overseas.“This really should be a no-brainer,” Senator Josh Hawley, Republican of Missouri, said in an interview last week. “I don’t know why it would be difficult to say, my gosh, we’ve got to maintain steel production in this country, and particularly a company like this one, where you have thousands of workers in good union jobs.”U.S. Steel executives say the deal would benefit workers and give the merged companies “world-leading capabilities” in steel production. They announced last month that Nippon Steel had agreed to keep the company’s headquarters in Pittsburgh and to honor the four-year collective bargaining agreement that the steelworkers’ union ratified in December 2022.Other supporters of the takeover bid say blocking the sale risks angering a key American ally. Mr. Biden has courted Japanese collaboration on a wide range of issues, including efforts to counter Chinese manufacturing in clean energy and other emerging technologies, and welcomed Japanese investment in new American manufacturing facilities including for advanced batteries.Wilbur Ross, a former steel company executive who served as commerce secretary under President Donald J. Trump, wrote last week in The Wall Street Journal that there is “nothing in the deal from which the U.S. needs defending. Attacks by Washington pols only create unnecessary geopolitical tensions, and those, not the acquisition itself, could endanger American national security.”Adding to the cross-pressures on Mr. Biden: It is unclear what would happen to the 123-year-old U.S. Steel if the administration scuttles the deal and whether doing so would actually guarantee greater job security for the company’s nearly 15,000 North American employees.U.S. Steel executives say the deal with Nippon Steel would benefit workers, but skeptics of the deal are urging President Biden to review it to prevent lost steel production and jobs.Lawrence Bryant/ReutersU.S. Steel has faced challenges for decades because of intensifying foreign competition, particularly from China, which has flooded the global market with cheap, state-subsidized steel. American presidents have spent years trying to bolster and protect domestic steel makers through a mix of subsidies, import restrictions and so-called Buy America requirements for government purchases.“No U.S. industry has benefited more from protection than the steel industry,” Scott Lincicome, a trade policy expert at the libertarian Cato Institute think tank, wrote in a 2017 research paper.In recent years, presidents have increased those protections further. Mr. Trump imposed tariffs on imported steel, including from Japan. Mr. Biden has partially rolled back those levies in an attempt to rebuild alliances. Mr. Biden also included strict Buy America provisions in sweeping new laws to invest in infrastructure, clean energy and other advanced manufacturing.Those efforts have not come close to bringing back the levels of domestic steel production that the United States enjoyed in the 1970s — or even of recent decades. Raw steel production reached higher levels under Presidents Bill Clinton, George W. Bush and Barack Obama than it has under Mr. Biden or Mr. Trump.Employment in the industry fell steadily in the 1990s and mid-2000s. In 2022, there were just over 83,000 workers in iron and steel mills in the United States, which was less than half the number from 1992.Senators including Sherrod Brown of Ohio and Bob Casey of Pennsylvania, both Democrats, and Mr. Hawley and J.D. Vance of Ohio, both Republicans, urged Mr. Biden to review the proposed U.S. Steel sale to guard against lost steel production and jobs. Mr. Brown cited Nippon Steel’s failure to notify or consult with union leaders ahead of making its bid for the company.“Tens of thousands of Americans, including many Ohioans, rely on this industry for good-paying, middle-class jobs,” he wrote in a letter to Mr. Biden last month. “These workers deserve to work for a company that invests in its employees and not only honors their right to join a union, but respects and collaborates with its work force.”The calls for an administrative review of the deal largely focused on the Committee on Foreign Investment in the United States, which is known as CFIUS and headed by Janet L. Yellen, the Treasury secretary. The committee scrutinizes possible sales of American firms to foreign ones for possible national security threats, then issues recommendations to the president, who can suspend or block a deal.Shortly before Christmas, Mr. Biden appeared to grant the request for review, while stopping short of saying he would block it.Lael Brainard, who chairs the White House National Economic Council, said in a news release that Mr. Biden welcomed foreign investment in American manufacturing but “believes the purchase of this iconic American-owned company by a foreign entity — even one from a close ally — appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability.”The administration, Ms. Brainard said, “will be ready to look carefully at the findings of any such investigation and to act if appropriate.”Steelworkers cheered the move. David McCall, president of United Steelworkers International, said in a statement that Mr. Biden was “demonstrating once again the president’s unwavering commitment to domestic workers and industries.”Independent experts say it would be well within historical norms for the committee to evaluate the sale. That will likely include a detailed economic analysis of whether the deal could lead to diminished steel production capacity in the United States, said Emily Kilcrease, a CFIUS expert and senior fellow at the Center for a New American Security.But Ms. Kilcrease said that based on the committee’s past decisions, she expected the review to stop well short of a recommendation to kill the sale. Instead, she said, CFIUS might require an agreement from Nippon Steel to maintain certain levels of U.S. employment or production as a condition of the sale’s going through.“I would be shocked if this deal got blocked,” she said.Mr. Hawley said the choice was ultimately Mr. Biden’s — and a test of his commitment to the industry.“If the administration wants to block the sale, they absolutely have grounds to do it and the legal authority,” he said. “So it’s just a question of, do they want to? And will they have the guts to do it?” More

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    Could U.S. Toughness on Chinese Business Have Unintended Consequences?

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    Businesses fear that efforts to look tough on Beijing, which have the potential to be more expansive than moves by the federal government, could have unintended consequences.At a moment when Washington is trying to reset its tense relationship with China, states across the country are leaning into anti-Chinese sentiment and crafting or enacting sweeping rules aimed at severing economic ties with Beijing.The measures, in places like Florida, Utah and South Carolina, are part of a growing political push to make the United States less economically dependent on China and to limit Chinese investment over concerns that it poses a national security risk. Those concerns are shared by the Biden administration, which has been trying to reduce America’s reliance on China by increasing domestic manufacturing and strengthening trade ties with allies.But the state efforts have the potential to be far more expansive than what the administration is orchestrating. They have drawn backlash from business groups over concerns that state governments are veering toward protectionism and retreating from a longstanding tradition of welcoming foreign investment into the United States.Nearly two dozen mostly right-leaning states — including Florida, Texas, Utah and South Dakota — have proposed or enacted legislation that would restrict Chinese purchases of land, buildings and houses. Some of the laws could potentially be more onerous than what occurs at the federal level, where a committee led by the Treasury secretary is authorized to review and block transactions if foreigners could gain control of American businesses or real estate near military installations.The laws being proposed or enacted by states would go far beyond that, preventing China — and in some cases other “countries of concern” — from buying farmland or property near what is broadly defined as “critical infrastructure.”The restrictions coincide with a resurgence of anti-China sentiment, inflamed in part by a Chinese spy balloon that traveled across the United States this year and by heated political rhetoric ahead of the 2024 election. They are likely to pose another challenge for the administration, which has dispatched several top officials to China in recent weeks to try to stabilize economic ties. But while Washington may see a relationship with China as a necessary evil, officials at the state and local levels appear determined to try to sever their economic relationship with America’s third-largest trading partner.“The federal government in the United States, across branches with strong bipartisan support, has been quite forceful in sharpening its China strategy, and regulating investments is only one piece,” said Mario Mancuso, a lawyer at Kirkland & Ellis focusing on international trade and national security issues. “The shift that we have seen to the states is relatively recent, but it’s gaining strength.”One of the biggest targets has been Chinese landownership, despite the fact that China owns less than 400,000 acres in the United States, according to the Agriculture Department. That is less than 1 percent of all foreign-owned land.Such restrictions have been gathering momentum since 2021 after Fufeng USA, the American subsidiary of a Chinese company that makes components for animal feed, faced backlash over plans to build a corn mill in Grand Forks, N.D. The Committee on Foreign Investment in the United States, a powerful interagency group known as CFIUS that can halt international business transactions, reviewed the proposal but ultimately decided that it did not have the jurisdiction to block the plan. However, the Air Force, citing the mill’s proximity to a U.S. military base, said this year that China’s involvement was a national security risk, and local officials scuttled the project.Since then, states have been developing or trying to bolster their restrictions on foreign investment, in some cases blocking land acquisitions from a broad set of countries, including Iran and North Korea. In other instances, they have targeted China specifically.The state moves, some of which also include investments coming from Russia, Iran and North Korea, have raised the ire of business groups that fear the rules will be too onerous or opponents who view them as discriminatory. Some of the proposals wound up being watered down amid the backlash.This year, Texas lawmakers proposed expanding a ban that was enacted in 2021 on the development of infrastructure projects funded by investors with direct ties to China and blocking Chinese citizens and companies from buying land, homes or any other real estate. Despite the support of Gov. Greg Abbott of Texas, a Republican, the proposal was scaled back to prohibit purchases of just agricultural land, quarries and mines by individuals or companies with ties to China, Iran, North Korea and Russia. The bill ultimately expired in the Texas Legislature in May.In South Dakota, Gov. Kristi Noem, a Republican, has been pushing for legislation that would create a state version of CFIUS to review and investigate agricultural land purchases, leases and land transfers by foreign investors. Ms. Noem has argued that the federal government does not have sufficient reach to keep South Dakota safe from bad actors at the state level.The legislation failed amid pushback from farming groups that were concerned about restrictions on who could buy or rent their land, along with lawmakers who said it would hand too much power to the governor.One of the most provocative restrictions has been championed by Gov. Ron DeSantis of Florida, a Republican who is running for president. In May, Mr. DeSantis signed a law prohibiting Chinese companies or citizens from purchasing or investing in properties that are within 10 miles of military bases and critical infrastructure such as refineries, liquid natural gas terminals and electrical power plants.“Florida is taking action to stand against the United States’ greatest geopolitical threat — the Chinese Communist Party,” Mr. DeSantis said when he signed the law, adding, “We are following through on our commitment to crack down on Communist China.”Gov. Ron DeSantis of Florida, a Republican presidential candidate, signed into law one of the most provocative restrictions against Chinese investments.David Degner for The New York TimesBut the legislation is written so broadly that an investment fund or a company that has even a small ownership stake from a Chinese company or a Chinese investor and buys a property would be violating the law. Business groups and the Biden administration have criticized the law as overreach, while Republican attorneys general around the country have sided with Mr. DeSantis.The Florida legislation, which targets “countries of concern” and imposes special restrictions on China, is being challenged in federal court. A group of Chinese citizens and a real estate brokerage firm in Florida that are represented by the American Civil Liberties Union sued the state in May, arguing that the law codifies and expands housing discrimination. The Justice Department filed a “statement of interest” arguing that Florida’s landownership policy is unlawful.A U.S. district judge, who heard arguments about the case in July, said last week that the law could continue to be enforced while it was being challenged in court.The restrictions are creating uncertainty for investors and fund managers that want to invest in Florida and now must decide whether to back away from those plans or cut out their Chinese investors.“It creates a lot of thorny issues not just for the foreign investors but for the funds as well, because some of these laws try to make them choose between keeping investors and being able to invest in those states,” said J. Philip Ludvigson, a partner at King & Spalding. “It’s really a gamble for the states that are passing some of these very broad laws.”Mr. Ludvigson, a former Treasury official who helped lead the office that chairs CFIUS, added: “You might want to get tough on China, but if you don’t really think through what the second- and third-order effects might be, you could just end up hurting your state revenues and your property market while also failing to solve an actual national security problem.”The state investment restrictions also coincide with efforts in Congress to block businesses based in China from purchasing farmland in the United States and place new mandates on Americans investing in the country’s national security industries. The Senate voted overwhelmingly in favor of the measures in July, which still need to clear the House to become law.The combination of measures is likely to complicate diplomacy with China and could draw retaliation.“Officials in Beijing are quite concerned about the hostility to Chinese investments at both the national and state levels in the U.S., viewing these as another sign of rising antipathy toward China,” said Eswar Prasad, a former head of the International Monetary Fund’s China division. “The Chinese government is especially concerned about a proliferation of state-level restrictions on top of federal limitations on investments from China.”He added, “Their fear is that such actions would not just deprive Chinese investors of good investment opportunities in the U.S., including in real estate, but could eventually limit Chinese companies’ direct access to American markets and inhibit technology transfers.” More

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    Air Force Says Proposed Chinese-Owned Mill in North Dakota Is ‘Significant Threat’

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    A proposal for a corn mill, which had been welcomed as an economic development success, reflects just how much things have changed with Chinese investment proposals in the U.S.After more than a year of debate about whether a Chinese company’s plan to build a corn mill in North Dakota was an economic boon or a geopolitical risk, an assistant secretary of the Air Force has weighed in with a warning that the “project presents a significant threat to national security.”The letter from Assistant Secretary Andrew P. Hunter, released publicly on Tuesday by North Dakota’s senators, noted the proximity of Grand Forks Air Force Base to the proposed mill and said the project raised “near- and long-term risks of significant impacts to our operations in the area.”The debate over Fufeng USA’s plan to build a giant milling facility on the edge of Grand Forks, less than 15 miles from the Air Force base, divided the Republican power structure in North Dakota and showed just how swiftly the economic relationship between the United States and China had changed.Though the Air Force letter did not name specific threats, residents had voiced numerous concerns. Some in town said it was unwise to deepen economic ties with China, while others speculated that the mill could be used for spying on the Air Force, which the company denied.The city’s Republican mayor, Brandon Bochenski, a former supporter of the project, said on Tuesday that because of the federal guidance, he would move to block construction by trying to deny building permits and by refusing to connect city infrastructure to the building site.More on U.S. Armed ForcesKorean War Wall of Remembrance: Many names of American service members who died in the conflict are misspelled or missing from the new memorial wall in Washington, relatives and researchers say.Parental Leave: The Pentagon announced a new policy that would double the amount of leave that is available to military service members.Defense Bill: Congress passed a $858 billion defense bill that would rescind the coronavirus vaccine mandate for troops and increase the defense budget $45 billion over President Biden’s request.A Boost for the N.R.A.: Instructors in military-sponsored J.R.O.T.C. classes have offered to promote the gun rights organization in high schools in exchange for money for their marksmanship programs.“The Air Force left ambiguity off the table,” the state’s two senators, John Hoeven and Kevin Cramer, both Republicans, said in a joint statement that called for Grand Forks officials to work with them “to find an American company to develop the agriculture project.”The corn mill was the sort of job-creating opportunity that cities have long fought over, and one that just a few years ago would have been seen by most as an unambiguous win. Both Mr. Bochenski and North Dakota’s Republican governor, Doug Burgum, celebrated in late 2021 when Grand Forks landed the project, which would have been the city’s largest economic development project in recent history.But within months after Fufeng chose Grand Forks, a college and military city with 59,000 residents, many in town began speaking out against the project. While some of the opposition focused on property rights and water use, the company’s ties to China and the perceived national security risks became the focus of pushback. Still, the city moved forward, annexing the field where the mill would be built and entering into a development agreement with the company.Mr. Bochenski, a first-term mayor and a former professional hockey player, said in an interview last year that the shifting geopolitical winds had been a challenge for the city. “Are we going to be the first one to basically say no to globalism?” he asked at the time.But on Tuesday, in light of the Air Force’s letter, Mr. Bochenski said he would seek the City Council’s help to block construction, though he noted that Fufeng USA, the American subsidiary of a Chinese company, would still own the land where it had hoped to build.Work on the project had been paused in recent months while the federal government’s Committee on Foreign Investment in the United States reviewed the company’s plans. That committee ultimately decided that it did not have jurisdiction.“The response from the federal government during this process can only be viewed as slow and contradictory,” Mr. Bochenski said. “This directive leaves open the question of other entities with Chinese connections across the nation,” he added, including a Chinese-owned aviation company in Grand Forks “and Chinese students and professors at the University of North Dakota.”Mr. Burgum, who once called the Fufeng mill a “huge opportunity” for his state, said in a statement that he supported the mayor’s decision to stop cooperating with the company given the concerns voiced by the Air Force.The turnabout in North Dakota comes as the United States rethinks its longstanding trade relationship with China, and as politicians in both parties have come to view the country more as a threat than as an attractive economic partner. Several states are considering bills this year that would limit or ban Chinese land ownership.Eric Chutorash, Fufeng USA’s chief operating officer, has repeatedly denied that the mill would be used to spy on or harm the United States. He did not immediately respond to requests for comment about the Air Force’s letter. China’s embassy in Washington declined to comment. More

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    U.S. Details How It Plans to Police Foreign Firms

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    A government committee issued new guidelines for how it determines penalties for foreign companies that break agreements to protect U.S. national security.WASHINGTON — The federal government on Thursday laid out for the first time how it will determine penalties for foreign companies that break agreements to protect American national security.When some foreign companies buy American firms, they sign agreements with the Committee on Foreign Investment in the United States, a group of federal agencies, in order to mitigate national security concerns about the new ownership. The committee, known as CFIUS, has the ability to levy fines, some of them very large, on companies that break those agreements.The new guidelines issued on Thursday give insight into how the committee, which wields considerable power over foreign transactions but is often seen as a black box, makes its decisions. In recent years, CFIUS has forced a Chinese company to sell the dating app Grindr and has made another Chinese firm divest an American maker of hotel management software. The committee is currently negotiating an agreement with TikTok, the popular video app, to resolve concerns posed by its Chinese ownership.According to the new guidelines, the committee could consider more serious penalties when a foreign company’s failure to follow an agreement causes an especially grave risk to national security. CFIUS would also consider whether it took a long time for the committee to learn of a foreign company’s failure to comply with an agreement. And it would take into account whether a company’s failings had been intentional or simply negligent, according to the new guidelines, which are not binding.President Biden has been trying to limit the sway that China and other adversaries have over American companies and consumers. Lawmakers and regulators have grown increasingly concerned that China could use its proximity to major computer chip manufacturers in Asia to influence the supply of a device that is central to a vast array of products, including appliances and automobiles. Many are also worried that Chinese-owned apps like TikTok and WeChat might hand over Americans’ data to Beijing under Chinese laws.This month, the Biden administration issued restrictions that stop Americans from working with Chinese chip companies. Last month, Mr. Biden signed an executive order directing CFIUS to closely scrutinize whether corporate deals involving foreign companies, including from China, would expose the personal data of Americans or involve crucial emerging technologies.The guidelines issued on Thursday do not name any specific foreign country.Paul Rosen, the assistant secretary for investment security at the Treasury Department, which oversees CFIUS, said in a statement that most foreign companies abided by their agreements on national security. But, he said, “those who fail to comply with CFIUS mitigation agreements or other legal obligations will be held accountable.”The committee has been busy in recent years, reviewing hundreds of corporate deal filings in 2021, according to the reports it sends to Congress. In some of those cases, the committee agreed to approve a deal only if the foreign company agreed to carry out measures designed to reduce its concerns.Mr. Rosen said in his statement that the guidelines sent a “clear message” that it was “not optional” for companies to follow their agreements with the government.Under federal law, the government can fine companies that violate their agreements with the committee. The fines can be significant, reaching as high as the total value of the corporate deal in question.The guidelines also publicly explain how companies can challenge a penalty from the government, and they shed more light on how the committee monitors for violations. According to the memo, the government learns of possible violations from “across the U.S. government, publicly available information, third-party service providers (e.g., auditors and monitors), tips” and participants in the deal itself. More