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Labor votes in the Mid­west are at a pre­mium in this tight pres­i­den­tial race, and no­where is that truer than in Penn­syl­va­nia. To woo the United Steel­work­ers Union (USW), Pres­i­dent Biden an­nounced last month plans to tri­ple Sec­tion 301 tar­iffs on Chi­nese steel, in­vited USW pres­i­dent David McCall to the White House for a state din­ner in April and then joined the USW in op­pos­ing Nip­pon Steel’s pur­chase of U.S. Steel, claim­ing that it was vi­tal for the lat­ter to re­main “do­mes­ti­cally owned and op­er­ated.”

When an­nounc­ing the tar­iffs, Biden pointed out that steel made in the U.S. “emits half as much car­bon as steel made in China.” The car­bon re­duc­tions in the U.S. are only pos­si­ble be­cause much of do­mes­tic steel is pro­duced not by old-fash­ioned blast fur­naces, but by re­cy­cling scrap steel in elec­tric arc fur­naces.

Much of the la­bor force at these elec­tric arc fur­naces are non-union la­bor. Blast-fur­nace steel mills like the U.S. Steel-owned Mon Val­ley Works, out­side of Pitts­burgh, still em­ploy many USW work­ers.

Prevent­ing the sale

Fear of los­ing jobs in these older style plants is be­hind the USW’s cam­paign to pre­vent the Jap­a­nese steel gi­ant, Nip­pon Steel Cor­po­ra­tion, from ac­quir­ing U.S. Steel, one of two U.S. steel­mak­ers still us­ing blast fur­nace tech­nol­ogy. The USW wants U.S. Steel to go to Cleve­land-Cliffs, sur­ren­der­ing its rights to ap­prove any U.S. Steel sale to the Ohio com­pany.

Its re­jec­tion of Nip­pon Steel in fa­vor of a sin­gle al­ter­na­tive will en­dan­ger their ob­jec­tives in the long run. En­gag­ing with Nip­pon Steel at the ne­go­ti­a­tion ta­ble is the best way to en­sure a long-term leg­acy of union steel­mak­ing in Pitts­burgh

The USW and Nip­pon Steel did meet in Pitts­burgh on March 7 to dis­cuss how Nip­pon Steel would abide by the union’s Ba­sic La­bor Agree­ment (BLA) with U.S. Steel. Despite guar­an­tees to sup­port union mem­bers at blast fur­nace plants, in­clud­ing no lay­offs be­fore Sep­tem­ber 2026 and $1.4 bil­lion of cap­i­tal in­vest­ment, the USW lead­er­ship has re­fused to meet fur­ther.

The union be­lieves Nip­pon Steel is us­ing le­gal­ese to evade BLA ob­li­ga­tions. Nip­pon Steel is only us­ing stan­dard busi­ness lan­guage to ac­count for un­ex­pected and ex­treme cir­cum­stances. The USW would be bet­ter off meet­ing with Nip­pon Steel to ham­mer out iron-clad as­sur­ances.

Reg­u­la­tory ef­fects

The USW should also be wary of mis­trust­ing Nip­pon Steel and plac­ing its trust in Cleve­land-Cliffs be­cause of likely reg­u­la­tory and eco­nomic re­sults.

Only blast fur­nace mills can pro­duce cer­tain steel needed by in­dus­tries, such as au­to­mo­biles. A Cleve­land-Cliffs and U.S. Steel merger would con­trol 100% of blast fur­nace pro­duc­tion in the U.S., 100% of the U.S. pro­duc­tion of elec­tri­cal steel used in EV mo­tors and elec­tri­cal grids, and 95% of do­mes­tic up­stream iron ore pro­duc­tion.

The com­bined steel en­tity would likely trig­ger im­me­di­ate fed­eral an­ti­trust ac­tion to or­der, at min­i­mum, the di­ves­ti­ture of parts of the new com­pany. The di­ves­ti­ture amounts dif­fer: Cleve­land-Cliffs es­ti­mates $2 bil­lion; U.S. Steel es­ti­mates $7 bil­lion, or nearly the en­tire value of the orig­i­nal $7.3 bil­lion Cleve­land-Cliffs bid.

Regard­less of the amount, any di­ves­ti­ture would risk the loss of jobs. A merger with Nip­pon Steel would not cre­ate such mo­nop­o­lies.

The union’s big­ger con­cern, how­ever, should be about the fu­ture. Union work­ers’ blast fur­nace steel plants need new tech­no­log­i­cal in­vest­ment. Cleve­land-Cliffs can­not make those in­vest­ments, as it lacks Nip­pon Steel’s cap­i­tal re­sources, and pre­fers to spend $600 mil­lion on stock buy­backs in the first quar­ter of 2024 and has an­nounced a fur­ther $1.5 bil­lion in stock buy­backs. These buy­backs will force it to take on more debt, rather than mak­ing any in­vest­ments.

In con­trast, a Nip­pon Steel merger would per­mit tech­nol­ogy trans­fers that will make U.S. Steel’s blast fur­nace plants more com­pet­i­tive and vi­a­ble in the long-term. In ad­di­tion to the $1.4 bil­lion cap­i­tal in­vest­ment al­ready men­tioned, Nip­pon Steel has pledged $500 mil­lion a year in R&D to U.S. Steel, a sharp up­tick from the $40 mil­lion that U.S. Steel pre­vi­ously spent.

At the heart of this tech­nol­ogy trans­fer is Nip­pon Steel’s hy­dro­gen-in­jec­tion blast fur­naces. Using hy­dro­gen in­stead of coke to re­duce iron ore, Nip­pon Steel al­ready can re­duce car­bon emis­sions by 33% and ex­pects to achieve 50% by 2040. At those fig­ures, blast fur­nace steel be­comes as low-car­bon as elec­tric arc fur­nace steel.

These ad­vances should ad­dress USW con­cerns that Nip­pon Steel will fa­vor elec­tric arc mills and shut­ter union-heavy blast fur­nace mills, such as the Mon Val­ley Works out­side of Pitts­burgh.

A ben­e­fi­cial pur­chase

Nip­pon Steel’s pur­chase of U.S. Steel will ben­e­fit USW’s fam­i­lies, friends, and com­mu­ni­ties as well. The com­pany has pledged to re­tain U.S. Steel’s name and head­quar­ters, and will move its own North Amer­i­can of­fices from Hous­ton to down­town Pitts­burgh.

USW lead­ers have an ob­li­ga­tion to sup­port and ad­vo­cate for their mem­bers. Pin­ning all their hopes on Cleve­land-Cliffs is risky. The union should ne­go­ti­ate with Nip­pon Steel and se­cure the guar­an­tees and in­vest­ments that will strengthen USW mem­bers and their blast fur­nace mills in the long term.