A potential presidential block of the Japanese company Nippon Steel’s acquisition of U.S. Steel is being widely reported by many media outlets. If enforced, President Biden would impose such an impediment under the authority provided to him by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). That law governs how the Committee on Foreign Investment in the United States (CFIUS or the Committee) reacts to what it considers adversarial investment inflow. The Committee is empowered to regulate, on the basis of corresponding national security risks that such acquisitions pose, acquisitions of U.S. assets by foreign entities.

CFIUS covers controlling investments in any U.S. business. As has previously been explained in a Taft law bulletin, CFIUS “is [also] authorized to assess the national security propriety of these kinds of transactions: (1) certain non-controlling investments in some U.S. businesses involved with critical technology, critical infrastructure, or sensitive personal data — recognized as ‘TID US businesses’ — and (2) certain real estate transactions. CFIUS usually works out mitigation agreements with the acquirers, though the President may block a transaction.” In fact, “[h]ighly restricted judicial review may happen, but it is limited to the procedural aspects of the Executive decision itself.” In recent years, CFIUS has been preoccupied with “protect[ing] the defense industrial base, prevent[ing] malicious actors from gaining control of critical infrastructure, and … prevent[ing] adversaries from accessing advanced technology with military applications.”

While CFIUS has cleared thousands of transactions — usually, it imposes mitigation agreements to resolve any problems — it is not uncommon for presidents to block some of them. Since 2020, five transactions have been blocked — though some have been withdrawn by the putative acquirers upon reaching an impasse with the government. The blocks generally occur when the government and the acquirer are at an impasse or if the acquisition is fundamentally unacceptable to the government from a national security standpoint. Going back to the Nippon Steel context, this block would be a significant development. Given that Chinese acquisitions tend to receive CFIUS’ most careful scrutiny, the scrutiny to which Nippon Steel is being subjected has struck some observers as unusual. While some of the criticism directed at Nippon Steel has had a national security valence, it is strongly suspected that some of it is not strictly so. Endeavoring to blunt some of the political and legal attacks, Nippon Steel has agreed to inject $1.3 billion into this deal and use a proxy board that is mostly made up of U.S. citizens.

Although the government appears to have concerns, some proponents of this deal’s going through argue that it would actually “strengthen” national security. American steel plants would benefit from advanced Japanese technology and enhanced productivity, they suggest, thus raising American economic competitiveness. Those supporters also contend that American tariffs on imported steel would make it less likely for Nippon Steel to build plants elsewhere in the world; and that this acquisition would raise steel industry employment in the United States. U.S. Steel has suggested that if this deal is sunk, then many of its plants would have to shut down. It remains to be seen what the future holds for this Nippon Steel acquisition.