Economic reality collides with industrial policy

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Dec 20, 2023 View in browser   By Adam Behsudi and Zachary Warmbrodt Presented by Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX U.S. Steel’s decision to sell itself to Japan’s Nippon Steel may make a lot of business sense. But to a Washington hell-bent on protecting America’s industrial soul, it’s the ultimate betrayal. The $14 billion deal for one of America’s most storied companies is triggering a bipartisan barrage of criticism, and it presents a major headache for President Joe Biden as he enters a race against a likely opponent who will no doubt use the issue to score political points. “A foreign company should not be able to swoop in, ignore the voices of union workers, and buy a major American steel manufacturer behind closed doors,” Senate Banking Chair Sherrod Brown said. A bipartisan group of lawmakers — among them Sens. J.D. Vance, Josh Hawley, Bob Casey and John Fetterman — are urging Treasury Secretary Janet Yellen to block the purchase of the Pittsburgh-based company on national security grounds. On the campaign trail, candidates are using the news as fodder in key Rust Belt races. The acquisition is revealing the limit of corporate America’s appreciation for U.S. industrial policy. It’s an exhibit of how efforts to protect what many view to be a critical industry with tariffs and other measures can be incongruous with a free market system. For a company at the center of those efforts, only one thing mattered in the end: maximizing shareholder value. Rewind to 2018. U.S. Steel CEO David Burritt was at former President Donald Trump’s side, cheering his decision to put tariffs on imports of steel and aluminum. The Trump administration justified the move by making the case that low-cost, heavily subsidized steel from countries like China undermined American companies like U.S. Steel. The Commerce Department found that imports were a threat to the U.S. industry’s ability to supply the military and critical infrastructure needs. “President Trump does have it absolutely right,” Burritt said on Fox Business at the time. The iconic company was the steely thread that ran through a new consensus that economic security was tantamount to national security. U.S. Steel’s decades-long cries against allegedly unfair competition helped Trump build his case for tariffs. Robert Lighthizer, Trump’s trade chief, spent a career defending U.S. Steel’s interests in trade cases. He represented the firm against the very company that now wants to buy it. Fast forward to Monday. Burritt said the deal will create “a truly global steel company” — something anathema to recent policies to keep critical industries and supply chains under American control. U.S. Steel sought a buyer for months, as it languished despite government efforts to protect it. The expanded Nippon Steel is expected to still produce less than the largest Chinese steel producer. “If you think steel is about security, and if you think domestic steel production is important, then you should be championing this deal,” said Christine McDaniel, a senior research fellow at George Mason University’s market-oriented Mercatus Center. White House press secretary Karine Jean-Pierre declined to comment on the deal Tuesday given that it could be subject to regulatory review but said the president supports union jobs and competition. If the transaction triggers a national security review, it could end up on Biden’s desk. A decision of that magnitude would be a major 2024 test of the president’s economic approach. It’s Wednesday — Send tips to zwarmbrodt@politico.com. A message from NRF Foundation: Retail is a great place to start – and a great place to grow a career. The retail industry is the nation’s largest private-sector employer, supporting one in four U.S. jobs – 52 million working Americans. 32% of Americans’ first jobs were in retail, and more than 60% have worked in retail at some point in their careers. Learn more about how we help people get a first chance or a fresh start in retail.   Driving the day The National Association of Realtors announces existing home sales for November at 10 a.m. The Red Sea inflation threat — The WSJ reports that shipping firms, oil companies and insurers remain jittery about passage through one of the world's most important trade routes, despite the creation of a U.S.-led, multinational task force to protect commercial traffic against attacks from Houthi forces in Yemen. The U.S. is considering military strikes, Bloomberg reported. The FT, citing data from MariTrace, said only 210 ships were traversing the Red Sea Tuesday, compared to about 330 last month. It's one of the biggest changes in international trading routes since Russia's invasion of Ukraine nearly two years ago. A court loss for Gensler — Per Declan Harty, a federal appeals court vacated the SEC’s stock buyback disclosure requirement, the first rulemaking from Chair Gary Gensler’s agenda to be struck down. The Fifth Circuit Court of Appeals had given the SEC a month to correct the rule’s “defects,” but the agency came up “empty-handed,” a panel of judges wrote Tuesday. U.S. Chamber of Commerce President and CEO Suzanne Clark, whose organization led the challenge against the rule, called the decision a “big win” and a sign of a “deeper problem” at the agency over the consideration of the costs and impacts of regulations. An SEC spokesperson said the agency is “disappointed” in the ruling, adding that the court’s decision rejected arguments against the rule related to the First Amendment and its public comment period. Crypto First in MM: Crypto group goes after Roger Marshall — The Kansas Republican senator is the latest target of an anonymous pro-crypto nonprofit that’s turning up the heat on lawmakers who have been critical of the digital asset industry, Jasper Goodman reports. The dark money group, the Cedar Innovation Foundation, is running a new digital ad that attacks Marshall for teaming up with Sen. Elizabeth Warren on a bill that would crack down on crypto money laundering. The industry opposes the legislation. The ad, which mocks the senators as a Washington “power couple,” accuses Marshall of partnering with Warren “to ship good-paying American jobs and critical technology overseas.” Marshall said in response that "abuse of cryptocurrency is literally funding terrorist attacks and bankrolling Hamas." "These below-the-belt attacks won't deter me from cutting off criminals and terrorists revenue streams," he said in a statement. Separately, Declan reports that Grayscale Investments is releasing a survey conducted by the Harris Poll that found nearly 20 percent of adults own crypto and that it's the most popular type of investment for Gen Z and millennials.   A message from NRF Foundation:   Climate Wall Street's energy investments face government scrutiny — Per Catherine Morehouse, the Federal Energy Regulatory Commission voted to launch an inquiry into financial companies’ investments in utilities. The move is intended to probe whether the firms exercise too much control over power and water providers' consumer rates, competition and ESG policies. “We have to apply strict scrutiny when a huge asset manager like Vanguard or State Street or BlackRock is buying a big chunk of either the company itself or its holding company, or private equity,” said Republican FERC Commissioner Mark Christie. “And it's because of the potential conflict between the public service obligations of say the electric utility or the water company and the investor.” Republican FDIC board member Jonathan McKernan said on X, formerly Twitter, that his agency should consider a similar inquiry into "big asset managers' influence over banks." "In particular," he said, "has any asset manager, through its ESG campaigns or otherwise, influenced a bank's underwriting or other policies to an extent it has 'control' for purposes of the Change in Bank Control Act or Regulation O?" A message from NRF Foundation: Retail careers are life-changing careers. As the nation’s largest private-sector employer, the retail industry supports one in four U.S. jobs – 52 million working Americans. 32% of Americans’ first jobs were in retail, and more than 60% have worked in retail at some point in their careers. With only 2-5 years of experience in the industry, earnings increase 54%. Those who stay in retail for more than 5 years can expect a staggering 122% increase in compensation. Retail careers also enable faster role advancement, with upward role advancements occurring every 14.5 months. To learn more about how we help people get a first chance or a fresh start in retail, visit nrffoundation.org.     Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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