Further consolidation of U.S. steel production would hurt consumers, national security

OPINION:

A wave of consolidation that has swept across American industry in recent years has left many wondering if such market movements are good for the country and the consumer.

According to one study, more than 75% of U.S. industries have experienced an increase in concentration levels over the last two decades. Market analysis, meanwhile, has found that merger and acquisition activity totaled $2.4 trillion in 2021, reaching the highest level since at least 1980 and demonstrating the pace at which such market movements have accelerated in recent years.

While consolidation in and of itself is not cause for concern, regulators in Washington should be mindful of such instances when it can harm competition and lead to higher prices and job cuts as a result.

Many believe that consolidation in the telecommunications industry, for example, has left Americans paying twice as much as Europeans for internet and cellphone service. An oligopoly of four companies that control about 80% of the beef and poultry market, meanwhile, has led to allegations of price-fixing and several multimillion-dollar settlements related to such claims.

Now it appears that our steel industry will be the next market sector to be placed firmly in the crosshairs of consolidation. Specifically, U.S. Steel — one of America’s largest and oldest steel producers — is the subject of numerous offers for full or partial acquisition.

But the steel industry in America has already undergone significant consolidation in the last decade, and it does not appear that further consolidation would do much to benefit our industrial base or national security.

Steel is an important component of countless consumer products, and as such, the potential pricing power of a colossal new steel producer could raise costs for consumers, adding to the already painful inflationary pressures American families face. Broader concerns for the federal deficit and the taxpayer should also be taken into consideration.

The recent passage of both the Infrastructure Investment and Jobs Act as well as the Inflation Reduction Act have kick-started federal funding for a number of new infrastructure projects that will require steel, including renewable energy generation, transmission lines, and bridges. But the domestic sourcing requirements companies must follow in order to qualify for federal subsidies and incentives mean that further consolidation in the steel industry could not come at a worse time.

At a time when hundreds of billions of dollars are set to flow into such projects, we must be sure that we maintain a healthy and competitive domestic steel industry to ensure the maximum returns on these federal dollars.

Such an acquisition could also lead to a reduction in jobs, including in my home state of Indiana. For example, if Cleveland Cliffs, a leading bidder for U.S. Steel, were to acquire the company, it would be the sole employer for the steel industry in the region around Gary, Indiana.

The Times of Northwest Indiana has reported that this could result in “more Northwest Indiana steel operations being taken offline and less spending on capital projects in the Region, potentially resulting in fewer jobs from skilled union tradesmen.”

From 2000 to 2016, the number of jobs in the steel industry fell by 35%, and we should be wary of allowing any other industry changes that could accelerate this concerning trend.

Any acquisition would also likely have significant national security implications, as American steel is an important part of our defense industrial base. Though the identities of many of the companies interested in U.S. Steel remain unclear, reports have indicated that at least one foreign-owned steel conglomerate is among the bidders.

Given this development, we must ensure that control of such an important American company is not transferred to a foreign entity that is not aligned with the strategic interests of the United States.

But even if U.S. Steel is sold to an American suitor, concerns remain about the integrity of the defense industrial base. The defense industry has already undergone significant consolidation in recent years. In the 1990s, for example, the number of aerospace and defense prime contractors shrank from 51 to five.

Steel remains an important component of a wide range of military equipment, from our naval vessels and armored vehicles to the control cables on our military aircraft. Further consolidation of important suppliers to the military — such as steel manufacturers — should be avoided, as it could leave the supply chain more vulnerable to disruptions and lead to higher prices for the Pentagon.

It is important to ensure that further consolidation in the American steel industry does not jeopardize national security, competition, or jobs in a key American sector. None of the proposed takeover deals for U.S. Steel would meet that standard, and federal regulators and policymakers in Washington should keep a keen eye on this as things develop.

• Former Rep. Dan Burton, Indiana Republican, served in the House of Representatives from 1983 to 2013 and was a member of the Committee on Foreign Affairs.