The Nippon Steel Question

President Biden's recent block of Nippon Steel's attempted acquisition of US Steel might, ostensibly for national security reasons, exemplifies a troubling pattern in modern economic policy. At a value of $14.9bn (£12bn) this is no small deal but is tiny in comparison to the $29 trillion pound economy of the USA and despite the firm's 124 year history and the sector's apparent total strategic interest it shows up some of the lie about the need for the most important man in the world to spend his considerably value time interceding. While seemingly a straightforward matter of protecting American industry, this decision reveals how economic nationalism creates a dangerous two-speed economy - one where favoured industries operate under different rules than everyone else.

Consider this economy like a rigged game of Monopoly, where certain players are deemed too important to fail. These privileged few can take outsized risks and secure cheaper financing, knowing they'll always be rescued. Meanwhile, other players must carefully manage their resources and accept the consequences of their decisions. This isn't just unfair - it fundamentally distorts how markets function and allocate resources.

This protection carries profound, often invisible costs. When companies know they can't fail, innovation - the lifeblood of economic growth - inevitably stagnates. Protected status creates a peculiar paradox: the very companies we deem strategically vital become increasingly inefficient and less innovative precisely because of their protected status. They can access capital more cheaply than their competitors, not because they use it more productively, but because lenders know government backing eliminates their risk.

Perhaps most perniciously, this system creates a brain drain toward protected industries. Our brightest minds increasingly focus on navigating bureaucracy rather than creating value, as political connections become more valuable than operational excellence. This transforms our market economy into a political one, where success depends more on maintaining favourable relationships with regulators than serving customers effectively.

The effects ripple throughout the entire economy. Protected companies use their advantages to further entrench their position, while unprotected companies face higher costs and greater risks. Innovation shifts from creating customer value to exploiting regulatory loopholes. Companies spend more on lobbying and less on research and development. Executive attention turns from market signals to political ones.

It's worth noting that US Steel's executive actions in recent years were starting to show a lot of this up. The C-suite had actively sought a buyer and warned of potential factory closures without new investment - a crucial detail that illustrates the potential costs of blocking market solutions. The companies' attempt to address concerns through concrete commitments (workforce training centre, government veto rights on production cuts) serves as an example of how protected industries must increasingly navigate political rather than market considerations. The Japanese government's response that the decision was "incomprehensible" and Minister Muto's concerns about future Japan-US investment again show us that politicians are getting involved in business. It's not politicians' business to understand better than businesses how to run a business - even across borders. 

While we sometimes must protect truly strategic industries, particularly given global instability, we need far more rigidity in how we define and implement such protections. This requires explicit criteria for protected status, regular market testing to prevent abuse, and sunset provisions to ensure protection doesn't become permanent. Most importantly, we need transparency about the true costs of these interventions.

The Biden administration's US Steel decision might appear isolated, but such interventions create precedents and incentives that make future interventions more likely. Each decision sends ripples throughout the economy, subtly transforming the rules of the game in ways beyond any central planner's comprehension.

In economics, there's no such thing as a free lunch - someone always pays the bill. The question isn't whether we should ever protect strategic industries, but whether we're honest about the costs and thoughtful about the limits of such protection. Our current approach risks creating an economy where political influence matters more than customer service, where regulatory compliance trumps innovation, and where the connection between value creation and success grows increasingly tenuous.