It’s a sad commentary on the state of the US economy.
We wrote about it in an earlier post…
Not so long ago, when the US economy was a value-based engine, the stock market could be considered a decent measure of economic activity.
Manufacturing companies who produced and sold more products earned more money. And investors in those companies were rewarded with higher share prices and often dividend payouts.
Everyone’s a winner.
Today we no longer live in a traditional value-based economy. Sure, we have industries that produce stuff that’s sold here and around the world. But more and more that continues to change.
Today, and for the past roughly 50 years, the stock market has turned from a measure of an industrial economy into a tool of financial elites.
A means to make money from money. Period.
The latest chapter appears to have finally hit home.
A Shadow of Its Former Self
Originally formed in 1901, US Steel (X) became the first $1 billion company and was one of the key drivers of the US’ global economic dominance during the era.
Global advances in steel production technology, however, soon saw US Steel’s market dominance fade.
In 1991, X was removed from the Dow Jones Industrial Average after 90 years.
Today the company is only one of four major US steel manufacturers and ranks third in both steel production (as of 2023) and market cap. According to Reuters:
U.S. Steel has reported nine consecutive quarters of falling profits amid a global downturn in the steel industry.
And that has come while protective tariffs from the last two administrations have been in force — an attempt to level the price playing field against none other than China who dominates the steel production industry today.
Over a year ago, however, a major suitor turned up knocking on US Steel’s door. Nippon Steel (NPSCY), Japan’s largest steel producer made an overture to acquire US Steel and in December 2023 a tentative deal was announced.
Nippon Steel bid $14.9 billion for a company that’s only worth $6.9 billion today. They also offered, “a last-ditch gambit to give the U.S. government veto power over changes to output.”
No luck…
Just last week, President Biden officially blocked the acquisition citing national security concerns. (Full disclosure: President-Elect Trump promised to do the same thing.)
US Steel stock dropped 6.5% on the news. Over the past year, the company is down over 36%.
It’s understandable that the US would want to protect one of its key industries from foreign ownership.
The problem (and sad reality) is the steel industry is not so important in the US anymore.
The other reality is that Japan is a close ally of the US, not an adversary.
Over the past decades, the US has seen the vast majority of its steel producing capability offshore itself overseas. (Not unlike the semiconductor industry.)
Another reality is that to reclaim it today, would be a tall, if not impossible, order.
Given the importance of the industry, maybe some form of “ally-shoring” would be a viable solution to rebuild an industry…