Moneybeat: Men of steel

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

DAVID BAHNSEN: Well, good morning, Nick. Good to be with you.

EICHER: I know you’ve been following this, President Biden’s move to block the sale of U.S. Steel to Nippon Steel of Japan. The two companies had agreed on a $14.1 billion dollar sale price, but the White House said no last week. The steelworkers’ union lobbied hard to get the president to do what he did. The Wall Street Journal blasted the move: calling it political protectionism disguised as security policy. And by the way, President-elect Trump had already said if Biden didn’t block the sale, he would’ve. So what do you think?

BAHNSEN: You know, it’s interesting, this is a bipartisan situation. It happens to be the same position that President-elect Trump has taken as well. You don’t often get a chance to agree with both presidents often, but you really don’t get a chance to disagree with both very often either. This is one where I just vehemently disagree.

But the broader point is that it is opening a door to something that I frankly didn’t believe I would see—which is everybody flat-out admitting that this is an ally nation of the United States. There is not an adversarial issue at play, but the mere existence of foreign capital coming into a U.S.-based company that desperately needs the money. By not getting it, a significant number of jobs will be lost. But also U.S. pre-eminence in steel is going to go down even further than it has over the last several decades.

So, why would President Biden block this? Why does President Trump oppose this? Well, I think it’s the politics of it, the headline that there’s a foreign country taking an interest in something as iconic as U.S. Steel. So, there’s a nationalistic and populist play behind it.

But it isn’t economic.

The U.S. capital markets, Nick, thrive because we have something that so many countries don’t have—which is mobility of capital. Our money can leave and go to other places. Money can come in and be invested in the U.S. We can always be rationally pursuing the best use of capital, but this is an effort to block free flight of capital, in an instance where there’s just not even a pretense of national-security concern.

I certainly agree that the U.S has a vested interest in protecting security interests. I think everybody is focused right now on not allowing our supply chain to be held captive by other countries, let alone adversarial ones.

But that’s just not on the table here at all. And so that’s a big story to me, not just for what it represents with this deal, but what it represents for the future.

EICHER: Let’s talk about that, David. What do you think this portends?

BAHNSEN: Yeah, I think this portends more in this sense—what’s the limiting principle now? What is the basis for U.S. jurisdiction or oversight or hesitation about such deals?

If we want to explicitly state that we just simply don’t want foreign capital coming into the U.S. investment, that’s a stunning admission. It’s totally outside of the precedent of American capital markets.

In this case, the one solace I would take is that I don’t think the politics will generally lend themselves to such a view. In this case they do because it’s steel. There’s a lot of union jobs, it’s blue collar, and there’s a sort of sentimentality that both the Biden administration that has attempted over the years to be cozy with unions. (The Trump administration that has made great headway with workers, too.)

But I want to be clear. I’m not stating my opposition to what they’ve done and blocking the deal because I’m not pro-worker. It’s because I am pro-worker.

U.S. Steel simply does not have the capital to invest in desperately needed upgrades to its facilities and expansion of its steel-production capacity. There is a reason that a foreign company is willing to put capital in. I believe that in this case, it’s a dangerous precedent not to allow it in.

Are we really saying that just simply the existence of foreign capital is a reason to block a deal? We’ve never said that before, and I think it portends something very negative for the future if we start saying it now.

EICHER: I was thinking as you were talking that the Supreme Court is going to hear a case involving TikTok, and the law Congress approved that would effectively require the sale of TikTok—divestiture—to protect American users from having their online data in the hands of the Chinese government. Do you make a distinction between something like that and what we’ve been talking about with Nippon Steel and U.S. Steel: The sale of U.S. Steel?

BAHNSEN: I certainly make a distinction. But isn’t it interesting that President Trump doesn’t? 


You know, President Trump wants to block an ally nation having an equity interest in U.S. Steel with all kinds of commitments to protecting U.S. union jobs. But he’s also against enforcing the divestiture law affecting TikTok, which is quite literally connected to the Chinese Communist Party.

Now, that’s not to say that I favor a forced shutdown of TikTok. I’m making a distinction theoretically that at least there are prima-facie grounds for scrutinizing that because there’s so much data access that an adversarial nation has to U.S.-oriented data.

I believe there probably is a way that that could be rectified apart from forced divestiture. I get concerned when we take a heavy hand because the real beneficiary of something like forcing a shutdown of TikTok becomes other companies. It also opens a door to some crony capitalism worries I have.

But still, your point is a very good one that at least there, the line of reasoning would be protection of U.S. interests from a foreign adversary. Nobody can possibly make that claim in the situation with Nippon Steel.

So, yeah, the Supreme Court is really just going to be hearing whether or not they want to stay the implementation of the law because what Congress passed happens to go into effect right before the Trump inauguration. The incoming administration is basically just looking for a little leeway to try to go cut a different deal. That’s going to be an interesting situation if the Supreme Court allows it to kind of linger a bit longer, and then what exactly the Trump administration strategy will be to work out a better deal.

But you bring up a very great point that philosophically these two things should be looked at differently. I think there should be more scrutiny on a Chinese TikTok deal and much less scrutiny on a Japanese steel deal.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. If you’re not getting David’s Dividend Café maybe you’ll want to make a resolution to do that, because on Friday, he’s releasing his white paper looking ahead to the challenges and opportunities in the economy in the new year. You can get it free at dividendcafe.com. And next week, after I get a chance to go through it, we’ll talk about it with David. So you have that to look forward to. David, as always, thanks!

BAHNSEN: Thanks so much, Nick. Great to be with you.

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