Introduction
President Donald Trump’s announcement that he will allow a “partnership” to be formed between Nippon Steel and US Steel is a logical policy evolution in the administration’s pursuit of a steady supply of domestically produced steel. The term partnership is abnormal in such mergers and acquisitions. But it is a significant development that the president has acknowledged how Nippon Steel’s investment will benefit the United States’ economy and national security.
President Trump at one point publicly questioned whether the deal was necessary for US Steel’s survival. This implies that he believed at the time that tariffs alone could make US Steel’s economic position sustainable by insulating the company from the pressures of foreign competition.
The president’s decision to allow the deal to move forward demonstrates his realization that steel tariffs may provide short-term relief but are unlikely to address the broader and more complex challenges US Steel and other American steel companies face. The sector is grappling with significant structural issues including global overcapacity, foreign competitors’ adoption of new production technologies, and shifting demand patterns. These factors shrink profit margins and threaten the long-term sustainability of American steel producers.
US Steel is especially vulnerable in this environment due to its mills’ continued reliance on the traditional integrated blast furnace process. These facilities are generally more capital- and labor-intensive than modern electric arc furnace (EAF) “mini mills,” which have become more prevalent in the industry due to their cost efficiency and operational flexibility.
The inherent limitations of tariffs were another flaw in the administration’s previous strategy. First, they can be politically difficult to sustain. Moreover, tariffs tend to raise costs for industries that rely on steel as an input, potentially harming US manufacturers and weakening overall industrial competitiveness. Finally, retaliatory tariffs could further erode intended benefits, intensify trade tensions, and contribute to greater economic uncertainty. Therefore, tariffs were unlikely to secure US Steel’s long-term viability unless the company subsequently made broader strategic investments in innovation and modernization.
A positive effect of tariffs is that they encourage foreign direct investment (FDI). Nippon Steel officials have admitted that their persistence in attempting to purchase US Steel is a direct consequence of President Trump’s use of tariffs to protect the US steel industry. Nippon Steel’s investment will now provide a crucial windfall of funding and technology to the iconic American steel company. The deal also serves Nippon Steel’s ambition to expand its global footprint. In particular, the Japanese firm seeks to compete with companies such as the Baowu Steel Group, a Chinese state-owned enterprise that is accused of stealing technology from companies like US Steel.
Moreover, and contrary to what the Committee on Foreign Investment in the United States (CFIUS) reportedly concluded during its first review of the deal under the Biden administration, Nippon’s investment will contribute to US national security by helping the country maintain a strong, domestic-based steel industry.
Challenges and the US Response
American steel companies face significant economic challenges due to Chinese overproduction, which floods global markets with low-cost steel. In 2024, global steel production was estimated at 1.9 billion metric tons, with China accounting for over 50 percent of this figure. This Chinese steel is often sold below production costs due to government subsidies, driving prices down further. As a result, US producers are unable to compete on price while maintaining profitability. American firms therefore have to grapple with reduced market share, squeezed profit margins, and pressure to cut costs, which can lead to layoffs and plant closures. Additionally, the influx of cheap steel undermines investments in innovation and infrastructure. American steel companies struggle to justify capital expenditures in a market distorted by China’s excess capacity.
In response, President Trump issued Proclamation 9705 on March 18, 2018. This executive order used presidential authority under Section 232 of the Trade Expansion Act of 1962 to place 25 percent tariffs on most imported steel. But these tariffs did not increase investors’ confidence in US Steel. By the end of 2018, the value of US Steel stock had been cut in half. Higher costs reduced the demand for American-made steel, as manufacturers who used steel had to decide whether to absorb the costs themselves or pass them on to consumers, reducing competitiveness either way. President Trump’s steel tariff successfully reduced direct imports from China to less than 2 percent of US steel imports. But the policy failed to block Chinese steel from being rerouted through countries like Vietnam or Mexico to evade duties, a loophole President Trump has recently sought to close.
Even if the president succeeds, tariffs likely cannot solve US Steel’s issues. Inherent uncertainty around tariffs means these measures will struggle to reassure potential investors. And US Steel would still need to make significant investments to modernize its facilities before it can fully take advantage of increased demand.
Why Tariffs Alone Cannot Save US Steel
Tariffs are unstable and politically vulnerable, so they cannot provide investors sufficient security in capital-intensive industries like steel production. Even with favorable tariffs, companies like US Steel cannot attract the private investment necessary to modernize their facilities, expand their production capacity, or even maintain their operations. In April 2021, for example, US Steel announced it was canceling plans to invest over $1 billion in upgrades to the Mon Valley Works steel mill.
There is also no guarantee that a specific tariff, such as one on steel imports, will persist over time. This is in part because tariffs risk facing opposition from numerous groups, including domestic industry, foreign governments, and the judiciary. And even when tariffs are maintained, they are often diluted by exemptions and carve-outs that significantly reduce their intended impact.
Domestic Challenges
Tariffs provoke strong responses from domestic industry because they create significant ripple effects throughout the economy. Steel tariffs are no exception. By raising the cost of imported steel, tariffs increase input costs for American manufacturers that depend heavily on steel like automotive, appliance, and construction firms. The economic harm to these industries could even outweigh the benefit to domestic steel producers. For every job tariffs preserve in steel manufacturing, they may jeopardize several others in steel-consuming industries by raising companies’ production costs and reducing their competitiveness.
Trade Challenges
Trade partners often respond to tariffs by imposing retaliatory duties on American goods, creating a cycle of protectionism that can hurt the economies of both nations. For example, after President Trump imposed the 2018 steel tariffs, the European Union, Canada, and China levied tariffs on US agricultural and manufactured goods. Following the president’s most recent steel tariffs, India, Japan, and the United Kingdom proposed retaliatory actions in the World Trade Organization (WTO).
These combined pressures often outweigh the benefits of keeping tariffs in place. In 2002, President George W. Bush imposed tariffs as high as 30 percent on certain types of steel. But facing domestic pushback and a possible trade war with Europe, he repealed the tariffs 21 months later.
President Trump’s 2018 steel tariffs have proven more resilient. President Joe Biden maintained the tariffs despite his broad disagreements with his predecessor. Nevertheless, Presidents Trump and Biden both granted many countries at least partial exemptions, often in exchange for quotas on the amount of duty-free steel allowed to be exported to the US. By February 2025, 10 nations had negotiated mitigations of tariffs on their steel imports into the US. That same month, President Trump issued an executive order repealing all past exemptions. He concurrently asserted that he will not issue more in the future. Yet the preliminary trade deal he recently struck with the UK will reportedly replace tariffs on British steel with tariff rate quotas.
Legal Challenges
Legal challenges over presidential authorities could further destabilize the Trump administration’s tariffs. The US Constitution assigns the power to “lay and collect taxes, duties, imposts, and excises,” and to “regulate commerce with foreign nations” to Congress—not the president. This raises serious questions about the constitutionality of executive-driven tariffs. Since the 1920s, Congress has, through legislation, largely delegated its tariff power to the executive branch. But the legislation typically either (a) restricts the scope of the president’s tariff authority to situations like protecting national security or countering economic dumping or (b) limits the tariffs’ duration.
While Supreme Court precedent requires congressional delegations of legislative authority to include an “intelligible principle” that guides and constrains the president’s exercise of power, the statutory language governing tariff authority remains open to interpretation. US courts have historically been reluctant to invalidate presidential trade actions. But this ambiguity has opened the door for legal challenges, which have become more common in recent years. President Trump’s steel tariffs faced multiple unsuccessful challenges during his first term. Now, his use of the International Emergency Economic Powers Act (IEEPA) to levy a variety of tariffs faces challenges in federal district courts and in the Court of International Trade (CIT). On May 28, the CIT issued a ruling overturning the president’s IEEPA tariffs, though the administration is appealing the decision as of this writing.
Since President Trump’s first term, the Supreme Court has been increasingly willing to impose clearer constitutional boundaries around executive branch authorities. There are also emerging signals that the court may, for the first time in nearly a century, reconsider the scope of the powers that Congress can delegate to the executive—potentially including the authority to impose tariffs.
Nippon Steel Investment and Technology
Nippon Steel brings both financial resources and cutting-edge technological capabilities that can help address the structural problems US Steel faces.
Reuters recently reported that the Japanese firm will make up to $4 billion of greenfield investment in a new steel plant in addition to investing over $11 billion to upgrade US Steel’s existing facilities. This is a significant step for revitalizing America’s steel industry.
But revitalizing US Steel also demands the integration of advanced steelmaking technologies. Nippon Steel also provides a strategic advantage in this regard. To fully appreciate the significance of the innovations Nippon Steel offers, it is important to understand key aspects of the steelmaking process.
Steel production begins with iron ore, which contains both iron and oxygen. To produce steel, the oxygen must be removed—a process traditionally achieved using carbon derived from coke, a coal-based material. In this chemical reaction, the carbon bonds with the oxygen to form carbon dioxide, leaving purified iron behind.
Advancements that make this process more efficient and cost-effective have driven steelmaking’s evolution. Companies that failed to adopt new technologies eventually became uncompetitive, lost market share, and were forced to shut down. These closures often had devastating effects on workers and local communities. In cities like Youngstown, Ohio, and Pittsburgh, Pennsylvania, the steel industry’s collapse in the late 1970s and early 1980s was not solely due to high labor costs. It was also the result of US firms’ failure to modernize their production methods.
US Steel primarily operates integrated mills that rely on blast furnace technology. In these facilities, iron ore is converted into pig iron through a high-temperature reduction process using coke. Pig iron, an intermediate product, is then further refined—typically in a basic oxygen furnace—into finished steel. These paired processes are what differentiate an integrated mill.
The late twentieth century saw the emergence of mini mills, which use EAFs to melt recycled scrap steel. Because the raw material has already undergone the initial refining process, mini mills do not require blast furnaces. This shift brought major cost advantages: blast furnaces are capital-intensive, must operate continuously to remain efficient, and require costly relining every 15 to 20 years. Therefore, steelmakers, at least in the US, increasingly turned to electric arc furnace mills for steel production. Today, electric arc furnaces produce about 70 percent of steel made in the US, whereas in China integrated mills produce approximately 90 percent of steel.
US Steel was slow to adopt EAF technology, choosing instead to maintain its reliance on integrated mills. But Nippon Steel’s EAF expertise can help US Steel. In early 2021, US Steel finalized its purchase of Big River Steel, an EAF mill in Arkansas. Nippon Steel is researching how to use hydrogen instead of natural gas in direct reduction furnaces to create something called direct reduced iron (DRI), which can improve the grade of steel produced by an EAF. Currently only rare, high-grade iron ore can be used in DRI production. Nippon Steel’s research aims to allow DRI furnaces to use more common, lower-grade iron ore.
This is not to say that US Steel’s integrated facilities are obsolete. First, the global supply of scrap steel—the primary input for EAFs—is, after all, finite. As more countries shift toward EAF-based production, the availability of scrap decreases, intensifying competition for this resource and reducing the production of virgin steel. Moreover, EAF-produced steel is unsuitable for some applications, particularly those requiring high-grade or specialty steel.
Second, Nippon Steel developed techniques for extending the time between the longevity of blast furnace linings. Nippon Steel has committed itself to either relining or making major repairs to six of US Steel’s blast furnaces by 2030.
Finally, integrated steel mills also emit a great deal of carbon dioxide into the atmosphere. Environmental regulations and the global push for decarbonization therefore pose significant challenges to steel companies. Nippon Steel has focused on decarbonizing the steel production processby replacing some of the coke used in the blast furnace with hydrogen created during the steelmaking process. In February 2024, Nippon Steel announced that it had achieved a 33 percent reduction in carbon dioxide emissions in a test furnace.
Conclusion
President Trump’s decision to allow Nippon Steel to partner with US Steel demonstrates that the administration has accepted the shortcomings of tariffs as a trade policy. While tariffs provide temporary relief from unfair foreign competition, they cannot address the fundamental challenges confronting the US steel industry. A stable domestic steel supply is vital for US security and economic independence. But protectionist measures alone cannot secure the sustained investment, technological advancement, and operational upgrades necessary to maintain this supply. Nippon Steel’s investment in US Steel, spurred by tariffs, offers the Trump administration a unique chance to bolster this critical industry with significant capital and cutting-edge steelmaking technology. This deal should preserve essential production capacity, modernize outdated facilities, and ensure American steel remains competitive.