President-elect Donald Trump has reaffirmed his commitment to block Japanese steelmaker Nippon Steel’s (JP:5401) proposed acquisition of U.S. Steel (X) after calling it a threat to national security and economic interests. Instead, Trump pledged to use tax incentives and tariffs to help U.S. Steel’s operations and ensure it remains under American control. However, investors were not thrilled about this development, as shares sank by more than 8% at the time of writing.
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Despite the political backlash, Nippon Steel and U.S. Steel continue to argue that the deal would strengthen the U.S. steel industry by modernizing operations and increasing investments. Indeed, Nippon has committed to investing at least $1.4 billion in U.S. Steel’s facilities while avoiding layoffs or plant closures during the term of the current labor agreement.
The Japanese firm also promised not to import steel that would compete with U.S. Steel’s operations. Still, the United Steelworkers union strongly opposes the acquisition due to long-term risks to jobs and national security concerns. This is because the promises that Nippon is making apply only to the current labor agreement. As a result, there is nothing really stopping it from laying off workers or closing plants when it is time to renegotiate.
Federal Government’s Objections May Be Politically Motivated
Interestingly, the deal has sparked significant bipartisan opposition in Congress, with critics arguing that the federal government’s objections may be politically motivated. But that has not stopped Nippon Steel’s vice chairman, Takahiro Mori, from lobbying lawmakers and local officials in Pittsburgh and Washington by promising increased investments and addressing concerns.
However, Trump’s plan to use tariffs and tax incentives could be enough to improve U.S. Steel’s operations. Indeed, analysts note that U.S. Steel has benefited from years of protectionist tariffs that have revitalized the domestic steel industry. Therefore, improved measures could be all that the company needs, which would reduce the need for foreign investment.
Is X Stock a Buy or Sell?
Turning to Wall Street, analysts have a Strong Buy consensus rating on X stock based on three Buys, one Hold, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 3% rally in its share price over the past year, the average X price target of $45.25 per share implies 20.6% upside potential.
